Are you looking for assets to buy to secure your children’s future? If YES, here are the 10 best long term investment ideas and options for a child. For a lot of parents, a cash gift is the preferred present for occasions such as birthdays, Christmas etc. However, just giving kids money may not always be the best idea. For most kids, the money will be likely spent on the latest video game or on a trip to the sweet store.
Children who are more frugal in nature will end up storing some or all of the cash in their piggy bank where it will accrue a total of zero interest. This is why it is really necessary to not just only invest in our kid’s future but to also teach them about the importance of setting aside some cash for the future in form of investments. Remember, nobody gets rich by saving, rather investment expedites wealth.
Don’t fall into the trap of postponing the discussion about investing till when they have money of their own to invest. Make sure that you inculcate into them at an early stage the importance and relevance of not just saving but also investing.
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Is Investing Money for your Child a Risky Gamble?
Some people think that making an investment is the same as gambling; it may or may not payoff. However, this is very far from the truth. Gambling involves putting money at risk by betting on an outcome which is uncertain. It works on the hope that you may win the money while investing does not work on this principle. Yes, there is a risk involved, but there is also a security of getting a certain amount of money after a certain time interval.
Typically, a long term investment is an investment that has a maturity period of not less than 5 years. When investing for the long term, it is best to go for plans that are stable with very little fluctuations in value, so that even if the fluctuation does occur, the good and bad will balance out to your own benefit in the long run.
Also, you should know that the higher the risk associated with an investment, the higher the return. But to be on the safe side, stay away from investments that promise returns that are too good to be true. Here are a few long term investments options that are suitable to engage in for or on behalf of your child.
10 Best Long Term Investment Options & ideas for a Child
Due to their less stochastic nature, bonds make for a better investment alternative as compared to an average stock. Bonds that are held for a long period of time also provide better returns than those that mature within the short term. Bonds represent one of the most popular and common investments.
Bonds are simply loans given to a company or government by an investor who in return is paid interest on the money that they have loaned out. Companies and governments issue bonds frequently to fund new programs or ongoing expenses. Investors use bonds to preserve the money they have while also generating additional income. Bonds are generally thought to be less risky than stocks and are commonly used to diversify a portfolio. You can own a bond by opening an account with a specialized bond broker.
2. Blue Chip Stocks
These are basically massive companies with a large market capital that could range from tens to hundreds of billions of dollars. These stocks can be found as part of major indexes. These stocks are very safe and stable due to how big the companies are and how long they have been in business, and as such, they are very suitable for long term investments.
Most blue chip companies have been in business for 20 years or more. Blue chip stocks also pay very attractive dividends because they make a lot of money and have stable balance sheets. You can get your child’s interest by pitching to him the fact that he could own a part of Disney, Coca-Cola or Pepsi. Other examples of blue chip companies include Johnson and Johnson, Wal-Mart, Google, Microsoft etc.
3. Investment Properties
Making investments in properties like real estate or in landed properties is also a very good long term investment option and to a large extent it is also very safe. Investing in properties has really enriched a lot of people. The land and space that is available is not infinite yet the demand continues to grow. Buying land or landed property, build or renovate the existing property and then leave it to rise in value is also a good strategy to use.
4. Dividend Reinvestment Plan (DRIP)
The name of this investment plan basically explains what it does. It involves reinvesting the dividend that an investor would have normally received by way of purchase of more stocks. This makes the investment that you have in the company to grow even faster than it would have on a normal basis.
The DRIP plan can be setup by the investment company or through a broker whether online or in person. This plan permits you to reinvest the cash you would normally receive which you would automatically get in a share format. On the long run, DRIP’s can be extremely profitable.
5. Mutual Funds
A mutual fund is a collective investment that pools together the investments of a large number of investors to purchase a variety of securities like bonds or stocks. Just like a regular stock, when you purchase a share in a mutual fund, you have a stake of all the investments in that portfolio no matter how small. Mutual funds are advantageous because they are managed by seasoned financial professionals and they offer an option of diversifying investment.
For example, if you want to invest in your child’s future by way of the stock market but you don’t have the time or technical know-how to carry out such as task, you can purchase a single investment which will basically be the same as an entire portfolio of stocks. To find the right mutual fund for you, you can use online tools such as mutual funds searching and rating given by unbiased third party organization to find a mutual fund that is in line with your investment goals.
Once you find a mutual fund that is a good fit, you should then review the mutual fund’s prospectus to get a feel of how the funds operate. After researching the mutual funds and its prospectus, you can go ahead and pay the investment amount and get a share of the mutual sound. By doing so, you can participate in the gains and loss of the mutual funds.
Due to the fact that the portfolio is diversified into different investments, the risks are lowered as compared to putting all your eggs in one basket. An investment can make back its money through appreciation, that is when the fund share goes up in value. Unlike a stock, the value of a mutual fund share does not change throughout the trading day, instead the funds value is calculated and updated when the market close. Also money can be made through dividend payments.
6. Gold ETF
Between 1970 till date, gold has returned 10 percent every year to its investors. Gold has overtime managed to overtake the inflation growth rate. It also gains in periods of global downturns such as war. Gold ETF’s are open ended funds that are listed in stock exchanges. Gold ETF’s allow investors to buy units corresponding to one gram of gold. It can be purchased in small or large quantities depending on your investment need.
ETF’s can also be sold off easily as compared to real physical gold. With gold ETF you don’t have to worry about how to store it or run the risk of having your gold stolen. Gold appreciates slowly overtime making it a poor investment choice for short term investors but it is a good bet for long term investments.
When investing in gold, it is not advisable to go for physical gold coins or jewelry because of the costs that you would incur from physically holding it, difficulty in resale of the gold and the negative effect in credits on import. With gold EFT’s you have the advantage of not worrying about impurities in your gold, you get to have your gold available in an electronic form and you also have the ability to track the value of your investment from anywhere and at any time.
To invest in gold ETF, all you need to have is a Demat and a trading account. You can get an online account for trading stock which you will then use to invest in the gold ETF. Once you have set up the Demat of the trading account, you will then need to choose the particular gold ETF you want and place the order online in the portal of your online broker. To open a Demat and trading account, you will need a personal account number (PAN), an identity proof and a concrete proof of your address.
7. Index Funds
This is a type of mutual fund or exchange traded fund (ETF) with a portfolio that was setup with the aim of tracking the components of a market index. In other words, they tend to imitate certain stock indexes. Because indexes represent the stock exchange, the stock exchange composition does not change much and as such index funds are said to be passively traded. Index funds are recommended by a lot of billionaires like Warren Buffet.
Statistically, they perform better than most mutual funds that are available today yet the charge significantly less management fees. Index funds have also proved to fare better in both market boom and crashes. To invest in an index fund, you can make use of a brokerage such as E*trade, Schwab, Ameritrade, Zecco etc. You can simply sign up in any of the aforementioned brokerages and start investing.
Sometimes artworks that are bought dirt cheap increase exponentially in value due to certain factors such as the increased popularity of the artist who painted it. However, to invest in artworks you will need more than blind luck. You can buy the right artwork with prudent advice from an art expert. Unlike most other investments, you can enjoy the artwork by displaying it in your home or office while waiting for it to appreciate in value.
9. Company Fixed Deposits (FD’s)
Many companies are willing to offer fixed deposits in other to gain their working capital. The fact that getting an interest on the fixed deposit that individuals will offer is quite cheaper than taking a loan from a traditional bank, makes the option of offering fixed deposit attractive to them. Company FD’s are very beneficial in comparison to bank fixed deposits as it gives a higher rate of interest.
Make sure you select the investment period very carefully as you are not allowed to withdraw the money before maturity. Corporate fixed deposits schemes are not under any insurance benefits therefore; this investment option is best suited for individuals who are willing to undertake a higher risk in the long term. Company fixed deposits can range between 8 to 10 percent.
IPO is a one in a life time opportunity as it happens once in every company. It is very attractive if lunched by a good and reputable company. IPO, otherwise known as a stock market launch is when a private company makes its share available for public purchase for the first time. They are basically saying “we have gone public, and you guys can purchase our shares”. There are unique risks associated with them and thus thorough research is advised.
On a final note, you can compound the interest you make and invest it too to reap an even greater benefit in the long run. Reinvest earned interest into the initial principal of an investment which will lead to earning interest on top of interest which increases the principal amount resulting in exponential growth in the long run.