Best long term investment/financials for kids

Submitted by Fitgiggles t3_z94hqs in personalfinance

I have a 1 year old and since I found out I was pregnant I started setting aside money in another account “for him”. My husband and I come from very financially illiterate families so I’m not sure who to ask for advice. We have a house and our own investment, retirement, and liquid savings accounts. I have 4,000 currently in my kids account. This account is in my name and just a savings. I’m curious what is the best, SAFEST long term investment for “his money” is? Most of our own investments are “risky” and change month to month. I don’t want to lose the money I consider my kids but I also don’t want to babysit it, but it’s only earning .05% in the savings account it is in and I’m sure there is a better option. I considered an I bond but I’m not sure if that’s the best way to earn the most on that money? Rates will surely go back down soon. I also am maxed on my own i bonds and have no intention of putting this money in kids name yet so that I have the ability to move it if needed. I plan to continue saving too but we also plan on another kid soon so I’d like to keep the funds separate. Thanks for any advice!!!!

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Over_Island7030 t1_iyey58n wrote

I’d say create a 529 account on a brokerage firm (like Fidelity, Charles Schwab, etc) and put your money in there. It is safer to invest in broad-market ETFs and low-cost mutual funds if you are starting early - 18 years is a lot of time for compounding. Switch to certificate of deposits or bonds when they get older.

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deeznutzz3469 t1_iyeynzx wrote

My only add here would be to look at state run 529s. I think there is a website that ranks all of them if I am not mistaken. NYS one had good find options and you get a state tax rebate for your contributions

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Fitgiggles OP t1_iyf01k8 wrote

I’m in CA so there’s no added tax benefit to me

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deeznutzz3469 t1_iyf4gl4 wrote

Gotcha then I would suggest vanguard or another low fee broker

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Fitgiggles OP t1_iyez58r wrote

Thank you so much for you input! I did consider a 529 but neither my husband or I went to college and we make more than most of our college educated friends…From what I understood, 529 can be used for private school or trade school also but our trades had free apprenticeships so a 529 scares me as it may be unusable. Of course my kid may want to go to college but I’d rather have some sort of investment acct we can freely take from to pay for it in that case. I’ve never looked into CDs so maybe that’s an option to just go for now? I’m ok if I have to move the money every few years, I just don’t want to have to be on top of it month to month.

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TyrconnellFL t1_iyezsej wrote

You’re still better off with an account in your child’s name and investing in broad index funds. A CD or better savings account is safer, but it isn’t better. Over long timelines, like the next 18+ years, if the market behaves like it always has then it will go up more than any other safe investment will.

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MikeWPhilly t1_iyf039i wrote

So I’m of the opinion that unless you go to school for engineering, specialties like healthcare, financial - college is quickly reaching the point of not worth the cost investment. I say that to say I get where you are coming from.

So if not doing a 529 you have a few options.

  1. Real Estate Investment which is passive income for you and them. The money/equity would appreciate and you’d be generating passive income that they could either take over and/or you could take out equity in 25 years or so.
  2. Stocks. I get not wanting to lose the money and you won’t really lose savings but cds at best “might” keep up with inflation. Historically if you stuck money in an index fund S&P as an example, you’d never lose money on any 20 year period. You’d typically would gain quite a bit. So you wouldn’t have ot baby sit it but just ike your 401k you’d have to realize you’d have some very good years (last 10 before 2022) and some not great years ike this year. But over the lifetime of it you’d appreciate quite a bit.
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Over_Island7030 t1_iyf2hmk wrote

A 529 is not a use-it-or-lose-it type of account! As far as I’m aware, all contributions you make can be taken out penalty-free. Any earnings you take out for non qualified expenses will be treated as income tax (just like a normal, taxable brokerage account) plus 10% penalty. This means that you can withdraw for whatever reasons.

The benefit of a 529 is that any growth in investment value can be used to pay for educational expenses tax free. Depending on your tax, it’s sort of like getting a 30% discount on education expenses.

You can create a brokerage account just for investing (many of the brokerage firms I listed have automatic investment options) but do be aware that you will pay taxes on all withdrawals related to earnings.

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I812B4U t1_iyf7284 wrote

I kept my kids' money in a savings account until they were in middle school which was a mistake from my perspective. I always meant to invest it for them and I only wish I had invested their money sooner so it could have grown more than it has. I used UTMA accounts. I have never had any issues with buying or selling in any of their accounts. I used company sponsored DRIPs (dividend reinvestment plans) and stuck with plans that didn't charge investment fees on new investments or reinvestment of dividends. They did charge fees to sell and some for the initial setup. My kids had two stocks that would allow them to invest as little as $10 at a time. There was some trial and error on my part with some of my initial stock picks. I picked companies that had a history of paying an increasing dividend. Even with one of their stocks tanking and two only doing so so the others more than made up for it.

If I had to do it all over again I would probably use a regular brokerage UTMA account since most no longer charge buying and selling fees and I then wouldn't be limited to only certain stocks. I personally prefer individual stocks but you could make it simple and go with an ETF or an ETF that pays a dividend like SCHD.

You might check out Stockpile. They have a mixture of stocks and funds to choose from.

My oldest is in college and sells his stock to cover college expenses not covered by is scholarships.

You have lots of options: savings account, stocks, bonds, CDs, EFTs, mutal funds, CEFs. Just be sure to do your research for whatever investing path you decide works for you. The most important thing is that you save for your kid and invest in something. A lot of people mean to save/invest and life happens and they never get around to it. Good luck!

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bros402 t1_iyfa6ew wrote

Put it in a 529 - worst case, there's a 10% penalty on the money if it is taken out for non-academic expenses.

you should not have any money in a savings account with 0.5% or 0.05%! Do a HYSA with someone like Ally - they're at 3%

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