Loved.com - Money for the Next Generation

Investing for Kids Made Easy

By The Loved Investing Team September 22, 2020

Investing for Kids Made Easy

Summary

  • Start saving and investing while kids are young to achieve more with less
  • Investing small amounts often will provide a nice future nest egg
  • Be diversified and stay in the market
  • When they are old enough, do it together and show them how their money has grown.

When asked why you should invest for your child’s future, the answer varies by family. It might be as simple as wanting some money put aside for a rainy day or more ambitious like saving for college or your child’s first car. Regardless, the sooner you start, the better.

However, before we delve deeper, let us take a step back.

Cost pressures of children

The cost of raising a child nowadays is as high as ever with the average cost from birth to adulthood being around $250,000. This is increasing more and more and with the unpredictability of today’s world, we must all be prepared for the worst.

At Loved, we want to help ease the inherent pressure of raising a child while also offering a platform that will allow your child to think and act like an investor, propelling them forward in their future endeavors.

Start saving and investing while kids are young to achieve more with less

Do not hesitate, procrastinate, or make excuses. Your kids are best off when you invest for them when they are as young as possible. By making investments at any early age, you have the opportunity to maximize the amount of time they are in invested in the market, allowing for better growth opportunities and a higher compounded return.

By starting a savings and investing plan early, you can achieve more with less. The advantage that both a parent and child have is time. More time equals a higher probability of success allowing you to easily plan for their goals and expenses.

Lead the charge in creating the best child investors.

Investing small amounts often will provide a nice future nest egg

You are probably familiar with the phrase ‘little and often’. Many young parents, in particular, do not have enough to simply setup a trust-fund for their child. Instead, they could consistently invest their spare change each week and watch their child’s investment account grow, without breaking the bank.

For example: Each week, from the day your child is born to the day they become an adult, you forego the pleasure of a $5 venti cappuccino and instead, you put that money to work. If you work 50 weeks a year for those 18 years, that is $4,500 (not including interest) you have saved in total which is better than nothing, don’t get me wrong. With such low interest rates, the amazing effects of compound interest are not greatly felt.

But what if you were to invest that money each year in a stock that yielded an average annual return of say, 6%? You would have doubled it based on historical market returns.

But how would I have known to invest in that stock?

Great question. Let’s dig a bit deeper.

Firstly, we do not expect you to be the next greatest investor. That is not our goal. Instead, we want to help increase the probability of investment success and there is a few ways we do that.

1) Fractional Shares

Loved offers a fractional share option that allows you to invest as little as $1 at a time and set it up to repeat as often as you would like. By investing often, you are dollar cost averaging. In essence, you hedge against short term price swings by investing at all different prices, high and low, and getting an average price that sets you up to achieve long term growth.

2) Diversification

Markets rise and fall, then they rise and then they fall again. It is just how the business cycle works. There will be times when there are more buyers than sellers and vice-versa. The important thing to remember here is to stay in the market regardless of market fluctuations. Using the time you have to your advantage, you can see the long-term growth in markets. Do not get focused on the short-term movements. Follow the prevailing long-term trend.

Now, being diversified means you don’t have all your eggs in the one basket. Instead, you would have your money in ten to fifteen stocks or ETFs to mitigate risk and increase your odds of success. There is no perfect approach to diversification. It all depends on your tolerance for risk and your goals as an investor. If you have a high tolerance for risk, diversification is still important but you may want to accept a little more risk by having a different level of diversification. On the other hand, if you're looking to save for college or retirement, having a small percentage invested across different stocks and ETFs may be a better option for you.

Remember: Investing is tough and there are people that spend their entire lives trying to find an edge in the market. Taking the above approach mitigates risk and increases the probability of long-term success allowing you to focus your energy elsewhere.

When they're old enough, show them how their money has grown

Investing is a great way to fast track a kids’ future by helping build financial independence while also educating them on how the financial world works. Warren Buffett bought his first stock in a company at the age 12. Even if he didn’t make money, this helped him learn the principals to make him one of the greatest investors of all time.

When your money sits in a back account, teaching your kids about the value of compounding is difficult. It is tough for them to visualize what you mean.

Do them a favor by investing, so their money works as hard as they do and that the lessons are clearly visible to carry them forward in life. Showing them the companies and industries you invested in for them and having them learn why will allow them to better grasp investment concepts.

Getting started with Loved 

Investment accounts for kids are becoming increasingly popular and we at Loved offer custodial investing for anyone under the age 18. Think of it as an app that offers stocks for kids. Using a custodial UTMA account, kids have their own investments until the age of 18 or 21 (depends on the age of majority in your state) in which case the account is transferred to their name.

For more information on the tax benefits, please check out this article: Kids... Where's Robinhood?

You can Signup Here in just two minutes and start planning for your child's future. Start building that portfolio. We can help teach them to spread their risk, invest in what they believe in and to think long-term but it's up to you to make the first move. The best investment for kids is not a particular stock or ETF, it's you and your guidance and at Loved, we can help you every step of the way.

You can download investment apps for minors from the links below.

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