How To Invest in shares for your kids

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How To Invest in shares for your kids

itrust_invest August 23, 2019

Parents often set aside a few hundred dollars in a bank account when their child is born.

Grandparents, godparents and other relatives will contribute, and parents will let that money sit in a term deposit to accumulate interest over time.

Also read: To give or not to give? Pocket money splits Aussie parents

Also read: How to give your kid a chance to be a great investor

Also read: 7 crucial money lessons every parent must teach their child

 

But Michael Ashton, CEO of children’s investing platform iTrust Invest, told Yahoo Finance that with interest rates at an all-time low, leaving money in a bank account isn’t going to give your child the best value.

“We live in a world of record low interest rates,” Ashton told Yahoo Finance.

“If you’re saving into a bank account, 80 per cent of accounts are losing money because they get overtaken on inflation.”

“Whereas there’s virtually no asset class that could outperform equities over the long term – much higher than you could ever get from a bank account.”

According to the iTrust chief putting $1,000 in a bank account for 10 years will only see it turn into $1,397, but putting it into equities can reap anywhere between $1,692 and $2,119, and $3,395 if invested in a diversified fund like Magellan Global.

 

How much money should I invest for my child?

In terms of how much money to set aside into an investment, Ashton said every circumstance is different.

“What we’ve noticed [at iTrust] is grandparents tend to put in the most, around $1,000, when a child is born. Parents are a little bit less, at around $500, and godparents tend to be around $1,000.”

“But, most people tend to start with $1,000 and then they’ll set up $10 per week or $50 per month recurring deposits of that nature.”

And if you’re wanting to help your child get onto the property ladder in the future, the more you can add to the investment, the better.

“The earlier you start the more compounding [interest] you get,” he said. “Putting in $1,000 when the child is born is worth four to five times as much as if you put it in when the child is seven or eight years old, because the compound interest accelerates the interest.”

 

Where can I start investing?

Ashton said saving up a few thousand dollars and heading to a broker can be an avenue, but warns it’s tough – and expensive – to invest for a child that way.

Some funds charge a minimum $500, or even $20,000 initial investment, and there are ongoing management fees and trading fees that parents need to be wary of too.

Parents would also need to invest in their own name, and then transfer the funds to their children when they come of age – which also comes with a fee.

“That’s why we saw the niche for our product [iTrust],” he said.

 

Are there any risks?

While investing will get you more money, it also comes with a little more risk.

“If you buy individual shares, the issue is whether, over the long term, they’ll always exist,” the iTrust CEO said.

For example, back in the day things like ‘National Mutual’ and ‘FAI’ used to be the big blue chips in Australia, according to Ashton, but they don’t exist anymore.

“Also, things like AMP, which 10 years ago would’ve been good as gold and you would’ve put your retirement fund in there, has now crashed through the floor.”

But if you steer clear of individual shares, you can alleviate that risk.

“I personally wouldn’t buy five shares, dump the money and let it sit there for 10 years for a child, because markets could erode.

“Kodak was about $150 a share and now it’s $3. You never know what’s going to happen.”

But managed funds and index funds on the other hand, Ashton said, regularly update their holdings depending on performance.

Teaching Kids About Savings And Investing, The Right Way, At A Young Age

itrust_invest June 21, 2019

Teaching our children about money, how to spend it, budget, save and invest is essential to giving them the right skills and healthy habits so they can meet the financial challenges of adulthood.

We need to start these lessons about savings and investment from an early age, because it has been proven that what they learn as kids will follow them into later life, and we all want them to have healthy financial habits for life. But how do we do it? What do we need to do to help our children have a life filled with sensible, supportive and successful financial management?

Introducing preschoolers to money

It’s never too early or too late to start working with your kids on forming healthy habits.The following are a range of techniques you can use to teach preschoolers and the concept of money:

1. Replace the piggy bank with a clear jar for savings

Piggy banks look great, but they do not give kids a visual representation of savings growth. When using a clear jar instead of a piggy bank, it makes savings visual which is their key learning sense.

2. Set a good example

Research by Cambridge University found that children form their relationship and habits with money by the age of 7; like with many other behaviours and traits, they learn directly from observing their parents. It is important when they are watching not to tap the plastic casually without reviewing the bill, and conversely, do not argue about spending, especially with your spouse as there is a high chance they will carry this behaviour into adulthood.

3. Demonstrate the value of money

When a child see’s something they desire, tell them they can have it, but will have to sacrifice something else to get it. This demonstrates value and is much easier than giving a lecture.

Lessons for pre-teens

By this stage they have a basic grasp of money and its value, now time to instil some good habits.

1. Set goals

Help your kids create goals to satisfy their desires, and then work with them to achieve these goals.

2. Pre-purchase research

This has become a lot easier in the online age and is great for all parties involved. When your child asks you for something, ask them to compile the options available, and then find the best price on the option they want. You can also reward them for finding the best price available.

3. Identify peripheral costs

To a child going to the movies may just look like it costs ~$18.To teach them the full value it is important to make them identify all the peripheral costs involved, eg. parking, popcorn, drinks, parents tickets etc. Once they know the full cost of things, they will analyse activities in more depth.

4. Shopping lists

Always create a shopping list before going to the store and ask your kids to help you identify necessary items for the home- and then when you are at the shops: stick to it!! This may be harder for you than the kids, but it is worthwhile!

Teenagers

Now they have well established habits, they can be taught about investing and making their savings grow!

1. How do shares work

This is more than just a money lesson, this is a lesson about how business and how the world works. As an exercise, give them a phantom trading account where they can pick stocks without money, and see what grows and what does not. There are some great resources for this at Investopedia and from the government https://www.moneysmart.gov.au/

2. Compounding interest

To quote the late great Albert Einstein, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it”. Or summed up more simply by Paul Keating, “Compound interest is earnings on earnings on earnings”. This is a really great concept to introduce children to because it creates a tangible reason to save, it can be taught through basic maths equations and visual representations. For example, the chart below shows the growth in the Magellan Global Fund that iTrust includes as its primary investment, and how an increased return each year really adds up over time:


In finishing, just remember what you do is more important than what you say, keep money tension talks away from the kids, and don’t forget to stress the importance of giving.

About the Author: Michael Ashton operates iTrust Invest https://www.itrustinvest.com, which enables family and friends to send investment gift cards, and makes it simple and cheap for parents to establish investment trust accounts.

Kids Savings Accounts: Good for kids or good for the bank?​

itrust_invest June 12, 2019

Saving or Spending?


First we should differentiate between kids accounts for spending, and kids accounts for saving; as they both have very different outcomes.


Kids savings accounts for spending are essentially adult products tweaked for low value child usage. They are a very cumbersome way to manage a child’s pocket money, and have very little educational purpose. These days there are a range of speciality products for children that take advantage of the transition to the cashless society, which allow parent to control the spending of their children through a managed debit card.


People think so called high interest savings accounts for kids are good vehicles for long term savings, because they come from big banks that appear to be trustworthy. But according to Warren Buffett,  “Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.” Many of these accounts barely outperform the inflation rate, and overtime if the fee’s can actually result in a lower actual value than when started. In short, The Buff says No to savings accounts!


Very harsh rules


Some of these products offer inducements to get people to sign up, but often there are murky hidden rules that take away the benefits for the most minor infractions. An example is the Westpac “Bump Account”, where they offer a $200 bonus for following a very strict savings plan for 16 years, which can be lost for very minor reasons. They offer a slightly higher interest rate, but to get this you have to make a contribution every month, and missing one contribution will result in loss of the higher interest rate and the cash bonus. Worst of all, $200 in 16 years will have a significantly lower value than it does today. Learn more on why they win the shonky award here: https://www.choice.com.au/shonky-awards/hall-of-shame/shonkys-2017/westpac-bump-savings


Opportunity cost


By choosing a high interest savings account over other investment products, you can actually loose the benefits of the better investment. The table below shows the difference in investment results over a 10 year period:



In short, savings accounts are very much in the favour of the bank, giving a little bonus in exchange for a lifetime customer of credit cards and loans is a very bad deal. Lastly, the banks claims that they are teaching a child how to save border on the ridiculous, as put by Choice Magazine, “Claims of teaching “the importance of saving at a young age” abound, but getting ripped off by a bank is a hard way for a child to learn a lesson.

Baby and Child Gifts – Winning The Giving Stakes!

itrust_invest May 14, 2019
When a baby comes along – it’s a wonderful thing, especially for those family and friends you love. Their happiness is intoxicating, and for many of us, buying a baby gift is how we celebrate the new arrival.

The hard questions

So, what to get? What baby gift is both useful and lovely? What child gift won’t end up as landfill? What child gift won’t they grow out of or what baby or child gift won’t they already have? And finally, what baby or child gift will both the parents love as much as the baby or child?

Now, of course I am biased because I run a business that creates investment gift cards for baby and child gifts – but I am not alone in asking the above questions which were instrumental in why we started iTrust.

Teddy bears…so much more than meets the eye

Take the adorable teddy bear. It’s a safe option, every child needs at least one and you can’t go wrong on the cuteness stakes. But, if your bear isn’t the can’t live without (read sleep, feed, travel, play) favourite teddy bear then your bear is relegated to a toy box. In it goes, alongside all the other bears and soft toys that only come up for air when the toy box is turned upside down by a parent trying to encourage their child to play on their own so they can have 5 minutes to get the jobs done! (I watch my sister do it with her kids all the time…it’s hit and miss on its effectiveness to distract my niece.)  

Sure that in addition to the chosen one, my nieces have a few fluffy friends that get to join in dinner time and watch Peppa Pig, but they are also chewed by the dogs and drowned in dribbles of yogurt and lord knows what else. Again it’s cute for a while, until you start to wonder, what bacteria is that bear harbouring!

Roll forward 20 years, the kids have moved on, it’s no longer cool to take teddy everywhere. What to do? It’s taken up space for so long, it feels disrespectful to throw it out – think of all the natural resources it took to make the bear in the first place and now we are going to put it in the bin, out of sight, out of mind decomposing in a giant landfill facility, somewhere that isn’t in my backyard.   

The savy stock-picker

So with a teddy off the list and thinking about the future, what about buying shares for a baby or child? Great idea in principle, but there are some significant drawbacks in the initial required investment, management (have you ever tried to transfer a share from one name to another…#brainexplosion) and then lordy lord – what to buy? What will still be around in 20 years and doing well? The once blue chip AMP is a good example of why that is difficult.

Supporting every parents dream that their child is a genius

OK, so appreciating my skill isn’t picking winning stocks on a 20 year time horizon, I come back to now, and what about a toy that will help them become a stock picker in the future? Buying a plastic toy as a gift with a implied educational value demonstrates your interest in the child’s future, but the actual value may be lower than you think and environmental cost a lot higher. Plastic is essentially processed oil, which is what really ramps up the carbon footprint of a child’s birthday party. And to make matters worse, these gifts are relatively age appropriate and will add to growing mounds of landfill or plastics flooding our oceans in the not too distant future. Products like this do become worthwhile if your goal is to drive the parents nuts with unwanted clutter in their already overflowing houses – just ask my sister who is having additional cupboards built to store all the *rap that has taken over her living room.

The trusted bank account

Sticking money in a bank account is an old tried and tested gift for babies and children, but we would advise you go with the share option over this low return product. The banks know people like this as an idea, and they have capitalised by making child specific products; which have won the Shonkys Financial Product awards from Choice Magazine, dont just take our word for it! An example of how bad some of these products are, is that one bank makes monthly deposits compulsory to receive a slightly higher than normal interest rate, but if you miss one deposit in a 16 year period, you lose all benefits!

Our solution…valuable now, valuable in the future, environmentally friendly, clutter free investment in a baby or child’s future

Taking all these factors into account, and the desire to create a gift for a baby with real long term value, we developed the iTrust investment platform which overcomes many of the traditional issues associated with investment gifting for babies and children. We make high quality funds available that would traditionally need a $20,000-$50,000 minimum investment, accessible for as little as $10. The investment market was not made to deal with small amounts, but our platform is; if you are investing increments of $250,000 at a time, then there are better products for you than ours, but when it comes to small amount investing we are bench marking ourselves at the very low fee end of the scale. As far as gifting to a baby and child is concerned, we believe our product makes and investment gift simpler than any other platform with the gift cards, and child profile pages which parents can share like a gofundme page. Below is an example of the performance of different asset classes, which underpins our decision to choose Magellan: