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 finish a workout, you feel accomplished. Cleaning the house or tackling that “I’ll deal with that later” stack of letters on your desk also brings a sense of satisfaction.

However, all of those tasks require a certain degree of effort. There’s one thing I do regularly that requires no effort at all but still gives me that wonderful feeling of “I’m doing something right.” That is investing for my kids.

The Importance of Investing for Your 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, where the money is invested automatically. Voilà - it’s happening!

I genuinely believe it’s one of the most important things I’m doing, and I don’t say that lightly. The benefits are substantial. Some are obvious, while others may not be so clear.

1. Financial Foundation

This is an obvious benefit. I’m laying a financial foundation for my children right now. This will allow them to start their adult lives with a considerable amount of money. It will help them with whatever they choose to pursue: 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

Investing is a significant part of their financial education. Right now, they’re still young, but at some point, they will learn about their portfolio and get involved. As children, I hope they will ask the most basic questions: What is investing? How does it work? Why invest this way and not another? And why invest at all?

Imagine being exposed to this topic as a child, teenager, or even a young adult. The benefits 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, the parents.

3. Make It Obvious

Children soak up everything they see, hear, and learn. Whatever they’re exposed to at a young age becomes a natural part of their lives. For us adults, it’s much harder to fit a new piece into the puzzle. I often hear people say, “It’s so hard to get started; it’s all new, and I was never taught this as a child.” I’m trying to ensure that this is one more thing my kids learn early, so it comes to them naturally and easily later on.

4. Long-Term Investment

By its very nature, investing for your child is a long-term commitment. 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. This is a great thing to do for your child, and it might even positively affect you as an investor. The peace and quiet you gain from it—having no FOMO and planning for the long term—is what we should all strive for, both with our investments and our children's futures.

5. Break the Cycle

Almost everyone who starts investing eventually thinks, “Why didn’t I start sooner?” Your kids obviously cannot start investing as newborns, but you can do it for them!

One major dilemma we faced when we started was whether the investments should be under their name or ours. There are pros and cons to each option. For me, the winning argument was this: I can’t be certain that at 18, they will be in the right state of mind to handle a large sum of money responsibly. So, I chose to have it under my name. When the time comes, I’ll simply transfer it to them without selling it and creating a tax event—just a gift from a parent to a child.

In Germany, there are some associated costs in the form of small tax advances paid on unrealized gains, but I find it insignificant. Just to be clear: it’s their money. In my financial planning, it’s not included in my Excel sheet. But I wouldn’t want to see all that money blown away on whatever it is that 18-year-olds buy.

A Thought for Older Kids

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

Regardless of how old your child is, the best time to start is now. Investing for your kids is a gift that keeps on giving. It’s an investment in their future, their education, and their financial well-being.

In conclusion, the act of investing for your children is not just about money. It’s about creating opportunities and instilling values that will last a lifetime. So, take that first step today. Your future self—and your children—will thank you for it.