$100k headstart for the kids
I’m a 32-year-old first-time mum who’d like to gift at least $100,000 as a financial headstart on my child’s 25th birthday. What options would provide the best returns (shares, bank cash, bonds, etc) with an initial $10,000 investment, plus $200 every month? Ideally I’d like to do this for any future (two or three) kids as well. Overall I’m in a good financial position with a healthy amount in super and I own my two-bedroom apartment outright. Emma
Hooray! Thanks, Emma, for my favourite question. I can leap straight onto my soapbox and carry on enthusiastically about your plan. I try hard to be real in my answers and a lot of them are based on personal experience. In this case, I can tell you that a big part of any success I have had with money is thanks to my dad and mum doing exactly what you plan to do. They started putting small amounts away for me and my sister when we were very young.
They had the wisdom not to put it into an interest-bearing bank account but into well-known blue-chip shares. When I was 27 I had recently married. Vicki and I had pretty good jobs (she as a teacher) and I was keen to start a business. With plans for children we also hoped to buy a small home. So we had good jobs but no home deposit or the $20,000 I needed to start my business.
But the quite small amounts my parents had invested for me had turned into $32,000. So we used $20,000 to start the business and $12,000 helped us get into a very small property on a very busy street – but we loved it and it was a great start. So I can say categorically that the actions of my parents
helped us enormously. It also taught us a lot about money – important things like shares and compound returns. We, of course, did the same with our kids. We invested small amounts into well-known companies such as CBA and Woolworths, with dividends re-invested. Our three kids are now aged between 24 and 31 and, hey presto, like magic they each have a decent amount of money that has helped them into the housing market.
But, of course, it is not magic. It is just good old regular investment into something halfway sensible, re-investing dividends, plus compound returns.
However, the first thing is your own financial security. Here I am delighted to hear that you own your apartment outright and you have a good amount in super. It sounds as if I don’t need to nag too much but I do encourage you to have your own plan for a financially independent future. Then we can turn to your child and possibly more to come.
One big difference is the range of investment options you have. In my parents’ and my own day, it really was just buying a few shares each year. This still works. The sort of shares I would look at would still be our banks (despite the bad publicity), BHP and Rio Tinto. Then I’d look at the companies that operate in health services all over the world, such as Sonic Healthcare and CSL.
Equally you could choose a low-cost indexed fund from someone like Vanguard or BlackRock. I would not stress over this choice; it really is what works simply and easily for you. It is the fact that you actually take action and get a regular investment plan set up that makes the difference. An advantage of using a manager is that they will generally offer a regular direct debit-type option.
Emma, thanks for the opportunity to answer your question. I think what you plan to do is exactly what every parent or grandparent should consider. It builds money skills in our young and gives them what may well be a critical amount of money to kick off adult life.
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