$100k head­start for the kids

Money Magazine Australia - - ASK PAUL -

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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