Do it for the kids

There are some things we do that always make us feel really good about doing them. When you come back from a run or working out. When you clean the house or finally tackle the “I’ll deal with that later” stack of letters on your desk.

All of those, however, require a certain degree of effort. There’s one thing I do, on a regular basis, which requires no effort at all, and still gives me that really good feeling of “I’m doing something right”. And that is investing for my kids.

My partner and I have been investing for our kids on a monthly basis almost since they were born. It’s literally running on auto-pilot: deposits are made automatically to my brokerage account, there the money is invested automatically, and Voilà - it’s happening. 

I really think it’s one of the most important things I’m doing, and I’m not saying it lightly. The benefits are huge. Some are obvious, but some maybe not so much;

1. Financial foundation: Ok, that is obvious. I’m laying a financial foundation for them already now. This will allow them to start their adult life with a considerable amount which will help them get started with whatever: studying, making other investments, or simply taking over their portfolio and growing it further. Want to see how much? check out my investment calculator and see for yourself.
   

2. Financial education: It’s a big part of their financial education. Right now they’re still young, but at some point they will learn about their portfolio and will get involved. As children, I hope they will pose the most basic questions: what is it anyway? How does it work? Why invest like this and not in a different way? And why invest at all? Imagine you were exposed to this topic as a child, a teenager or even a young adult. The benefit would be truly amazing. By the way - I don’t expect this to become a topic in the school system anytime soon. I hope I’m wrong, but for now - it’s on us, parents.
   

3. Make it obvious: Children soak up EVERYTHING they see, hear, and learn. Whatever they’re exposed to at a young age becomes obvious for them. It’s simply a part of their lives. For us, as adults, it’s much harder to fit a new piece into the puzzle. Ever so often I have someone telling me “it’s so hard to get started, it’s all new and I was never taught this as a child”. So I’m trying to make sure this is one more thing my kids learn at a young age, so that later it just comes to them naturally and easily.
   

4. It’s long-term because it has to be: By its very nature, investing for your child is a long-term investment. Most people, if not all, will not bother being too active. Regular deposits, investing in a few ETFs (or just one) and that’s it. And that’s really, really good. In a way, it’s the purest form of long-term, passive investing. That is a great thing to do for your child, and it might even have a positive effect on yourself as an investor - the peace and quiet you get from it, having no FOMO, planning by default for a long term - honestly that’s what we should all be doing, always, also with our own investments.
   

5. Break the cycle: Almost anyone who started investing also immediately thought “why didn’t I start sooner”. Your kids obviously cannot start investing as new borns, but you can do it for them!

One major dilemma we came across when we started was whether it should be under their name or ours. There are some pros and cons for each alternative but for me, what eventually was the winning argument was: I can’t be certain that at 18 they’re already in the right state of mind to receive a large amount of money and handle it properly. So I chose to have it under my name, and when the time comes I’ll simply transfer it to them (obviously without selling it and creating a tax event, simply transferring as a gift form a parent to a child). In Germany, it has some associated costs in the form of small tax advances paid on un-realized gains, but it’s insignificant in my opinion.

Just to be clear: it’s their money. In my own financial planning it’s not anywhere in the Excel sheet. But I also wouldn’t want to see all that money being blown in the wind, spent on whatever it is that 18-year-old’s buy…

One final thought on this: your kid might be older and you might think you’ve missed that train. That’s almost never the case. No one said they have to get this money on their 18th birthday. They’d appreciate it all the same if it’s on their 25th birthday, 30th or even 40th.

Regardless of how old your child is, the best time to start is now.