We wish our parents had started investing when we were little so that we wouldn’t have to take a student loan. We can do this for our children though. Having seen hundreds of investment portfolios, I’m going to share steps that parents can take to create a portfolio for saving up for a future Harvard graduate.
Start early. Like right now.
The earlier you start saving up and investing, the more compound growth you get, i.e. money will not just add up, but it will multiply itself. Forget about “I’m gonna start saving/investing/eating healthy when I earn more,” it’s an illusion. Even $100 can make a miracle in 16 years given monthly contributions of $100 and, of course, the longer you hold, the more you get.
To work this out with your own parameters, try our investment calculator.
Use a tax-advantaged account
Obviously, saving up in a jar is not an option, because the inflation (which is 8.6%!) will eat it up. There are different types of investment accounts, but the one that you should check first is a 529 college savings plan.
- It provides tax-free investment growth and withdrawals for qualified education expenses.
- Generally , there are no limits on contribution in this account.
- More than 30 states offer tax deduction on this, but contributions are still subject to gift tax exclusion limits for federal taxes (which is $16,000 per donor in 2022).
- With this money you can pay for tuition, accommodation, books and even a printer for your kid.
- If he or she receives a scholarship, then you can withdraw the equivalent amount of money without penalty, but it will be subject to taxes.
To get a clear view on other types of investment accounts you can also check this article.
Pace your appetite for risk
You can start aggressively with very risky investments, such as Electric Cars, Bitcoin or Biotech, because you have time to wait for growth in case of a bearish market (like now) and rebalance the portfolio towards more stable assets like dividend stocks and ETFs.
You have probably heard the rule about having a % of bonds equal to your age. Well, in case of your child’s future, bonds will be unlikely to bring desired returns and also there won’t be a need to live off coupons. You are just going to sell stocks and withdraw money. So the goal is to maximize your yield in, let’s say, 14-16 years.
Basically there are two ways you can manage a portfolio: active and passive.
Active assumes that you play along with the market trends. If you are to take this approach now, here’s what you might do in the current market:
- Buy major crypto coins on the low (Bitcoin, Ethereum, Polkadot) and few smaller altcoins (Tron, Matic, Elrond).
- Check inflation-proof portfolio with stocks that benefit from raising rates for 1-2 years, until the Fed starts printing money again (you can check the composition of it and buy in Gainy).
- Find innovative companies that have fallen but have great potential in the future, such as Electric Vehicles, Semiconductors, IT Cloud Infrastructure, etc.
- Buy agriculture stocks in anticipation of global food shortage.
Note! In 1-2 years you will have to sell what has risen and change the strategy based on the market situation at that moment. That’s why it’s active.
Passive strategy suggests buying:
- Fundamentally strong large-cap companies such as Microsoft, Amazon, Bank of America, McDonalds, etc.
- Dividend companies such as in the High Yield Dividend TTF with an average dividend yield of 9%.
- ETFs with wider exposure to sectors because you’ll be safer with bigger diversification.
And you would just add up to it every month and hold it until your kid reaches legal age.
3 ways Gainy makes this whole process easier
- It doesn’t matter which strategy you choose, you can set your parameters during onboarding in Gainy at different periods and see what can be a great addition to your portfolio at the moment. Or you can check the Match score on the stocks you have in mind.
- Buy current trends in the form of TTFs or ready-made portfolios by our top analysts and influencers you trust.
- Track the performance of your individual account, IRA, kid’s portfolio all in one place.
Last but not least, seeing an exemplary portfolio might help you gather your thoughts and take action. Check this to see how Youtube dad did it for his child.
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