Motley Fool Australia

The best way to invest for your kids or grandkids

Don’t know the best way to leave something behind for your loved ones or your grandkids?

Here’s where we can help.

One of the best things kids have going for them is time. If you put aside something for your kids or grandkids when they are born, by the time they are adults, the power of compounding has the chance to work its magic.

And it doesn’t need to be much to start with, nor does it have to be overly complex to manage.

Firstly, setup a brokerage account in their name with you as trustee. It’s really quite simple. You’ll also need an attached cash account to receive dividends, and buy shares from.

Transfer some funds in, and when they are available, your first port of call is the exchange traded funds (ETFs) and listed investment companies (LICs) on the ASX. There’s plenty of options available, and it’s up to you to decide which ones you want to buy shares in. That could range from just one ETF, to a whole series of ETFs, LICs or directly into stocks or a combination, such as this example balanced portfolio I mentioned last month.

Some options include the Vanguard MSCI Index international Shares ETF (ASX: VGS), giving them exposure to international stocks – a much more diversified ETF than any that follow the S&P/ASX 200 (ASX: XJO) (INDEXASX: XJO), which is heavily dominated by the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC).

It’s something our general manager, Bruce Jackson and wife setup for their kids as he outlined here.

Or you could consider a listed investment company (LIC) such as Milton Corporation Limited (ASX: MLT) or Australian Foundation Investment Co.Ltd. (ASX: AFI) (AFIC).

These two companies invest in a range of stocks on the ASX, generally giving you a wider diversification than the ASX index ETFs with their heavy exposure to the big four banks. They also have a number of advantages:-

  1. They pay decent fully franked dividends, AFIC at 3.7% and Milton 3.9%.
  2. They charge very low management fees of under 0.2%, comparable to the ETFs
  3. The have dividend reinvestment plans (DRPs). That allows you to setup dividends to be reinvested back into shares, rather than receiving the cash – so you don’t have to do anything at all.

The last step can be particularly handy as an investment for kids and boost your returns. To give you an example, AFIC has generated 66% in capital gains over the past decade, but reinvesting dividends would have boosted overall returns to 150%!

Don’t your kids or grand-kids deserve it?

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Motley Fool contributor Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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