Our Kids' Investment Journey
Updated: Jan 29, 2022
Have you started investing for your child? If not, I hope to provide you with some guidance based on the lessons and experiences that my family went through. I will detail our kids’ investment journey from the time they were born until their teenage years. I hope that this inspires you to invest on behalf of your kids to set them up for financial success in the future.
When our kids were only a couple of months old, we started investing on their behalf in custodial in-trust accounts and RESP education accounts (which are equivalent to 529 in the US).
Custodial In-Trust Accounts
The custodial in-trust accounts were invested in mutual funds with a well known investment brokerage. At that time we had an investment advisor, who we later fired as we realized he was selling our kids investments in order to pay himself and his team. For that story, click here.
Over the years the money that was invested in the kids’ custodial accounts was funded by 100% of all of the gifted money that they received for birthdays or special occasions. We never took a dime from them. Another source of funding the custodial accounts were the kids’ allowances. Since we started giving allowance, we always required the children to put aside 50% towards investing.
They say hindsight is 20/20, so when I reflect upon the kids’ custodial account, I am happy with almost everything that we did. However I wish that we invested in index funds instead of the mutual funds that were offered by the brokerage that we were with. We were getting 3 to 4% annual return and paying significant management fees. Had we invested by ourselves into index funds, we would have saved a lot of money not having to pay the management fees and we would have earned approximately 10% average annual return.
We are investing for ourselves and on behalf of our kids now, and if you want to know how we are doing it, check out this blog.
RESP (Registered Educational Savings Plan)
As soon as our kids were a few months old, we opened up RESP educational custodial accounts for them. For my son the account was opened with Knowledge First Financial (KFF), and for my daughter the account was opened with the Canadian Scholarship Trust (CST).
Both KFF and CST are custodial education plans with a third party. To be perfectly honest with you, at this point right now, I am holding off my official review of these plans until it is time to get the funds for my kids’ education. I will let you know how that goes in a couple of years, but I wonder if I would have made more money for my kids had I invested that money on my own into index funds.
However, when my kids were babies, I did not know anything about index funds and how easy it is to invest in them (click here to learn more). As any parent, I only wanted the best for my kids, and based on all the books I read at that time, I understood the importance of investing on their behalf early, so we placed our trust in KFF and CST to help us succeed.
I also read about the importance of maxing out the educational investments in order to take advantage of the government grants. Both of the kids’ educational accounts qualify for the matching 20% government grant. Since our kids are not in university yet, they have not withdrawn any money from the RESP accounts.
We have a couple of years to continue investing in these accounts. As of now, both of our kids think that they will pursue post secondary education. However, if one of them changes their mind, the money can go towards the post secondary education of the other child. We will be in trouble if both of them decide not to pursue post secondary education. If that happens, we should be able to withdraw our investment contributions, but we will have to return back the matching government grants. I have discussed how that works in more detail in another blog. Check it out here.
When our kids were approximately eight years old, we opened up their own bank accounts (checking and savings). Together we periodically reviewed their savings accounts, and the kids could see that they were barely earning any interest with their saved money.
A few years ago, my son and I added up interest for one year that he earned on $1,000 saved up in his savings account. He earned $0.60! Yup! That’s it.
This prompted me to slowly start teaching him about investing. He was nervous about investing at first, because he heard that it was risky and that people can lose money. In order to ease him into it, I decided to teach him about investing in safe investment vehicles.
GIC (Guaranteed Investment Certificate)
I took my son to the bank and we invested his money in a Guaranteed Investment Certificate (GIC), which is a safe investment vehicle equivalent to a term deposit (TD) or a certificate of deposit (CD). The GIC that we invested in did not provide my son with a large return on investment, but it was higher than what he was earning in his savings account. The return on the GIC was lower than the average rate of inflation for that year, which meant that my son lost purchasing power with his money that was invested in the GIC. Even though this was not the best investment choice, it was good for him at the time, and it eased him into the world of investing. We even filmed a video about it and posted it on our YouTube channel.
A couple of years later we started investing on behalf of the kids in the stocks of the companies that they knew, like Apple, Disney, Roblox, etc. We invested in these companies, because it provided us with an opportunity to discuss the actual business model of each company. The kids understood how these companies were making money. Additionally, every time one of those companies was in the news, we would discuss it. I would ask the kids whether they thought that the news was good or bad for the company. I would quiz them if the news would cause the company’s share to go up or down. We had some fun and interesting conversations like this.
When Roblox was going public there was so much excitement in our house. We could hardly contain ourselves. We managed to get our hands on Roblox shares as soon as they came out. The kids were excited that they owned a part of a video game company whose games they played.
I have to admit that personally I believe that Roblox is a risky investment. They have a beautiful dream for their metaverse future, and I truly hope that they will be able to execute it in the next several years. However, at the moment, their financials do not look promising. You may wonder, what in the world has possessed me to invest on behalf of my kids in Roblox. As I still hope to make some money from this investment, I chose this investment as a learning opportunity for my kids.
One of the cool things about investing in the companies that my kids understand was when they were invited to an online Disney’s annual shareholders meeting. Unfortunately they could not attend as they had school at that time, but I was happy to attend on their behalf. Also next time, I may pull them out of school just to experience the Disney shareholder meeting.
You should know that I bought these shares of the individual companies for the kids as gifts for special occasions like birthdays, Christmas, graduation, etc. It’s a different type of gift and I encourage you to consider it for your child. It does not have to be the main gift. It could be a side gift for a special occasion. If you buy your child shares of a company that they know and understand, you can review that company’s performance and its stock over the years to come and have interesting discussions. Check out this post where I listed some stocks that you can purchase for your kids of the companies that they may understand.
Index funds and ETFs
As my kids became older and I had more time to dedicate to investing and learn about it, we started investing in index funds and ETFs. I believe that it is very easy to learn how to invest in these investment vehicles and that anyone can do it.
My kids have picked it up. They got fairly confident and perhaps a little too self-assured. Even though I have been teaching them how to invest for many years, I was afraid that I was going to miss teaching them something important. Therefore in order for them to have a formal type of investment education, I started Wealthy Kids Investment Club for my kids. I ended up opening it for enrollment to other children. Once the club was available to the kids, some of the parents wanted to join, because they wanted to learn about investing since no one taught them. Now the Wealthy Kids Investment Club has become a family membership program, where families learn how to successfully invest. For more information about it, click here.
My kids understand how easy it is to invest in ETFs and index funds, as well as that those
investments provide us with high average annual returns and instant diversification. The key is to hold them for the long term. The kids regularly invest in those investment vehicles now. My goal is to try to convince them that even if they stop investing in the ETFs and index funds by the time they are 18, they must leave the money in the investment account, so that it can continue to earn them compound interest, and they can retire millionaires.
Currently a small portion of my kids portfolios is invested in Bitcoin. Bitcoin is the only crypto currency that I feel comfortable investing in at the moment. We are investing for the long term, so its volatility is not bothersome to us. Other than Bitcoin, we are considering investing in Ethereum. According to my son, Ethereum is used as a form of payment for NFTs. I did not know this about Ethereum. I have not had a chance to research this information and form an opinion about it, but what is great is that my son came to me with
this information and presented his reasoning why he believes that Ethereum would be a good investment in the long term as NFTs are becoming increasingly popular. This just proves that kids can learn about investing. Soon I will do a post about investing in crypto on behalf of kids and I will share everything that we are doing.
Some of the ETFs that my kids own pay dividends. However, my children want to invest more in dividend ETFs and index funds. At first, I could not understand why. I explained to them that people who are looking for regular streams of income (such as dividends) and less risk/volatility are usually retirees. I was explaining to them that our goal is to invest on their behalf for the long term and benefit from the increase in the stock price over time.
They explained to me that they want to invest in dividend ETFs and index funds, because they are looking for dividend income to finance their lifestyles. In particular, they are hoping to finance their first vehicle expenses with their dividend income. I thought that it was really interesting that my kids were getting these ideas. I wish I were part of some Wealthy Kids Investment Club when I was their age, so that my horizons were broadened by learning about potential opportunities.
I have some ideas how I can help them crystallize a part of their dreams of financing their car expenses with their dividend income. I hope to put those wheels in motion soon, and share them with you in case you want to do something similar with your child.
I hope that you found this post helpful. I have been very transparent with you and shared our kids’ investment journey. Just a friendly reminder that none of this is investment advice. If you do not know how to invest, please contact a professional investment advisor. If you would like to learn why I love investing in ETFs and index funds, check out this post as you may find it helpful. If you would like to learn how to invest, please check out my Wealthy Kids Investment Club. For just $8 per month, your whole family can learn about investing.