Strategies to safeguard your grandchildren’s financial future through thoughtful investments

Investing for your grandkids is a wonderful way to provide them with a solid financial foundation for their future. Whether you’re looking to help pay for their education, give them a head start on their retirement savings, or simply give them a financial boost, there are a variety of investment options available to you.

However, with so many investment options available, it can be challenging to decide which one is best suited for your grandchildren. From opening a savings account to investing in stocks and bonds, and everything in between it can be difficult to discern what the best options are when it comes to investing.

With that in mind, Starts at 60 spoke with the experts at the investment adviser firm Stockspot in order to understand what to keep in mind when deciding to invest for your grandkids as well as what options are available to help secure your grandkids’ financial future.

Key considerations when investing for your grandchildren

When it comes to securing their grandkids’ financial future, many grandparents are eager to explore investment options that can help build long-term wealth. However, investing for a grandchild is a big decision, and it’s important to carefully consider your options and weigh the risks and benefits before making any investment decisions.

From choosing the right investment vehicle to setting clear goals and understanding the tax implications of different investment options, there are many important factors to keep in mind when investing for your grandchild.

Whether you’re a seasoned investor or just starting out, these insights will help you make informed investment decisions that align with your goals and values.

• Start early

Investing early gives your grandchildren a head start in building their wealth. The power of compound interest means that the earlier you start investing, the more time there is for their investments to grow. Even small amounts invested regularly can add up significantly over time.

• Choose the right investment vehicle

There are a range of investment options available, including shares, property, managed funds, and exchange-traded funds (ETFs). Each option has its own risks and potential returns, so it’s important to choose the right investment vehicle based on your goals and risk profile. Consider speaking to a financial advisor or doing your own research to determine the best option for your situation.

• Diversify your investments

Diversification is a key component of any investment strategy. By spreading your investments across different asset classes, you can reduce your overall risk and potentially increase your returns. A well-diversified portfolio might include a mix of shares, property, and managed funds.  You can also diversify within each asset class by investing in different companies, industries, or regions.

• Consider ethical investing

Ethical investing, also known as socially responsible investing, is becoming increasingly popular. Ethical investments are those that align with your personal values and beliefs. For example, you may want to invest in companies that have a positive impact on the environment or promote social justice.

• Teach your grandchildren about money

Investing for your grandchildren is not just about the financial benefits. It’s also an opportunity to teach them about money management and financial literacy. Encourage them to ask questions and involve them in the investment process where appropriate. By educating them early on, you can help them develop good financial habits that will serve them well in the future.

Investment options available to secure your grandkid’s financial future

When it comes to securing your grandchild’s financial future, there are a variety of investment options to consider.

By exploring the different investment choices available, you can find the right balance of risk and reward to help grow your wealth and provide for your grandchild’s future.

• Investment accounts

Investment accounts are financial products designed to help individuals grow their wealth over time. They can be a great option for securing your grandchild’s financial future, as they provide a safe and effective way to save and invest for the long term.

One of the key advantages of investment accounts is the ability to earn compound interest. This means that the interest earned on your initial investment is reinvested back into the account, allowing your money to grow exponentially over time. By starting early and contributing regularly, you can build a significant nest egg for your grandchild’s future.

Founder and CEO of Stockspot, Chris Brycki explains that with investment accounts you “can start investing with as little as $2,000.

“Some grandparents even start with as little as $50 which accumulates until the minimum investment amount is reached. The great thing about them is that they incur no management fees until the child’s portfolio reaches $10,000 or the child turns 18,” Brycki says.

Stockspot found the investment option was so popular that some clients’ grandkids were asking for contributions to their accounts over toys come Christmas time.

Following the closure of the previously popular Dollarmite accounts by the Commonwealth Bank, investment accounts have become a popular alternative.

Another factor that makes investment accounts a popular option when it comes to securing your grandkids’ financial future is that they hold assets like gold and government bonds which help to cushion the impact of the inevitable downturn.

“It’s sustained, long-term growth that you can show your kids and get them involved in the top-up process with pocket money,” Brycki explains.

“If you invest $2,000 for your child when they’re born and top up with $100 per month, they could have $86,500 by the time they’re 21 (assuming a 9% p.a. net return).”

When investing for your grandchild’s future, it’s important to consider your overall financial goals and risk tolerance. Investment accounts can offer a safe and effective way to save for the long term, but they do come with some risks. Before investing, be sure to consult with a financial advisor and do your own research to ensure that you are making informed investment decisions.

• Investment bonds

An investment bond (also known as an insurance bond) is a combination of an investment portfolio and a life insurance policy. You can access them via life insurers and friendly societies.

Investment bonds let you invest on behalf of a child (or grandchild) and have the ownership automatically transferred to the child at a date you set in the future. It’s for this reason that parents (and grandparents) like investment bonds to help save for big-ticket expenses like their education, a car, or a house deposit.

“You can also use investment bonds as a tax efficient way, especially for high income earners, of investing outside of super (if certain conditions are met),” Brycki says.

Given that an investment bond is a ‘tax paid’ investment, the tax on investment earnings is paid by the bond issuer at the (current) company tax rate.

Brycki explains that “after 10 years from the start date of the investment, you don’t need to pay personal income tax on the investment. So if you definitely won’t touch your investment for at least 10 years, you won’t need to pay additional tax or capital gains tax.”

Investment bonds are available across a range of different investment options including shares, bonds, property, infrastructure, and mixed-asset portfolios.

Investing for your grandchildren is a great way to help secure their financial future.

By starting early, choosing the right investment vehicle, diversifying your investments, and considering ethical investing, you can set them up for success.

Additionally, educating them about money management and financial literacy can help them develop good financial habits that will last a lifetime.

This article was originally published on February 25, 2023, and has been updated on August 15, 2023.