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Perhaps you have children of your own and would like to save money for your children. Maybe you also became an uncle, aunt, grandfather, grandmother, cousin or godmother?
No matter what makes you want to invest money for a young person, you seem like a caring person. In this post, we'll show you how to Investing money for children simple, profitable in the long term and perhaps even be made sustainable.
If you have any more questions on the topic, we look forward to an exchange in the comments!
Whether Savings book, savings account or piggy bank - the classic methods of saving money for children are unfortunately not particularly lucrative. Regardless of whether interest rates remain as low as they have been in recent years or even rise again, the return here will most likely be negative. Why? Because the interest of 0.1% or even 1% is "eaten away" by inflation (about 2% and higher).
On the other hand, investing money for children with shares offers many advantages over investing in a savings account. Especially due to the long investment horizon, the risk is almost negligible, but more on that later. Here is an overview of the advantages of saving with shares vs. an interest account:
Example 1: From birth until the child's 18th birthday, we save CHF 20 per month and invest this in a broadly diversified equity portfolio for the child. (We will explain how this works later).
After 18 years, the share investment for the child has almost doubled: thanks to the share return, CHF 4,350 paid in has become a proud CHF 8'614. With this money, a young adult can already travel for a few months or buy a first used car.
Example 2: If you want to provide for your own children at an early age, you can defer your inheritance early. This has tax advantages and protects the assets on your side in the event of private insolvency. Entrepreneurs and self-employed people in particular like to do this because they are exposed to increased risk and therefore transfer their assets to children at an early stage.
So let's say you pay CHF 200 per month into the children's ETF savings plan. After 18 years, we see the same (rough) doubling as in example 1: 43k became 86k!
Now it gets really exciting in example 3.
Example 3: Now a perhaps abstract, but still conceivable example. Let's assume that you pay CHF 200 per month into your child's share deposit account for a while and that you have educated your child financially (or sent it in Swiss francs) :-). So your child then invests the money he/she has earned him/herself at some point and maintains the savings rate of CHF 200 until the age of 65.
By the time you're 65, the retirement age will probably pretty much be over 70, but your kid will already be multiple millionaire be. With an investment period of 65 years, the Compound interest effect really noticeable. The yield curve becomes exponential and adds up to CHF 3.1 million, even though you only paid in CHF 156,000.
We are no longer talking about savings books and savings accounts here, we now want to take a concrete look at how you can invest money in a broadly diversified way for children or minors.
The fund savings plan at the house bank is usually unsuitable because of the fees. Those who have to pay 2-3% in product costs and custody fees lose a lot of money over the long term. Fees should therefore be considered carefully, otherwise the above calculations will look completely different. For uncomplicated investment for children, an ETF savings plan or especially a Robo Advisor is recommended, because the latter can take over most of the work for you and the child.
In Switzerland, for example, the following could be mentioned Selma, True Wealth, Findependent or Inyova. Inyova stands out: Firstly, because they focus on sustainable impact investing. Secondly, because they are currently the only provider from this selection to offer an investment account for children. Inyova`s Investing for kids offers the following advantages:
Investing money for children is an important topic, as there is little reliance on pensions today. Especially due to the long investment horizon (for example 18 years and more), investments in securities (shares, ETFs, etc.) are ideally suited. Providers such as Inyova have specialized in this and offer helpful products with low fees. A small investment here can make a big difference for a young person over the long term.
If you want to know how to strategically provide and invest for your children and family, check out the FinanceTimetable in more detail. There we address this issue very specifically.
How did you like our post on investing money for kids? Do you have a favorite topic you'd like us to cover in the future? Feel free to leave us a comment!
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11 Responses
Hello Eric
True Wealth has also recently introduced the option of a children's account. A comparison with Inyova would be very interesting.
Kind regards
Ashan
I'll be happy to take that up soon! Thanks for your input, Ashan. You can already find details of the True Wealth children's portfolio here.
If you are concerned with the topic of an advance inheritance for your children: Be careful, this may end badly if you have to apply for supplementary benefits yourself later.
A stay in a nursing home quickly costs Fr. 8000 to 10000 per month.
Hello, everyone,
Thank you for the interesting report. We have an ETF savings plan for our 2 children at Cash. There are no transaction fees for children/young people up to 18 and the custody account fees only start from CHF 25,000.00 (from 25k 40.- p.a.). The monthly savings amount is transferred to the Cash accounts via standing order and then invested monthly in the desired ETF(s).
It should be noted that if an ETF is invested in USD or EUR, the exchange rate discounts are not to be neglected, usually about 2% are added to the current daily rate.
Important topic and unfortunately one where there are few options in Switzerland. One of the good options, however, is AVADIS. There you can open separate children's accounts for as little as CHF 50.00 and choose from six different strategies (from 100% bonds to 100% shares). Total costs are between 0.56% and 0.63% depending on the strategy, which I think is very fair. This includes all costs. No custody fees, issue or redemption commissions are charged.
Thanks for this contribution Eric! Not a very easy topic in Switzerland. In fact, I wanted to open a True Wealth account for my children a few weeks ago. But currently this is only possible for private persons of full age. Since I am also a customer of VZ VermögensZentrum, I knocked on their door and asked if I could ever open an "ETF Savings" account for the kids. That was then also no problem and so I have then also done. Nevertheless, I have to keep an eye on the fees. The VZ moves there in the midfield. Let's see how the competition moves the next few years. Nothing is forever 🙂
Hi Hans-Peter, yes unfortunately there is no True Wealth child account yet as well at Selma Finance. Inyova is probably the innovative pioneer here among the robos 🙂
Very interesting topic, the investment for the children (whose children also always - own or not). In the case of your own children, for example, you could use the child allowance (minimum 200.- / month) for this.
I currently use Postfinance Selfservice funds for this. Unfortunately, the fees are moving in the wrong direction. I have not yet been able to find a better alternative (I am excluding the topic of sustainability, although it is justified and interesting).
Postfinance Fonds Suisse: TER 0.59% (incl. distribution fee Postfinance 0.45%, so product costs would be only approx. 0.14% without).
From 01.01.2022, additional custody fees of 0.15% p.a. will be added (previously still without custody fees).
Issue fee additionally 0.5% / redemption free of charge.
Why do I do it? Because you can save it as a fund savings plan and it is convenient. Besides, the robo-advisors are not cheaper either.
Postfinance Fonds Suisse tracks the SPI and is managed by UBS. So it should be roughly the same as CH0131872431.
Very exciting, thanks for your input Hugo!
I first discovered Inyova for myself, then invested separately for my kids. I am convinced by Inyova's investments in sustainable companies.
Great, thanks for your feedback Anne 🙂