Investing for your own kids is important, after all it is about their future. The opinions about what to do with their money differ a lot. Surprisingly many people seem to neglect this topic. Same goes for personal finance, but this is for another posting. Disclaimer: This is no investment advise and there are no affiliate links in the article. All is just based on my opinion. So how to invest for your Kids in Switzerland?
Every parent is an asset manager until a child is 18 years of age
In Switzerland, until a child reaches the age of 18, the parents are responsible to manage that money. The law distinguishes between dedicated and freely disposable assets.
- All money for savings purposes and inheritance is classified as dedicated assets. It’s the parents duty to manage these funds until the child reaches adulthood. The purpose of the donation can have conditions on how to use it. Education is a good example for that case. Parents are obliged to adhere to the conditions set by the donor.
- Money kids earn themselves, pocket money (Sackgeld) as well as an apprentice wage are classified as freely disposable assets. Children can decide on their own how to spend this money.
More detailed information can be found here.
What strategy do you have?
I have some basic rules of how to invest money on behalf of my kid:
- Cost efficient
- Long term
- The money should work a bit while the child is growing
- A solution available in Switzerland
This approach is similar to what I do with my own money. So what are the options available and where to put your kids money in Switzerland?
A relic from the past: Savings account 👵🏽
You probably had one of these while growing up. A savings account was the gold standard when it came to handle your kids money. Easy and straight forward and still quiet popular to this day. But interest rates are down and the stock market was booming in recent years. Does it still make sense to have one of these for your kid?
It depends what your goal is. If you just want to save up some coins for the little one without any expectations to let compound interest work then this might be for you.
How about a golden pig: Piggy banks 💰
Adults might put some cash under their bed or in a safe in order to avoid negative interest rates. The equivalent for kids is the trusty old piggy bank. It offers no interest rate and it runs the risk of being and easy target if burglars choose your place to rob. On the other hand, it is something your kid can look at and feel in its hands. Explaining the concept of money and saving is otherwise quiet difficult to grasp for kids. Should your kid have one?
I say yes, there is no better way to explain the little ones what money is by showing them. For small amounts that they get here and there this is a great solution. If your kid receives a large donation from someone it is probably not the right option.
The hedge of all hedges: Gold 🥇
My grandmother used to say to always keep some gold around. You never know if you have to leave your place unexpected and then it is good to have some gold in your luggage. She referred of course to her experience during the second world war.
A similar scenario is quiet unlikely to happen today, but storing some physical gold has its charm. Similar to the piggy bank it is something to look at and feel in your hands plus it is shiny, which will impress your kid. I bought some bullion gold coins at degussa. Particularly the lunar new year ones look nice in my opinion.
The future is here now: Crypto currency 🤖
A bit of a gamble but why not save the currency of the future for your kid? If BTC performs the way it did in recent years your next in line might never have to work and get flighty rich while still wearing dippers. Depending on your risk tolerance and how much you believe in your favourite crypto currency this might be an interesting idea.
The modern approach: ETF savings plan
In an ETF savings plan you can invest as little money as you want each month that goes directly into your ETF of choice with no transactional cost. That way the money is well diversified and working for your kid while you do other things.
The only problem as of April 2021 is, that there is no such setup available in Switzerland as of yet. But there are alternatives that might work for you.
Offers from the main Banks in Switzerland
The main banks in Switzerland have offerings for kids. They also offer saving schemes with their own funds. These offerings are in general not very attractive if you ask me and expensive. But if you think a big Swiss bank is where your kids money should be then go for it.
Robo advisors are low cost asset managers that mostly work with index funds. You can chose a preferred strategy according to your risk profile. Based on your choice the portfolio will be set together accordingly. There are a few players in the market but the only one I tested was TrueWealth, which has been around since 2013.
This is great for people who don’t have the time or interest to think about investing money. The approach is straight forward even if you are a newbie in the field. The fees for Robo advisors differ a bit but overall they are considered fairly low compared to an actively managed portfolio.
DIY approach (Degiro / Interactive Brokers / Swissquote)
According to my preferred rules I go for a DIY approach. There are several options to choose from with different pricings. I want to have a Swiss solution and we already have a Swissquote account so my choice was obvious. Degiro and IB would have been cheaper alternatives but opening another account is not in line with my minimalistic approach. Plus I am using Swissquote for a long time now and I am very happy with the service and pricing.
In terms of what to invest in my choice is a stock only portfolio including just two ETFs (World and Emerging Markets) from iShares. With this investment approach my kids’ money is invested in about 5000 companies all over the world.
Remember that this is no investment advice. We decided on a certain amount we want to invest for our kid in that setup and just let it sit. The investment will be made in three parts in order to minimize transaction cots and not have to think of it anymore. With an investment horizon of almost 20 years it doesn’t really matter what the stock market does during that time.
The dream setup would be investing monthly in a preferred ETF with transactional costs to neglect or zero. Until that becomes reality this is how to invest for kids in Switzerland. If you have any other ideas please let me know what you do and why. Happy investing. 💵
Update May 19, 2021: A similar posting was just posted on Mustachian Post on how the author invests for his kids.