Saving for your children

All parents strive to give their children a good start in life. This includes making sure that the child gets love, food and motivation to become the best version of themselves. It is also important to try to give your children a good financial start to their lives. To do this you should start saving money for your child as early as possible. The earlier you start saving the more money your children will have when they move out and start their lives on their own. Interest on interest means that every dollar you save when your child is small will be worth several times more when they are 18. Ideally, you should start saving for your child as soon as they are born.

Try to do a larger one-time deposit to your child’s savings account during their first year. I know that this can be hard to do since it is expensive to have a baby but the benefits of doing so are huge if you are able to do so. Ask grandparents to provide funds to this account instead of other presents they might want to give the child. A very young child will not appreciate the gifts but the money can make a large difference for the child once they grow older. The gifts can wait until the child is a few years older and can appreciate them.

Avoid regular bank accounts

When you save money for your children you should strive to optimize the return and minimize the risk. You should avoid options that give a very low return as well as high-risk alternatives. Your goal is the money should grow to make sure that your child gets a good start in life when they leave home.

Many parents choose to place their children’s money in an interest-bearing account. To do so feels like a save option since you know that the money will be there when the child needs them. It is true that savings accounts are a save option but it also true that they are a terrible option for your children’s savings. A savings account is a good option if you think you are going to need the money within the next two years but they are a terrible option for your child’s money. Your child’s savings is money that should remain invested for the next 20 years. The long investment period allows you to invest the money in the stock market and earn a lot higher returns at virtually no risk. Money that has been left on the stock market for 20 years have historically always done better than money in a savings account. The long investment period allows the value to rebound even if there is a stock market crash or two during the investment period.

Investing in high-quality blue-chip stock allows you to create a low-risk investment portfolio hat will earn your children a good return. The average return on the NYSE during the last century has been a little more than 10% a year.

This means that every dollar you invest in a low-risk stock when your child is born is likely to be worth more than 5 dollars when the child is 18.

The very low-interest rate that you will get in a savings account means that your child’s money will only be worth marginally more after 18 years.

Investing the money in the stock market is not risk-free but it has historically always been a wastly better alternative than leaving the money in a savings account.

Avoid high-risk investments

Avoid investing your child’s money in high-risk financial instruments. You should avoid all types of high-risk stock and growth companies and focus your investing in so-called blue-chip stocks. Investing successfully in high-risk stock such as penny stocks take a lot of effort and there is a very high risk of failure. Check out penny stocks list. The investment you choose for your child should require very little oversight and have a very low risk of failure. Ideally, you should choose stocks that you can buy when the child is born and then keep until your child is grown. Your goal should be to invest in companies that have been around for a long time and that will be around for decades to come.

You should never invest i your children money in any high-risk financial instruments such as forex, CFD:s, or binary options. All these instruments are high-risk instruments that are more suitable for day trading than long-term investing. You should never speculate using your child’s money. It is meant to be kept safe to improve their lives. Not for you to gamble with.

Optimize returns

The bulk of your child’s savings should be invested safely but it can be worth to invest a small portion of the savings (10% or less) into investments with a higher risk/return profile. You should still avoid speculative investments such as forex and CFDs.

Copy-trading can be a good option if you want to invest a small percentage of your child’s money into investments with a higher risk-return ratio. Find a skilled stock trader that you can choose to copy. This will allow your child to earn a higher return than active trading can achieve even if you know little to nothing about stocks. Trades will be made for your children to account completely automatically. You just need to login once in a while to check the progress. It is good to re-evaluate which trader you choose to copy each year.

Using copy trading can achieve high returns for your child and it is not the end of the world if the trader ends up losing money since you only invested a small percentage of your child’s money. The investment is small enough not to hurt your child’s savings if they fail but large enough to give a very good return if they succeed.

Restrict access to the money

You should always restrict access to your child’s money. No one should be allowed to withdraw the money until the child turns 18 or whatever age you want the child to get access to the money. !8 can often be too young and I would personally recommend locking the money until the child is 25. This allows the money to grow a lot more and allow your child to grow more mature before they get the money.

The reason that you should lock the money from everyone, including yourself, is to make sure that the money is not misspent before the child gets them. By locking to money you remove any temptation to borrow money from your child.

Another reason that you should lock the money away is that it makes it very easy to say no if your child asks you for money from their savings for something they want to buy. You do not have to provide a reason why they can’t get money and you do not have to see them get disappointed when you say no. You can simply tell them the truth. It is not possible to withdraw that money until they are 18. You are not the bad guy. You can honestly tell them that you want to help them but it is not possible to withdraw the money.

Saving for your children

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