Matthew McCabe, Financial Planner and Aged Care Lifestyle Specialist
Often grandparents are not only looking for ways to help their grandchildren build a small nest egg for the future, but also see it as an introduction to the merits of investing for the long term.
Creating an investment portfolio for your grandchildren is for the long term, so grandparents can usually afford to take more risk than they would normally with their own money.
It is important to diversify your holdings to avoid placing your ‘’eggs’’ in one basket.
In my experience, grandparents’ typically deposit funds each month into an account to help with their cash flow. The side-effect of this is smoothing the fluctuations of the investment markets.
When acquiring an investment on behalf of minors there are a number of options, depending on the ownership or control you wish to have in place, which can have different tax consequences for you and the child, and may have implications to your age pension entitlements.
Typically the investment is held in three ways:
1. In the child’s name
2. In grandparent’s name
3. In trust on behalf of the child by the grandparent
Depending on your investment timeframe, there are a plethora of investment options available to you. If you had a longer term investment timeframe, investment trusts or managed funds may be of interest. The options vary from conservative funds through to aggressive growth funds, where your money is pooled together with other investors, and a professional investment manager then buys and sells a range of investment assets on your behalf.
Alternative options include but are not limited to, education funds, insurance bonds, direct shares, term deposits, and savings accounts.
We recommend you seek your own professional advice from a qualified tax agent or your adviser.
Disclaimer: This editorial provides general information only. Before making any financial decisions, consult a financial planner to take into account your individual needs.