7 Best Ways to Invest Money for a Child

Are you investing money for your child’s future right now? If you are like most parents, you probably possess a registered education savings plan (RESP) to help cover a portion of the cost of college or university tuition. But what about everything else that is associated with life? Wouldn’t it be great if your kid had six months’ worth of rent? Or what if he or she had money to pay for a car?

Sure, you want your child to learn the value of a buck and hard work. But you also want them to not worry about things that you may have had to lose sleep over when you were 18, 19, or 20. Imagine if you had access to a pot of money when you graduated high school, started college, or finished school and went into the workforce. Your life would have been slightly different – maybe for the better or maybe for worse.

Whatever the case, it is important that you invest money for your child’s future. You want to have the budget to cover various aspects of child care, whether it is for education, an apartment, a vehicle, or an inspiring tour of Europe and Asia.

Indeed, there are many ways that you can invest in your child’s future that go beyond education. But what else should you do? Here are the seven best ways to invest money for a child’s future:

1. RESP Savings

RESP is the best way to invest money for a child. If you want investments with zero risks, a registered education savings plan (RESP) is right for you and your family. Every month, you can transfer money to an RESP and receive a tax deduction at the end of the year. The only problem is that these vehicles do not come with high interest, but if you wish for peace of mind and assurance, then it is worth it.

It is great that you have an RESP, but it will unlikely be really enough when you factor in all the expenses, from tuition to textbooks to day-to-day expenses. If your kid is going to a college or university, all the money you set aside can be used for future education expenses.

2. Low-Risk Mutual Funds

Low-risk mutual funds could be a good alternative way to invest money for a child. The mutual funds market is exploding right now with access to all sorts of industries, markets, and financial products. There is something for everyone: an income-generating mutual fund, a mutual fund dedicated to emerging markets, or a mutual fund that invests in media and entertainment.

Since this investment is primarily for your son or daughter when he or she turns 18 or 20, you want a mutual fund that comes with minimal risk. For example, you can always put your money into a North American dividend mutual fund that invests in well-known businesses that pay a monthly or quarterly dividend.

3. Dividend-Paying Value Stocks

Canadian Tire, Walmart, Pizza Pizza, and Hydro One are all publicly traded companies that will likely survive at least another decade or two. What makes these businesses attract is that their stocks pay healthy dividends that can be accumulated for your child or children.

So, for instance, let’s say you invest $10,000 in that pizza company over 20 years and you receive seven cents per share every month during that time. By the time you cash out, you can give your kid around $16,000 in dividends, plus whatever return you get on the stock. That’s not bad at all.

It is important to invest in value stocks for your kid, not the next hot stock that may or may not survive the next recession.

4. GIC Laddering

While Canada’s interest rates remain at historic lows, they are better then what they were a few years ago. Surprisingly, after years of dormancy, guaranteed investment certificates (GICs) have become one of the best ways to invest money for a child. If you shop around, you will notice that many banks – large or small – are offering admirable returns.

The trick to really benefit from a GIC is by laddering. So, what is GIC laddering? It is a long-term investment strategy that involves reinvesting your new amount (principal plus return) in a five-year GIC terms. Every time the term matures, you rinse and repeat.

5. Bullion

Is price inflation low right now? Not if you eat food, live under a rooftop, or attend a post-secondary institution. Although the official government numbers show that inflation is tame, it will only be a matter of time before the cost of living becomes too unbearable. Plus, it does not help when the loonie loses 30% of its value against the U.S. dollar.

Put simply, the price of money will be vastly different in the next two decades. The one way to protect yourself is by acquiring bullion, like gold and silver. Precious metals have been used by investors to hedge against price inflation and monetary debasement. Because gold and silver are tangible assets and will skyrocket when inflation becomes too big, you can protect your net worth by owning metal commodities.

It would not be a good idea to put all of your money into gold and silver, but at least 10 to 15 percent would be of great help to your kids when they become adults. This is the best way to invest money for a child if you’re willing to take a little risk.

6. A Dedicated Bank Account

Most families in Canada receive a monthly child benefits cheque in the mail, in addition to any other financial assistance from the government. Some households may also set aside a little bit of money for a rainy day or the child’s future.

Rather than putting it all in one giant bank account, it would be wise to open up a dedicated bank account for the child. In addition to an RESP, you can transfer whatever money that is for your son and/or daughter to this account. It is important to never use it for anything other than related to the kid.

7. Automotive Investments

Some adventurous parents like to invest money for a child through car investments. Public transit in this country is inadequate. That is a fact of life in the Great White North. Also, city life is becoming way too expensive for the common man, especially in Toronto and Vancouver.

So, perhaps it would be a good idea to purchase an automobile to allow your kid to leave a major urban centre and move to somewhere like Halifax, Winnipeg, or Saskatoon for other opportunities. No matter the situation with transit, it is better to own a car.