Investment for baby: Offset vs Index fund

[antonio]

Howdy somersoftenites!

Our lil monkey (baby) has just turned one and we want to set aside an automated growing money tree for him

Have a basic "fund" with the ASF - Australian Scholarship Fund and now thinking if that was a good idea...

Like to ask for your wise advice and pick your brain for pro cons

Set aside money regularly in an index fund, eg vanguard?
(leave it to power of compounding and reinvested earnings)
vs
leave money in our offset?
(helps save us on interest and has a lump sum but not really growing in asset value...

Don't know of any other simple but effective set and forget options...

Would love your thoughts especially for those who've done it and benefit from hindsight

Thank you in advance

 

[geoffw]

If you put it into your offset, you're building up equity more quickly towards another IP.

I wouldn't be earmarking anything myself. If you concentrate on building your investment portfolio, you will have enough for junior- and siblings- when the time comes. This may be in the form of equity.

 

[Macca]

I think the best thing you can do for your child is provide them with a loving home with as little stress as possible.

Look after your own security first and you are indirectly doing the very best for your son by enjoying life and giving the most important thing of all for your kids, TIME

 

[jrc77]

Antonio,

I am a big fan of keeping it separate from all other funds.

We are doing this for both our children and interestingly I was reviewing it the other day to see if I should change what we are doing.

Currently just transferring a set amount each month into a Rabodirect account.

Ideally would like to put it into a index fund now that a bit of money has accumulated. A managed fund would allow the regular contributions but charges a larger management fee, where as a ETF would have lesser management fee but be more expensive (and manual ie. the share purchase) for entering the fund.

Regards,

Jason

 

[MelbGal]

Offset account you don't pay tax on interest earned/offset from these funds. Better still if it's offsetting a PPOR loan.

My understanding is if you put the funds into another type of interest earning account, you need to declare the interest earned and pay tax.

 

[devank]

I think the best thing you can do for your child is provide them with a loving home with as little stress as possible.

Look after your own security first and you are indirectly doing the very best for your son by enjoying life and giving the most important thing of all for your kids, TIME

You can't argue with this ^^^

Keep it in offset. Less stress, less paperwork, guaranteed return at homeloan rate and also it is nice to have an emergency fund.

 

[coolcup69]

An offset is the best post tax risk vs return situation available... as long as you can clearly delineate what is savings for your child vs other savings. No point withdrawing and spending on a big holiday when it was meant for their education!!!

My wife and I have set up a separate investment account with Perpetual where we transfer a set amount each month. Given our son has just recently been born, we figure he has a long time till he needs the money and so are being a bit more growth focused with the account (ie international and Australian shares) rather than defensive (ie online savings account).

The scholarship funds like ASF often have very stringent requirements in terms of what the funds are used for and how much you can contribute per annum. The tax advantages aren't worth it for me, and you get very little investment choice and higher fees than a more regular investment product.

Good luck.

 

[BayView]

I think the best thing you can do for your child is provide them with a loving home with as little stress as possible.

Look after your own security first and you are indirectly doing the very best for your son by enjoying life and giving the most important thing of all for your kids, TIME

That is a given.

As for the savings scheme, with the online accounts, there are no fees, and the interest rate is better than banks every time. Reinvest everything.

And chuck in a managed fund just for laughs. Reinvest everything.

And do the offset account for your own investment program.

You will already be ahead of 95% of folk with that basic little plan.

 

[MaxwellSmart]

Ivest in a low cost index fund and reinvest all dividends.

 

[Macca]

That is a given.

Sorry BV, but I don't think it is a given at all.

I know 2 couples who believe they are doing all they can for their kids, provide good home, provide plenty of toys, take to sport and drop off, computers etc etc.

They provide all sorts of financial benefits to their kids as well as will pay for their Uni fees but they have spent very little time with their kids and now that the kids are heading into their teens the parents still haven't spent time with them.

They rarely played with them, they provided toys and sat and watched them play. They take them to sport or music but don't actually throw/kick a ball with them. They don't take them to the beach and swim with them.

Why not ? too tired ! Commuting long hours to get extra pay, studying to improve career prospects, working extended hours to avoid the next retrenchment wave etc etc

By leaving the spare money in the offset account it helps the parents have a more balanced lifestyle in the early years. Your kids are only kids once, I believe we should all make the effort to create some memories for us and the kids of their childhood.

Once the kids are grown up it is much easier to provide extra benefits with a minimum of effort. We can then save for our retirement and when we have enough we help the kids or when we die they can have what's left.

Either way, when a person looks back on their childhood I believe they are far more likely to remember the time their parents did things with them rather than the new doodad bought every week.

ps: the other problem is the ATO, they treat an offset benefit far more favourably than an investment in a childs name.

 

[BayView]

Sorry BV, but I don't think it is a given at all.

I know 2 couples who believe they are doing all they can for their kids, provide good home, provide plenty of toys, take to sport and drop off, computers etc etc.

They provide all sorts of financial benefits to their kids as well as will pay for their Uni fees but they have spent very little time with their kids and now that the kids are heading into their teens the parents still haven't spent time with them.

They rarely played with them, they provided toys and sat and watched them play. They take them to sport or music but don't actually throw/kick a ball with them. They don't take them to the beach and swim with them.

Why not ? too tired ! Commuting long hours to get extra pay, studying to improve career prospects, working extended hours to avoid the next retrenchment wave etc etc

By leaving the spare money in the offset account it helps the parents have a more balanced lifestyle in the early years. Your kids are only kids once, I believe we should all make the effort to create some memories for us and the kids of their childhood.

Once the kids are grown up it is much easier to provide extra benefits with a minimum of effort. We can then save for our retirement and when we have enough we help the kids or when we die they can have what's left.

Either way, when a person looks back on their childhood I believe they are far more likely to remember the time their parents did things with them rather than the new doodad bought every week.

Yes, I agree.

The "given" part was a bit of a facetious barb, but it should be a given.

I know a few folk who are ultra-career junkies and spend zip time with the kids....why have them?

Just a status accessory no doubt.

 

[xanh]

Regardless whether its a given, if the OP was to fall into that category of parents that don't spend enough time with their kids, its doubtful that a post on this forum would change their mind. More likely, they wouldn't even think that they fall into that category, therefore the post may fall on deaf ears.

FWIW, I would go index fund. Especially if its not a great amount. The good thing about an index fund is that it gives them exposure/motivation to learn about the sharemarket (when they're older, of course ). At least that's what I'm hoping. I got Origin shares for our little monkey.

 

[tobe]

I dont believe in having seperate account, in fact, I will judge my parenting successfull if I dont give my kids any money when they are adults, or if they refuse it.

I think the best gift is to show them how to manage their own money. Failing that, having enough money myself to be able to set them up as young adults if neccessary.

 

[nhg]

I dont believe in having seperate account, in fact, I will judge my parenting successfull if I dont give my kids any money when they are adults, or if they refuse it.

I think the best gift is to show them how to manage their own money.

My sentiments are as above.

Food for thought...

Extract from Millionaire Next Door:

"You can't hide from adversity. You can't hide your children from life's ups and downs. The ones who achieve do so by experiencing and conquering obstacles,... even from their childhood days. These are the ones who were never denied their right to face some struggle, some adversity. Others were, in reality, cheated. Those who attempted to shelter their children from every conceivable germ in our society... never really inoculated them from fear, worry, and the feeling of dependency."

 

[BayView]

I dont believe in having seperate account, in fact, I will judge my parenting successfull if I dont give my kids any money when they are adults, or if they refuse it.

I think the best gift is to show them how to manage their own money. Failing that, having enough money myself to be able to set them up as young adults if neccessary.

Why not do both?

We have told our 12 year old son about his ING account, and every week 20% of his pocket money is deducted for his investing account - the ING account.

He gets $1 per year of life, so now he's on $12 per week, nett $10. (we contribute a small amount each month as well).

He understands that he is never allowed to spend that money on anything else except investments, and he knows he won't get it until he turns 18.

The idea is that he gets into the mindset and habit of paying himself first, then spend the rest on whatever else.

He is just starting to show a little interest in the whole IP scene - he has seen our ups and (more recently) downs with it all, and he is starting to show interest in his account balance; looking it up online every so often, which has been growing steadily since we started it back when he was about a year old.

I think that the education, combined with the opportunity we are providing for him - something that both our parents never were able to - will be a huge advantage for his financial future at an earlier age.

 

[antonio]

Thanks for replies everyone

Sorry for the late reply. For some reason I didnt see the email notifications

Leaving it in the offset definitely simpler

Yes, we all remember and treasure the childhood memories and experiences
not the balance passed over

One of the things I wanted to do is to educate them and they manage their
own money as well so maybe an index fund in the future

Thanks again all

 

[Terry_w]

I haven't read any of the posts other than the OP, so sorry if repeating things others have said.

Investing directly means less money in the offset
= more non deductible interest.

v

Keep money in offset and borrow the money, from a LOC, to invest.
= reducing non deductible debt and increasing deductions
= more money to invest.

 

[Peter_Tersteeg]

A couple of observations:

If you do decide to invest it in a fund, don't bother with the Scholarship fund. There's far better and if you're looking for something like this, consider getting some professional advice on an insurance bond. More flexible in how you can use the money and better tax benefits later. There are educational variance of insurance bonds with better ongoing performance as well.

The pervailing advice here seems to be to put the money into an offset account. I don't necessarily disagree, but there are a few things to consider:

* Buy putting it in an offset account, you're creating equity for yourself. This might mean that you end up with more assets which can benefit your children, but don't kid yourself, you're not investing for your children with this strategy. If you do want to invest for your children in this manner, make sure you take the interest savings and add it to the offset account so at least that's also growing in value.

* A nice cash amount can be tempting when times get tough. My assistant has put some money away for her kids for when they're a bit older. In the last 7 years I'm aware of at least 2 occasions where she's gone and accessed those funds, both times when her or her husband's car broke down. She always works to put the money back when she can, but she hasn't really added to the amount. Had she invested the money in some CBA shares and re-invested the dividends, the kids would likely be looking at double the money in a dividend and growth asset. The savings account isn't really doing much for her kids.

 

[antonio]

I haven't read any of the posts other than the OP, so sorry if repeating things others have said.

Investing directly means less money in the offset
= more non deductible interest.

v

Keep money in offset and borrow the money, from a LOC, to invest.
= reducing non deductible debt and increasing deductions
= more money to invest.

Thanks for that Terry

So if you borrow money from the LOC
say $1k for ease of numbers
to put into an index fund

would you have with dividends reinvested?

otherwise how to pay holding costs of LOC? aside from after tax salary

confused with tax implications

is using dividends to pay interest bill same as paying with own after tax salary?

 

[antonio]

A couple of observations:

If you do decide to invest it in a fund, don't bother with the Scholarship fund. There's far better and if you're looking for something like this, consider getting some professional advice on an insurance bond. More flexible in how you can use the money and better tax benefits later. There are educational variance of insurance bonds with better ongoing performance as well

Thanks for that Peter

Insurance bonds are totally new to me so would need to look into it

Starting to regret getting into ASF...

need to look into the exit clauses