Source
r/PersonalFinanceNZ•
ncounter

Child's bank account / other tactic

Hi all,

With a baby on board I'm looking to start a bit of a side fund for when he grows up.

Is there a general guiding philosophy around what makes a good 14-18 year investment vehicle that can be added to sporadically?

Standard option seems to be a bank account that rewards 'no withdrawals'. Other options? Index fund? No major starting balance for a term deposit etc.

Relatively long time frame, medium or even high risk tolerance as it's superfluous to my own financial planning.

Thanks in advance.

Posted Feb 27, 2017, 5:40 AM UTC

514
orangemoa•

You could start up a Kiwisaver account. It's locked away but it could give your child a head start for when they want to buy a house. It's also good for general financial education.

http://www.kiwisaver.govt.nz/new/situation/under-18/

3
ncounterOP•

Agreed, however without the ability to get the tax credit, and the inability to reliably predict what the rules will look like in 20 years... Kiwisaver seems to lose most of its lustre. Wait for simplicity to provide a non-kiwisaver option?

4
orangemoa•

Yeah, without the tax credits it isn't as good.

IMO Kiwisaver is the simplest, most visible, and easiest to understand product on the market. It may be easier to explain to kids.

But other than that you could just put some money away with smart shares or wait for simplicity as you say. Buying a few shares in some blue chip companies could also be an option.

2
mavsyntax•

A simple passive index type fund will be your best bet with that type of timeline.

Smartshsres has a regular savings option that sets up a direct debit. Set and forget.

3
cbznz•

I'm in the same boat, when my daughter was born I opened a notice saver pie account with westpac (where my mortgage is). I wanted it to be an account I can add a few dollars to here and there and get 3%+ return. I know it's not the greatest return in the world but I like how easy it is to add too.

3
_verydumb•

Cooperative bank has a youth account with 4% interest for the first $4000

1
friendlymarmite•

If it's purely educational, I've wondered about putting $6 into an account every week and tracking compound interest. Then showing him/her the results at age 18 as opposed to buying a lotto ticket :)

3
magnapater•

Might have to manually to up the interest reach month as 2 percent it's pretty unappealing

2
theSmartandLazy•

I personally view them as 15-20 years investment plan and I've set up a low-cost passive fund with a regular contribution. The fund is 100% on stock and I will just let it run for at least 10 years before I even consider switch asset mix.

I will let them know they have a saving fund of their own when they understand the concept of money and saving. Hope by looking at real contribution, expenses and return on their own fund will teach them the power of saving and investing. Planning to pass it on to the kids once they turn 21 and hope they can handle that money wisely (should be around 50k at that point).

I am using Superlife 100 (outside KiwiSaver) for that purpose and will consider switching if something better from Simplicity come up.

I will not open up a KiwiSaver since there is no Tax credit until 18 and the money are locked in until 65 or for first home at this stage. If my kid wants to use that money for OE or start their own business, they will have to fund it elsewhere.

2
catbot4•

Curious as to why you would pick 100% stock initially? I'm a noob to investing and keen to understand. Cheers.

2
theSmartandLazy•

Although stock is volatile, the rate of return is quite high if you look at them for long-term (10+ year). Since I prepare this fund for around 15-20 years, historically data suggest stock will provide a great return.

Make sure you prepare to invest and hold for 10 years or more for stock because the stock market is NOT always going up.

Take a look at this graph, the NZ stock market index over 20 years.

If you make the investment at point A (2007, close to the high point before GFC, one of the worst time to buy in), hold for 2 years and sold at point B, you've lost 33% of its value. Hold for 5 years and sold at point C, you've lost 27%. If you hold for 10 years and sold at point D 2017, you've made 70% more.

That's why Warren Buffet said “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”

3
catbot4•

Thanks for the reply!

2
[deleted]•

[deleted]

1
finackles•

Precious metals seem to be riddled with issues around fees, storage risk or cost or risk and cost, and selling can be problematic.

3
finackles•

It is pretty disappointing that fees seem to erode the attractiveness of even passive funds. The lack of relatively low risk investments is the reason so many buy houses. Buying shares in less than $10k blocks hurts with fees, too.
I wish I could give you a decent answer. Then I could do the same thing myself.

1