When thinking about how to invest money for children, several considerations need to be evaluated, including emergency access to the money and the possible risk involved in the investment. If you're interested in setting up a nest egg for your child, you should make sure that you are aware of the potential risks and rewards involved with the process.
- Estimate potential gain. The first step in investing money for your children is to calculate the amount of return anticipated on the investment. Determine how much money you want to earn. This information helps to determine the acceptable risk.
- Evaluate the risk to the investment. If money is put into the investment each month, or every few months, then the investment has automatic added value. It can operate as a sort of savings account, in addition to an investment. The younger the child, the greater the acceptable risk since the child has time to rebuilt the savings. When an investment is made for a child in middle school and money is required from the investment to use for college, there is less room for risk in the investments. Investing funds for babies allows a chance to invest in greater risk properties.
- Research potential investments. Collect material provided by the investment companies and do independent research at online sites and in reputable business newspapers and investment magazines. Track the investment over time to make sure the claims made by the companies can be verified. Make a list of possible investments and rank the past success of the companies, stock or product. Highlight the items that the research suggests have a good future for earnings. Keep an open mind during the research to all types of investments.
- Determine the types of investments to be made. Once the research is done, make a list of the amount of time and energy required to manage the investment. Also determine if additional investment is required over the years.
- Select a variety of investments. Diversify the investments for the child. No investment is a sure thing. Select a variety of products in which to invest money for your children. Plan for funds to be removed for college and other life events.
- Invest the funds. Transfer funds to make the investment. Determine ahead of time what requirements are necessary. If funding requires a transfer period, plan ahead and order paperwork well in advance.
- Keep records. Maintain paperwork of the initial investment and set up a bookkeeping system to track the growth of the investments. Stocks may split and companies may shift ownership over time, and all this needs to be recorded for the future. Children will also need this information when the investment is given to the child. Keep quality records to save the child time when the change occurs.
- Track investments. If an investment is not living up to the expected gain, check the research to see if something else has greater potential. If the child is old enough to understand money management, involve the child in evaluating the different investment options. That way the child will learn how to invest money for her own children. The child will also be able to independently manage the investment you've made, in case something should happen to you or you're suddenly unavailable for consultation.
When making investments for minor children, consult a lawyer to ensure the legality of the holdings. Each state has different requirements for investing on behalf of others. Holding involves tax liabilities for the investor and also for minor children.