Bitesize: What are the options for investing for my kids?

Alec: [00:00:07] Welcome to Bitesize on Get Started Investing. In this series we feature some of our favourite lessons, quotes and moments from the podcast. If you'd like to listen to the full episode, we've included the link in the show notes. Now Dominic, I guess it maybe it's a signal of where a lot of the equity rights community are up to in their lives. But these days we're getting a lot of questions about investing for kids yet. And so we've got a couple of questions on that topic. The first one comes in from Jeremy and he asks a more general question. So he wants to know what the options are for investing for his children. They each have a reasonable sum in their bank accounts around ten grand each, and they're both under ten. So either those lemonade stands are doing really well or Jeremy's been helping his kids. But he wants to know what he should do to get them a better return and set them up rather than just sitting it in the bank and getting the interest on the savings account. 

Dominic: [00:01:06] Okay, look, we have a vested interest in this Nick statement to Colin's house online, which is part of the Colin's house dot com website. You can go and visit it there. Mel, who's one of the investors, is a friend, I suppose, who I've known for a long, long time. He generally, honestly set up accounts for his kids. Exactly like your question, your person. You just ask the question then and his comments on the website. It's very simple. You invest in a diversified, low cost fund that can provide various asset allocation mixes. If they're really young, ten years of age, and they don't need the money for at least ten years, I probably go for the high growth one. But you really need to look at your time horizon. So that's one option. Investing in a low cost diversified portfolio of ETFs that's managed by a professional investment committee. The second option is do nothing and get that money and pay off your mortgage, parent and interest. Remember that you stolen the money from the kids and give them the same rate of return you've made after tax. Because remember, paying off your mortgage is a riskless rate of return of probably 6% these days. And I can invest your money and get 6% after tax. So I would thieve the money off the kids personally and I wouldn't invested in choice or anything else for that matter. But remember, I have a covenant between the family members. So. Well, that money that Grandpa gave you for your birthday and your christening and whatever other thing in your paper, and I don't have a paper and a ten, but what if you did your mining of bitcoin or whatever you have done? They generate that money, steal it off them with the intention of repaying it and repay them back with a gift down the track. That's a second option. It's the most tax effective and every fund manager in Australia will want to punch me on the nose because there's no business for them. But that's what you should do. And the third option is to use for charity, which is an education fund. That's assuming you want a fund for education or generation life. If you just want to generally use a bond, which is a tax paid interest. And so they are three strategies invest in the market, rape and pillage your kids bank accounts that promise to pay back with a gift equal to the 6% or probably 10% rate of return you've saved or invest in a tax paid bond. 

Alec: [00:03:25] Yes, I hadn't heard of the charity. I just googled it when when you said it there. So for people who are looking at the exorbitant cost of private school fees and trying to figure out how they should manage that, what are these education bonds? 

Dominic: [00:03:37] Okay. Well, assuming that's assuming you don't want to help your child buy a home, it depends on what you want to do. If you want to help them get into the property market, it is playing a. Or Plan B if you want to specifically just fund for education. It's a tax paid bond. So it's a friendly society, a life insurance company that's got a pooled fund of assets. You buy into it. It pays tax at around $0.25 in the dollar, sometimes less. And the beauty of the security one is when you take the money out, if you take out $1,000 down the track and 900 is your capital and a thousand and $100 is the profits after tax revert. You get it almost like a franking credit pie. So you end up taking out an extra $390 or $350, depending on the tax rate. So it's very, very tax effective. It's specific for education. If you then change your mind and don't want to use it for education, you can use it for just a general tax paid bond. And we could spend an hour on all traditional life insurance tax paid bonds, but we won't do that now. 

Alec: [00:04:43] Yeah, fascinating.

Bryce: [00:04:44] If you enjoyed that bite size, you'll find a link to the full episode in the show notes.