Investing for the grandkids – Something different

Invariably grandparents want to assist their grandchildren with their general wealth creation knowledge and experience as well as where possible and affordable to do so then assist with some actual dollar investing for their future.

The following come quickly to mind:

• Setting up a special bank account investment account (internet style hopefully) – earmarked for the new born grandchild when they are age18/21/25. Medium/Long term stuff.

• Investing a lump sum and/or regular amount at say age 18 for assistance in next 10 years for a home deposit etc. Typically a growth type portfolio invested in Managed Funds or ETF’s. Medium/Long term options.

Now here is something a bit different.

Say the grandchild leaves school at age 18 and is going to university for 4+ years, if you really want to do something very long term (they will be forever thankful when they are retiring) then why not take advantage of some very early superannuation contributions for them.

Assuming they are doing some part time work while at university then perhaps invest $1,000 each of the 4 years into superannuation for them. These are referred to as Non Concessional Superannuation Contributions and therefore the grandparent can do the amounts on the child’s behalf. Of course provided the grandparent has the availability of the cash and a willingness to do.

Importantly for the $1,000 the Government will match this amount with a $500 amount what is called a Government Co Contribution. That represents a 50% return on the investment even before it is invested by the Super Fund. Not bad!

A couple of pieces of criteria for eligibility are:

• The child must be doing some part time work and has employment (self or employee) type income of at least 10% of total taxable income in each of the say 4 years.

• Grandchild must complete a tax return even if there will be a nil outcome.

• Total Taxable income for any year must be below $43,445 (indexed annually)

We would recommend a 100% Growth Portfolio as the monies are preserved until at least age 60.

Now the good bit – with the power of compound interest and an average return of say 9% per annum that $6,000 (4 years at $1,000 plus 4 lots of $500) would be worth $159,000 in 40 years. Then of course the grandchild will have their own superannuation as well when fully into the work force after university.

Something to think about. They will thank you in 40 years – trouble is the grandparent most probably won’t be around to get the big hug – sadly.

We are available at any time to discuss issues of this nature with due regard to your investments or financial planning generally.