Have you been thinking about investing for your kids?
All parents, grandparents and guardians have one thing in common: wanting the best for their kids.
Investing on behalf of your children can give them a great financial head start in life and help build a nest egg for their early adulthood. Whether it’s school, a gap year or a first-home deposit down the track, it can help provide opportunities for upward social and economic mobility.
Start as early as you can!
As minors have more time on their side, the benefits from higher compounding growth from shares will be greater, despite the short-term volatility associated with having an exposure to share markets.
Investing early, in combination with regular ongoing contributions and compounding returns, can add up to a decent amount of money. Whether it’s school, a gap year or a first-home deposit down the track.
Below is a chart showing the past 20 years of performance from the Vanguard Australian Shares Managed Fund (1)
This chart illustrates the difference in investment balance and growth, having started investing from 2002 rather than 2012, highlighting the benefit of starting a child’s investment plan as early as possible (2).
Beyond the monetary gain…
Involving your children in the investment process is incredibly valuable, educating them on:
- The fundamentals of investing.
- Importance of having a long-term investment strategy.
- The power of compounding returns.
- Not getting swayed by short-term market fluctuations.
The benefits of investing on behalf of your children doesn’t just come down to monetary gain. The exposure to knowledge, lessons and skills is invaluable, supporting them as they move into adulthood and start building their personal wealth.
The power of starting early isn’t just about bigger returns — it’s about setting your child up for lifelong financial success. By involving them in the investment journey, you’re not only growing their wealth but also teaching them invaluable skills: patience, strategy, and the magic of compounding. These lessons will stick with them far beyond childhood, giving them the confidence to navigate their own financial future. After all, the best investment you can make is in their knowledge and mindset!
FOOTNOTES:
- Kaye T (2022) Investing for your kids, Vanguard Australia Personal Investor, accessed 27 February 2024.
- Returns assume that all fund distributions were reinvested, and that the investor could afford ongoing monthly contributions of $250 for 20 years. Returns are after management fees but before tax.
DISCLOSURE: All information in this article is general in nature – see our full disclaimer.
