Time is your greatest asset when it comes to investing. The longer you're in the market, the more you can benefit from the power of compounding.
So, what better time to start investing than day dot?
I don't have kids, but when I eventually do, I already have a plan to set them up for a comfortable future.
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Investing for your kids
My plan involves opening up a trust account on their behalf and building a strong $10,000 starter portfolio for when the kid is born, and then adding to it periodically over the next 20 years.
I would start by buying high quality ASX 200 shares that have the potential to grow strongly over the next couple of decades. Companies that lead their industries such as Cochlear Limited (ASX: COH), CSL Limited (ASX: CSL), and ResMed Inc (ASX: RMD) tick a lot of boxes for me.
Once the portfolio is established, I would ideally like to continue making annual contributions of $2,500.
How much will my kids receive?
According to Fidelity, over the last 30 years, the Australian share market has provided investors with an average return of 9.6% per annum.
And while there is no guarantee that it will achieve the same return in the future, this is in line with historic returns on Wall Street. So, I would be somewhat surprised and disappointed if the returns fell well short of this.
Based on this potential return, my starter portfolio, and the annual additions, on my child's 21st birthday I would be able to hand over a portfolio valued at over $200,000.
They could use this for a home deposit, or perhaps they could just keep hold of it and let it continue to grow, pocketing the dividends along the way.
Though, don't forget that even minors have to pay tax on dividend income. In fact, if your child owns shares and earns more than $416, you must lodge a tax return on their behalf according to the ATO.
Christmas gift
If you already have children or grandchildren, it's never too late for them to start investing.
This Christmas a share certificate in a quality ASX 200 share like Goodman Group (ASX: GMG) could end up being the gift that keeps giving.
