I was reading My Journey to Millions last week and the topic of children accounts came up. Currently the kids, ages 21 months and 6 months, have savings accounts for money that was gifted by family and friends. It isn’t a ton of money, but it adds up.
Obviously, it made sense to get them a savings account, which we did. That’s where the money has sat since. The inflation monster nibbles away at it each day.
I think the question is obvious, should I invest this money for them? The people giving the money didn’t give it with instructions. The kids themselves are too young to express their own wishes… or even understand the concept of money.
That leaves the decision up to me, right? It’s a difficult thing investing money for other people. I obviously don’t want to lose their money. It still seems like the right thing to do. The kids have no immediate need for the money and won’t for a few years. This gives it some good time to grow.
The question becomes how to invest the money. Evan covers this in depth and settled on a blend of 70% stocks and 30% bonds. I like this idea a lot. The only downside that I can think of is that it isn’t a lot of money, so I have to keep commissions and other investing related expenses low. A $10 commission might not seem like a lot, but if it’s on $1000, that is 1% off the top, before we factor in expense ratios.
I think I’ll grant the kids downside protection just in case there is a crash that never recovers. This way there is no chance that they lose the gift. Given the time horizon, I’m hoping they’ll learn how awesome daddy was to take advantage of this thing called compound interest.
I never forget when I first learned about compound interest. I think I was 6 years old. I remember thinking that there has to be a catch, “Wait my money makes money doing nothing… and that money makes more money doing nothing?”
So let me turn it around and ask the readers. Do you invest baby money or just leave it in a savings account?