As i received ang pow on her behalf, I am already thinking how to invest this sum of money. Knowing that she has a super long investing runway ahead, investing her money even before she turns one would give her a good head start in this journey, leveraging the power of compound interest. 'Time in the market' is a safer bet than 'timing int the market' in this case.
*This article talks about the investment pillar of the wealth management equation - chasing for higher returns. Ideally the protection pillar - insurance, should have been taken care of as the top priority. Always make sure the downside risk is well covered, before starting on investing for returns.
|How would you invest your kids' angpow?|
Parents of our generation armed with better education and wealth management knowledge should strive to put their kids' funds to best use, for exactly the reasons stated above. I sometimes do an envisioning exercise and imagine if my parents were able to do this for me, and what difference it would have made to my wealth situation at the beginning of my working life. The amount may not be huge, but it certainly provides a good springboard and give the kid a good start.
Nonetheless, every generation has their own constraints and some things that can be done now were not available back then. We should make the best of resources on-hand and do the best for the next generation.
So what are some ways to invest kids' ang pow money?
Child Development Account
Every new born will open a Child Development Account (CDA) with either POSB, OCBC or UOB. Under the Baby Bonus Scheme, government will provide a First Step Grant of $3k into the CDA. Subsequently, funds put into the CDA by parents will be matched by government dollar to dollar, up to a cap of $3k. And this account can be used to pay for childcare centre, medical and immunisation cost, pharmacies etc.
So in essence, parents could get a maximum of $9k in CDA, with a contribution of just $3k. Looking at just the dollar-to-dollar matching, the 'investment returns' is 100%. But taken in totality, the final fund size is 3 times the amount put in.
Yes this is technically not investing per se. But it is the lowest-hanging fruit with zero risk. In one fell swoop funds will double in size. Not too bad a deal right?
However, the limit is of course, the low amount of $3k. This is the reasons we need to move on to investment.
Regular Investment Plan
One can also consider investing regularly via banks or brokerage firms' regular investment plan. This method allows one to buy into a variety of Singapore blue chip stocks or exchange traded funds regularly at a fixed amount, via automated GIRO deduction, regardless of share price. Making use of Dollar Cost Averaging, one would buy larger quantity when price is low, smaller quantity when price is high to spread even the average cost price.
Phillip Capital offers this solution in the form of Shares Builder Plan. Investors get to choose from 28 counters - a mixture of blue chips, REITs and ETFs. One can start from as little as $100 per month, and dividends will be re-invested automatically. It can be opened in the online trading system for existing clients with POEMS trading account. Investment instructions can be amended online too.
Other financial institutions that offer Regular Investment Plan include OCBC, Maybank and POSB.
Active Share Investing
The last method would be investing into shares on behalf of your child, as per how one would do it normally for myself. This would require more effort than the other 2 ways, but could potentially reap higher returns. Naturally the risks would be highest too.
What Would I Do?
As I have not maxed out the CDA dollar-for-dollar matching, I will first allocate funds to be transferred into that first.
Thereafter, being a remisier myself, I would take the active share investing approach. I am confident that this would give me the greatest returns over long run, investing into sound companies with strong fundamentals and growth prospect. It would be not much different from managing my portfolio. And when she turns 21 year-old, I would then transfer the shares to her CDP as part of her legal assets. By then I believe the amount would be substantial, and it could be my 21 year-old birthday gift to her.
For parents who are less adept at direct share investing, he could pick Regular Investment Plan, which entails less analysis and monitoring. However, do note that DCA and regular investing does not mean zero effort or 'park money there and ignore', which always lead to disastrous investment returns, even when its blue chip stocks (just look at SPH, Comfort or Starhub in past few years). One would at least need to know company's annual earnings, and its future growth direction, because there is no guarantee that current good companies will remain good forever.
Lastly, happy Chinese New Year to all!