If you open separate accounts in your name but you consider them, in practice, for your children - then obviously it has no concrete difference w.r.t. just investing everything together, and it is just a trick for a simpler accounting, which would be helpful only if you think you need this very concrete accounting in order to be able to easier track what is the portion of your portfolio you mentally allocated to your kids.
If you open accounts in their name instead and then fund it (effectively gifting them money) then it has concrete implications (not on taxes, at least not before they turn 18 I think) but they are mostly negative IMO: you will have a harder time finding an institution that accepts accounts for minors, harder time accessing the money if needed and you can’t prevent your kids from accessing the money when they turn 18. The only advantage of this approach is that is gives somewhat protection from the children parents/guardians squander children’s money: so this would make sense if you want to protect them against your future self (basically make an irreversible gift now) or if other people (e.g. relatives) want to fund the children’s portfolio and want to be somewhat confident that the money will end up in the children’s hands
I mostly disagree with @rez ‘s post above on opening the account in the kids’ name. I’ve written about some of my thoughts on this in a different topic and I won’t repeat it here.
$ I am however a user of their vested benefits offering. Alongside VIAC.
IMO that thread is about a different topic: teaching kids to invest (as the title says), here instead OP was talking about the “real amounts” (buying a house, etc.). I am supportive of training kids with real money by giving them control, but the point of training is to let them decide on things and screw things up so that they learn, so the balance accordingly must be a “training” one that can be lost
Thank you so much for taking the time to write such a thoughtful and detailed response - this is exactly the kind of practical analysis I was hoping for!
Your breakdown of the different approaches really helped clarify my thinking. You’re absolutely right that separate accounts in my name would just be an “accounting trick,” but after reading your response, I’ve realized that this simple accounting actually has value for my situation - mainly for transparency with my wife and being able to clearly show the kids their progress over time.
Based on your advice (and the practical challenges you mentioned with accounts in children’s names), I’ve decided to stick with my current broker (DEGIRO) and add a 3rd ETF in my name that I’ll mentally allocate to the kids. This gives me the tracking clarity I want without any of the administrative headaches or loss of control you mentioned.
Really appreciate you sharing your knowledge - it saved me from potentially making this more complicated than it needs to be!
I was wondering how to approach this as my baby was born recently. I was wondering whether to create a savings account for them (like that Migros one), but buying a specific ETF for them is quite an interesting approach.
Create a sub-account (in your name but for your kid(s)) at the broker you are using for your own investments, choose a global ETF and create regular payments.
Finpension invest, why not, for simplicity and if you have none of the brokers mentioned later, but you can still find cheaper TER (Saxo autoinvest, IB, even Neon saving plan).
The first thing you should figure out if you want to keep the funds in your name or in kids name. The latter IMO should only be done if you really want the funds to be protected from the current and future guardians (including yourself) and you want it so much that you are ready to tolerate the many drawbacks I mentioned above.
If instead you want to keep the funds in your name, then you basically want a virtual balance assigned to your kid, this is just a number on a paper (or in your mind). Then it is just a matter of finding the approach that makes the accounting of this number the easiest for you. It can be as simple as a spreadsheet that calculates what % of your assets are virtually assigned to the kid (would work even if you hold only 1 ETF and nothing else), if you want it to be more explicit you can have separate stocks/ETFs that you consider to belong to your kid, if you want to be even more explicit it can be a separate account/sub-account at a broker that you consider to belong to your kid.
By the way, for folks who keep a virtual balance/portfolio assigned to their kids (but actually being held in parents’ name): I’d be curious to hear why? I.e. what is the actionable impact of what that number is on your spending/investment decisions? What would you do differently if you did not have that split?
Nothing, just simplicity, given I cover and will continue to cover all my kids’ costs for at least 10 more years, if not 15, I don’t want to have a bit of assets/money out of reach, and doing the best possible for me translates to “doing the best possible for the family” too.
To keep the money separated and not available to spend once we live off our investments. Similar to Mirager, it’s not impacting stuff we pay, anyway at all.
It’s invested 100% in equity, same products and allocation as other accounts.
In my case, it’s not just virtual, it’s separate accounts.
Sure, I meant virtual as virtually assigned to your kids, because in reality it’s yours - you not spending it is just your decision.
@Mirager@Brndete do you mean that you are currently at the risk of accidentally spending the kids portion (i.e. your own is close to 0)? Otherwise I still don’t see the point of separating the assets. Is it just nicer for you to be able to look at a number in a clean UI in a separate account to keep track of how much it’s growing?
In a worst case scenario yes, but that would be an odd way of thinking about it given I’m already covering their costs, so to be in a position of needing to dip into investments (any) would mean I’m struggling to cover their costs in the first place. So would they need to go without, or with less while there’s money in stocks?
For simplicity what I’ve set aside for kids is a slowly growing stack of BRK.B shares. The long-term intent is to transition into income investing for covering my own + wife’s living costs when not working, and leave what’s not needed to grow in broad index funds, for everything to go to the kids. @PhilMongoose has made a good point though, “what’s the point of giving them (by means of dropping off this mortal coil) a large sum/pile of assets when they’re 40+, with set up lives etc?”, the rationale being that they could/would have a lot more need of it earlier than later. I don’t know the answer to that, what I’m sure about is that parents need to enjoy life too - the Greek culture used to be one where each previous generation would starve so the next generation wouldn’t, but I don’t subscribe to that!
Couple of very losely held counterpoints (against managing your kids’ money in a mental sub-compartment of your – the parents’ – portfolio).
I set up an IBKR account for my son when he turned about 15. Had to (legally) set it up in my name, but always told him that this was his account, reflected the account in Google Sheets (shared with him) and gave him regular updates about trades (what companies were bought, with pictures, similar to how @cubanpete_the_swiss pumps[$] his momentum trades) and returns.
The point was to make him feel like this was his money, his fluctuations in NAV, his dividends coming in (and growing annually).
My hope was that he would learn early how money can work for him while he sleeps at night and that the 8th world wonder – compounding – is actually a real thing that you can observe.
When he turned 18, I created for him his own IBKR account that he has legal ownership of and transferred all positions from “his” account in my ownership to his actual IBKR account.
I still manage his now actual IBKR account, but I am not the owner.
Despite various and serious temptations to access his portfolio – he is 20 now[$$] – he’s resisted selling and has even stated that it would be stupid to do so.
I attribute part of his thinking to having had (or felt) ownership and having observed the growth over the years and thinking as an owner of the companies.[$$$]
Next step would be for him to realize to keep contributing cash to that investment account … we’re probably still a couple of years detached from that. Maybe even more.
There are more detailed aspects to this kind of approach, and I belive I’ve even written about them in this topic.
At any rate, I believe either way – separate account or not – probably works fine. The key is IMO in keeping your kid(s) updated about what you are doing in “their” investment account, why it matters, how it’s working (hopefully) and why it is important to not interrupt the compounding.
$ Just kidding, man.
But top this LMT pump from when I bought it for him at maybe age 16:
$$ Just 8 to 13 more years of us supporting him now.
$$$ I know I am jinxing it now. Surely he’ll aproach me tomorrow and ask me to sell it all and transfer the cash to his ZKB account.
I’ll tell him it’s a bank holiday tomorrow and will then work the weekend to convince him not to sell …
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