Building an investment portfolio for a new born child to secure her future, is the dream of every parents. Child investments required careful selection of proper investment instruments and maintaining the same for long term, without fail.
It required enormous efforts and patience to get desired result. If you think a little, you can build a simple investment portfolio for your kid, by not having much complexities. Here is my personal experience of creating a simple investment portfolio for my kid.
When creating a portfolio for kid, it is recommended to add the investment instruments that have high risk. Equities are the best asset class to meet this requirements. High risk instruments have capability to provide high rewards. A child investments always have long term focus and equities have a character of performing well for long term, equity investments are the better option for those planning investments for kids.
For me, it was not simple to select right instruments when I was thinking about presenting a core portfolio to my kid. I never went directly to invest on any instruments blindly. Instead, I collected the possible details about the available instruments to know the possibilities of systematic investments for long term to generate wealth slowly and steadily. Further, I have moved with this clear vision and goal and that took me to the following investments:
1. Mutual funds
When my baby girl was at the age of one, I have selected two well performing large cap focused mutual funds and started systematic investment plan (SIP) on it in her name. Of course, I am the guardian for this investments and kept my wife as the nominee. Through SIP, I have authorized mutual fund to withdraw a fixed amount from my account in each month, for next 12 years. I am getting the statements properly by e-mail and thus getting updated information about the fund, time to time. The major problem I have faced while selecting this funds, to know the fund manager and investment style. I took enough care to not select any fund with a fund manager have trading nature than investing. I have also selected the funds that is top from the beginning till the date.
2. Direct Equity investments
With my nature of transferring a fixed amount in each month to a separate account, enabled with online stock trading functionality, I met the basic requirement of building a portfolio of wonderful stocks for my kid. Transferring an amount to a separate account in each month working for me in two ways; First, it will work as an emergency fund for me, even though I have a separate one, and second, a regular transfer of a fixed amount to this fund already build a great corpus, that is enough to buy good shares when it is coming to the right price. I have a plan of buying considerable number of stocks from at least 10 excellent companies to generate an equity portfolio for my kid to meet all her necessary future expenses.
To those who interested to know my stock selection criteria, please read below:
– I have considered companies who have at least one product with real monopolistic position in the market and providing no room for its competitors to enter to the same segment.- I have considered the management efficiency of the company and the ability to introduce innovations, time to time, to maintain its leadership position.- Companies that have continuous earning growth for last 8 to 10 years and without any fail.- I have bought the stocks that meet the rate of return that I have fixed myself- Zero or no debt companies only selected.Through the long day process scanning number of stocks, I have shortlisted 25 stocks and selected 10 stocks to the final list to buy. I am sure, I will buy at least 8 companies from this list before my kid reaching to her age of 10. I have patience to wait until the price of these stocks coming down till my prefixed buying boundary.
3. Savings Account
My third option was a secure saving account with compounding interest. To meet the same, I have opened a PPF – Public Provident Fund – which directly controlled by the government. It providing 8% interest to the investment in a compounding basis. This account helping me to add any excess amount in it and with a future plan of educating money savings to my kid. At the time I can use this account as her parking place for any of her savings. Through such account, I am getting total tax deduction to the amount depositing to that account as well as the interest earning from it. It of course, a double edge sword for me.
What will be my task with these investments?
1. I am sure, above three will perfectly meet required child investments. I have the requirement of monitoring the investments with mutual funds. But, this can be done once or twice in an year due to the present fund status and fund manager capability.
2. Intelligent selection of stocks and long term investment focus eliminating the requirement of monitoring the performance of stocks I have mentioned with step two.3. As it is controlling by the government, there is no worry on the money depositing to my PPF account.
Above mentioned are my personal child investments plan. Selection of an account mentioned in the step three may be different in your nation. If you plan to select a saving account for your kid, always prefer the one providing compounding interests and lock-in periods of certain years. You can convert this account as a good parking place for all money your baby getting as presents or saving through educating her about the requirement of saving money.
You are welcome to share ideas by commenting on this. Remember, world has full of ideas but getting the same from a simple point, is difficult. If you have a right idea, it will be useful for readers as well as me to update my knowledge.