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Investment for Children

Discussion in 'Money Management' started by JK200SX, 13th Apr, 2015.

  1. JK200SX

    JK200SX New Member

    Joined:
    13th Apr, 2015
    Posts:
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    Location:
    Melbourne, Victoria
    When my Children were born ~8yrs ago, my parents opened up a saving account for them through CBA (Dollarmite ac - I am the guarantor on the account))and have been regular making monthly payments , so one day they will have a reasonable saving account established.

    My parents recently mentioned that they will be contributing a further lump sum for each of their grandkids of 10K in each of their accounts. My mother said that noone is to touch the money, and hopefully in the longterm (ie until they are in mid 20'swith interest there would be growth with the money that they will be able to enjoy in the future. I mentioned to my parents that we should look at setting up a sharing trading account for each child, liked to their account and look at buying some blue chip share and let them take their cours over the next ~12-15yrs. Dad was all for it, mum being a bit more old school didn't didn't feel that comfortable with the idea, but after explaining the potential difference in growth in shares vs saving, she could unerstand what I was talking about.

    With the above mentioned in mind, what do you guys recommend would be the best way to invest this money for reasonable to high growth over the period involved?

    Ideally, the investment vehicle should somehow be linked with their savings account, as my parents will still contribute on a monthly basis.

    Also, is there anything we need to be aware of in relation to tax etc as I'm listed as guarantor on the accounts and also that the kids are under 18.

    Thanks in advance.
     
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  2. TomatSaveInvestRepeat

    TomatSaveInvestRepeat Member

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    20th Apr, 2015
    Posts:
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    Location:
    Adelaide
    Hey there,

    Awesome work with the savings accounts for your children (kind of wished my parents gave me that kind of head start!) The idea about blue chip shares is a good one too - I don't own any stocks outside of the top 50 in my portfolio. I have a bias towards shares and think they will give you good results in the time frame you mentioned:

    allords.png

    However, I think they should still be part of a diversified investment portfolio even if they are weighted significantly.

    I use Commonwealth Bank and have a Direct Investment Account set up - this integrates with my normal savings account and I can just push across money on-line into this account which I can then purchase more shares with. I'm not sure if your bank has the same kind of set up.

    In regards to the tax obligations - I don't believe as guarantor there is any implications for you as your children will be receiving the income into their account rather than you, but perhaps that's a question for your accountant :p

    Hope that helps!

    Tom
     
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  3. Terryw

    Terryw Well-Known Member

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    9th Jun, 2006
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    Sydney
    Just watch out as children are taxed at penalty rates when earning more than $416 pa.
     
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  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Sydney, Australia
    An old thread - but an interesting topic.

    Given the tax implications of income earned by minors, as mentioned by previous posters, you want to be careful about how much you put in your children's names.

    You basically have three choices:
    1. invest in the child's name, but make sure the amount invested is below the amount where they would start paying penalty interest rates (a bit limiting really - although at 4% interest rates, you'd need more than $10K invested to earn more - shares may be more problematic though)
    2. invest in your name using a separate account so you can track whose money is whose (for example, UBank allow you to create as many accounts as you like online) - you pay tax at your marginal tax rate, so you may be paying a lot of tax still. Also there are asset protection issues to consider - especially for people in higher risk professions or in business.
    3. Invest using a family trust. If you have plenty of other assets, a trust may be worthwhile, but not so much if it's just for the kids. There are other issues too such as making it clear exactly who is entitled to which assets in the trust (that's more of an internal management issue - but could cause legal problems down the track if the family unit breaks down).
     
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  5. Il Falco

    Il Falco Active Member

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    Sydney
    4. Insurance bond
     
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  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Can you elaborate?

    How does it work? Pros/cons?
     
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  7. austing

    austing Well-Known Member

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    5th Jun, 2006
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    Location:
    north maleny
    Perhaps the use of an Insurance Bond then transfer ownership tax free when kids are over 16:
    @Il Falco just beat me whilst I was typing my post.

    Some more info:
    https://www.moneysmart.gov.au/investing/complex-investments/investment-and-insurance-bonds
     
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