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Index Funds vs Cash Savings for kids

Discussion in 'General Investing Discussion' started by alidec, 10th May, 2010.

  1. alidec

    alidec Member

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    Hi All!

    I have recently started putting a little, tiny bit of money away for my kids each week, with an end goal of giving it to them on their respective 21st birthday's, under the condition that the money is used to make more money so that they learn about investing.

    My partner and I have started to invest in index funds (so far, we've only bought into AFIC). We've chosen index funds because we don't have the time/skill/knowledge/inclination to pick ordinary shares. Now the the kids' money is starting to accrue, I'm wondering whether we should continue to sock it away in a kids savings account (no fees - but very low interest rate), or whether we should buy into index funds on account of them? The money will be invested for 20 years, and it will be added to every week (if in cash account) or every six months (if invested in index funds). What would you do?

    Thanks in advance for your advice!
     
  2. Waimate01

    Waimate01 Well-Known Member

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    Index funds. The way to think about money in the bank is that it drifts slowly but steadily backwards in value, or maybe gets to stay roughly in the same place.

    Even a decent rate of interest doesn't really make much headway against the combined effects of tax and inflation. Money in the bank certainly has its purpose, but for a 20-year horizon index funds should produce real returns rather than just mark time.
     
  3. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Hi alidec

    I'd go index funds, but for a different reason. Once the kids are old enough, let them participate in the buying and management of indexes. Your children will grow up with an understanding of money and a knowledge of the markets. Wait til 21 and I think it will be a lost cause.




    Johny.
     
  4. Chris C

    Chris C Well-Known Member

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    Over a 20 year time frame, I vote index funds as well.
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Me three.

    Keep in mind that Australian Foundation Investment Company (AFIC) is a Listed Investment Company (LIC) not a ETF/Index.

    Cheers,

    Dan

    PS This is general information and before making an investment decision speak to your investment adviser or an FPA Financial Planner.
     
  6. rambada

    rambada Well-Known Member

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    Also look at Vanguard Index Funds

    And also for some variation - physical gold & silver. This is what we are doing for our grandson.
     
  7. Chris C

    Chris C Well-Known Member

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    If we are throwing in additional ideas - I'd also suggest putting some into an international index fund.
     
  8. alidec

    alidec Member

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    Wow - thanks for the responses guys! There are some great ideas there! I will definitely look into international index funds, gold and silver. Rambada, I had a very brief look at Vanguard, and from what I saw the cost of entry was pretty high - but I could be wrong?? Maybe you could clarify that for me? At this stage, we're living on one income, as I am a stay-at-home Mum (our children are 1 and 3yrs), so we have very limited funds to put aside each week.

    Also ASXBroker, can you tell I'm new to this? Hahaha! In that case, what do you all think of Listed Investment Companies such as AFIC and ARGO? And how do they compare to index funds?

    Thanks again so much for all of that helpful advice... hopefully one day my kids will be much better for it ;)
     
  9. dollarsandsense

    dollarsandsense New Member

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    If the investment is also partially about education I would only put a small amount here. Vanguards 10 year return on international shares is nearly 5% negative. Spread around is a good idea as it gives you a real taste of risks and returns.
     
  10. Chris C

    Chris C Well-Known Member

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    Australia makes up a very small part of world GDP and growth so it can be quite volatile given that we are dependant on a few key industries. If you take away our resource boom we lose a very large part of our economic growth and we would find it very difficult to adjust our economy quickly to become competitive in other industries.

    So having "some" exposure to an international index fund will help reduce this "single point of failure" that Australia seems to have at the moment.