The simplest way to buy shares for your kids
"Dad, do you own shares in … Woolworths?"
"What about Coles?"
"Sure do, mate."
"What about … what about … JOHN DEERE?" screamed my five year old, his eyes bulging.
"Oh yeah!" I yelled, and then we high-fived.
Listen, as a father, a finance nerd and a farmer, that moment was a bloody royal flush.
It does not get better than that.
These days my portfolio is basically made up of both local and international index funds.
A couple of ultra-low-cost funds hold literally thousands of companies (well, a sliver of each),
including the biggest companies on earth.
In other words, you name it, and chances are we own it.
(What's more, when my kids get older and they ask me about the latest hot stock, the automatic adding nature of an index fund will allow me to say, "Yeah, I own that too").
My kids have nailed the working, saving, spending and giving parts of the Jam Jar Strategy. Now I'm slowly introducing the idea of investing some of that money into shares, and learning about compound interest.
And it's not just my kidlets.
This week I heard from Will, who asked: "I am five years old and I want to buy some shares. Am I able to buy a share these days where I actually get a share certificate or something in the mail?"
Well, what I would tell Will is the same thing I'd tell my own kids (and what I'm actually doing with them):
As a parent you can buy shares on your kids' behalf (in your name, but as a trustee for your child, via an online broker) and then transfer the shares to their name via a simple form when they turn 18, without incurring capital gains tax (CGT), as there is no change in beneficiary.
What shares should kids buy?
Well, when I was a kid, my father decided to pay me my pocket money via one share in BHP.
He said: "You now own a share in one of the biggest companies on earth, and they share their profits with you."
I never got a share certificate … or the actual share come to think of it?!
Yet that day changed the course of my life.
So for kids I'd seriously consider buying either an Aussie shares index fund or an international index shares fund - or better yet both.
That way they'll own thousands of the world's biggest companies.
Then parents can print out a list of all the companies they own, and put them on their wall: just for the bragging rights.
Tread Your Own Path!
P.S. Want to really compound the gains? Make sure it's money your kids have earned themselves fair and square.
I'VE BEEN CONNED - BY MY PARENTS
ZOE WRITES: I feel frustrated, confused and taken advantage of. Back when I was just 22 (I am 28 now), my parents could not pay their mortgage and somehow conned me into taking ownership of their house.
They promised me money, tax cuts, all the greatness in the world.
Stupidly, I said yes and I now have a $500,000 mortgage under my name.
They pay for the loan, though they are frequently late, and Mum loves to withdraw from the equity too.
I have tried to get my name off the loan but they keep resisting.
Worst of all, because I do not live there, I get shafted at tax time. Is there anything I can do?
BAREFOOT REPLIES: Oh, wow.
I'm only getting your side of the story, but let me try and piece together what's going on:
It sounds like your parents live beyond their means.
And so, to take the pressure off themselves, they decided to make you their landlord … at least on paper.
At which point that pressure transferred onto your shoulders.
So, what should you do?
Well, don't lose sight of the fact that the most valuable asset in this situation is the relationship you have with your parents.
So your first step is to blame me, the Barefoot Investor.
Tell your parents that you wrote to me and I suggested that you talk to an accountant (one who doesn't know your parents).
Ask the accountant to review the situation and advise what you should do.
They may find you have significant equity in the property and you're getting a great return. Or they may find it's a money pit and you'd be better off selling (it's your house, after all!).
Whatever the decision, I'd let your parents know that this is what the accountant has advised. In other words, blame me, blame the accountant, and try to keep your relationship intact.
THE VIRGIN INVESTOR
DANIEL WRITES: We are pretty excited that our 16-year-old daughter is about to start her first job.
Now to work out which super fund for her to join!
Following the advice in your book, we have started the process of searching for a low-cost fund.
I like the look of Virgin Money Super, which charges a $58 admin fee plus 0.39 per cent of the balance per annum.
My concern is that it is a new fund and the investment options are all high risk, not to mention that Virgin Atlantic filed for 'Chapter 11' (hopefully not all the Virgin-branded businesses will meet the same fate). Would appreciate your advice.
BAREFOOT REPLIES: Virgin Atlantic is not the same as Virgin Money. It's just another one of Richard Branson's many Virgin brand extensions.
(He once tried Virgin Brides - a wedding dress business that didn't survive its honeymoon). Virgin Money is actually owned 100 per cent by the Bank of Queensland.
Which is kind of confusing, right?
Well, try looking at their fee structure!
They're actually higher than you state: you left off the investment fee (0.116 per cent) and indirect fees (0.09 per cent).
But don't feel bad for missing these details.
The fact is super is bloody confusing … and that's exactly how the industry likes it.
You're an awesome, well-meaning dad trying to help out your kid, and it's a disgrace that it's this hard.
Thankfully, in last year's Budget the Government announced they're building a new comparison tool called 'YourSuper' which is slated to be available by July 1 this year.
So, for now, I'd probably stick with her default fund, and then when YourSuper is launched I'd encourage you to cut the apron strings and let your daughter select her own super fund using it.
You could even bribe her with a new pair of shoes if she can find a good high-growth option in a low-cost fund.
Because the money she saves getting this right will eventually buy her a whole new
GOOD FOR MY SOUL
You copped some flak about your boys' camping weekend, but I just wanted to say how much that story meant to me. In fact, I cried reading it.
The great sadness of screens and possessions is that, too often these days, dads are not around.
Hearing your stories of financial freedom and the life you've chosen to build is so good for my soul!
BAREFOOT REPLIES: I once read, "If you want your children to turn out well, spend twice as much time with them and half as much money".
That sounds about right to me.
DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.
Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.
If you have a money question, go to barefootinvestor.com and #askbarefoot.
Originally published as The simplest way to buy shares for your kids