Summer camps, training, driving licenses – by the time the children grow up, there are many expenses. But if you plan ahead, you will have the money ready later. We explain how you can do it.
Parents want their children for nothing. The same goes for grandparents and their grandchildren. The sums that accrue from year to year, however, not everyone shakes off their sleeves. It’s good when you have made provisions – and invest part of your income. The only question is: how exactly?
You won’t get very far with the savings account – most of you should be aware of that by now. But what is the best alternative? There are several reasons in favor of ETFs. Our overview shows you what that is and how you can best invest your money in it.
Which investments are still worthwhile?
If parents or grandparents want to invest money for their children and grandchildren, they have various options: fairly safe with less income, called returns, and a little more risky – usually with more Return.
The magazine “Finanztest” (11/2020) of the Stiftung Warentest advises either Fixed Income Positions. Here, however, investors cannot expect more than 1 percent interest per year for terms of five to ten years. Offering more opportunities for returns exchange traded index funds (ETF)that track a broadly diversified equity index such as the international MSCI World index. This has one from 1975 to the end of 2019 average annual return of 9 percent achieved.
According to the experts, the ETF variant is not risk-free, but less risky than many believe. The reason: Anyone who invests money for 18 years, i.e. until the child is of legal age, can simply sit out price fluctuations and even crashes on the stock exchanges.
How does an investment for children work?
Anyone who has a lot of money can do this put in a share ETF once at the beginning. If you can only regularly make smaller contributions, choose one ETF savings plan. According to the “Finanztest”, these are flexible, convenient and only cause low costs.
If you suddenly earn more, you can simply top up the savings plan, even through additional one-time payments. One Expose is also possible. With a savings plan, when is the right time to invest, it doesn’t matter. Because if you put on regularly, you avoid the risk of starting at the worst possible time.
Parents should only check around five years before the planned end of the term of the ETF investment when could be a good time to sell. If the money does not have to be available on the child’s 18th birthday, it is worth waiting for the stock market to rise. If there is a crisis, the savings plan can simply continue to run in consultation with the child until better times come.
In which name should the money be invested?
One question is whether the depot is under the Child’s name is opened. Of the advantage this variant: Income on child accounts is up to 10,245 euros tax free. Parents, on the other hand, pay normally Personal-Financial.com gains tax.
The disadvantage of child accounts: lack of control. The money belongs to the child, who can do whatever they want with it at their 18th birthday – for example, simply knock the amount on the head.