I too pondered for a long time about the smartest way to invest for my offspring. Now I have reached the conclusion that I will invest €50/month into an index fund in their own brokerage account (AOT). I originally intended to invest more, but I consider the political risk (denial of student financial aid, etc.) to be too high, and I also wouldn’t want an 18-year-old to have a significantly sized portfolio. Assuming a moderate 5% real return, the value of the portfolio will be just over €17k in today’s money by the time they reach adulthood. Then I can see how well the junior manages their life and perhaps start gradually gifting portions of my own portfolio to the kid’s portfolio. Of course, I also plan to assist with so-called reasonable costs—meaning they can pay for parties and trips themselves, but for expenses related to education/healthcare/exercise, I’m happy to be “pappa betalar” (daddy pays).
My mindset is guided by how things were handled in my own case. When I turned 18, I received a portfolio worth about €15k, which I then reviewed together with my father during my studies. This led me to start regular monthly saving around the age of 23. Now that I’m a bit older, I have received investment assets as a gift from my parents, and our shared vision is that the wealth isn’t meant to be squandered; rather, the goal is wealth that lasts across generations, while still enjoying life’s pleasures. However, I don’t want to provide too cushy a life for my offspring until I’m certain they share the same philosophy.
If you look at it from a financial perspective, it’s a total no-brainer to invest in your own name and gift it to the child later.
more tax-efficient
no fear of losing benefits
no need to worry about the DVV (Digital and Population Data Services Agency) or regulation
lower trading costs if you integrate the child’s savings into your own.
As an added plus, there is the possibility to decide for yourself when, how much, and which investments to gift to the kid. In other words, this offers protection against the kid’s immaturity or going off the rails and helps with tax optimization.
Additionally, if there are multiple children, saving in your own name also makes it easier to correct unfair differences in returns caused by market fluctuations between the children.
I suspect that those who invest directly in the child’s name emphasize the educational aspect over the euros.
This can be bypassed by gifting positions that are in profit to a child. The gift tax value is calculated based on the value at that moment, and a good incentive for the child’s long-term patience is that if they manage not to sell for a year, the value at the time of the gift is used as the acquisition cost instead of the original purchase price.
Heh. My girl is quite excited about investing. She was even a bit annoyed because she felt the social studies textbook portrayed stock investing as too risky. I read that part of the book, and I must admit the word “risk” really jumped out at the beginning of the chapter on stocks. Only the very last sentence mentioned that you can get returns fairly reliably over the long term. The next chapter covered investing in forests and other real estate, and the word “risk” wasn’t there at all, even though storms and insect infestations have been in the headlines lately.
The girl’s friend had apparently discussed stocks at home and concluded that it’s just gambling. I guess a 15-year-old still pretty much follows the values of their home. If something is condemned at home, that’s usually where it ends. And that’s how it should be, of course, as the guardians are the ones responsible.
I started saving for my child after they were born. I set up an automated ETF portfolio with 50% Nasdaq and 50% World ETF. Now, two years later, I am surprised by how much the Nasdaq ETF is lagging behind the index itself; the difference is around 15%.
Factors that could explain the performance difference:
Management fee 0.25%, ETF fee €2.5/month, and ESG weighting. Still, the difference shouldn’t be this large, especially over the one-year period shown in the image. Does anyone know what the reason might be and what would be a possible replacement that tracks the Nasdaq better?
Exchange rates have an impact. If you really want to see how much an ETF lags behind the index, you need to compare the performance of the fund’s NAV relative to the index. Another option would be to look at the index in euros.
Alright. The first month of my daughter’s investing is almost over. I’m quite satisfied in terms of both returns and the educational aspect. The totally boring Kesko, Posti, and Huhtamäki have performed the best. Nebius has been sawing back and forth with big moves, which I think is good for my daughter to see and experience. Terveystalo and Pfizer are doing okay. The Europe index has risen about 1.5% in a month. Stocks are up a bit over 3% on average, but Nebius is swinging the portfolio. If/when we dip at some point, we’ll add to the Europe index and likely add some more stocks to the list. Something understandable, boringly everyday quality companies.
I also agree with the superiority of these “dead-boring” stocks (especially the Finnish ones). Just wait until you get the first dividends in your account in the spring. By reinvesting them (perhaps not in all of them due to transaction costs, but in some of these), these “dead-boring” stocks will look even better. That is also a good learning point—why it can be sensible to reinvest dividends and when it might not be.
“Do you have the patience to get wealthy?”, even the President of Finland once asked.
Yes. And this is where the equity savings account comes in handy. I wonder what the most boring performer on the Helsinki Stock Exchange would be (could start an award for it), a little upside potential would obviously be a plus? Shame that Nordea and Mandatum already took off, but maybe Sampo or Finnair would be candidates? Hard to think of a “girl-world” stock. Lindex??
My personal favorite for nearly a decade has been Ilkka II. Based on the latest decision (general meeting late last year), the share classes will still not be merged, and many “quick profit” seekers quickly fled. It will likely continue paying dividends and carrying on with this kind of “investment company” activity. The stock has plenty of substance.
Another good one has been Loihde (this only in recent years, as it was more expensive before). Dividends have been ample here as well.
All food companies have generally been like this too, but now even they are showing signs of heating up.
Our child has Sampo and Nordea in an Equity Savings Account (OST), various Finnish stocks in smaller amounts (with 1% fees) in a book-entry account (AOT), and index funds in a Nordnet book-entry account (AOT). Roughly 1/3 of the assets are in each. The intention is to grow the OST over time, since it apparently doesn’t affect student financial aid. The index funds can keep rolling, and we’ll see once the study years begin what kind of sum has accumulated and whether it affects the aid. Direct stock purchases in the AOT keep things interesting, and the aim is to perform better with the child’s portfolio than with my own. The amounts we invest are not that large, mainly child benefits and gift money.
Thanks for the tips! Both of those seem like good candidates. This hunt for boredom is actually a bit funny. I thought Posti would be a steady plodder, but it went up something like 7% the other day, neck and neck with Nebius. And when I originally bought Nordea and Mandatum so that life would be steady, didn’t they end up rising more than the ones I thought were exciting high-fliers. It’s surprising that tracking my daughter’s mini-investments is just as exciting, if not more so, than my own. A monthly movement of just a few euros can lead to some real celebrations.
Many other stocks are just “growth stocks” and “promises for the future” because someone says so and numerous others believe this story. We live in a bit of a narrative economy. Paid dividends or share buybacks are the opposite of this and represent the concrete reality of capitalism.
I asked Gemini AI what the total return would be if one had bought Ilkka 2 shares in January 2016 and reinvested the dividends back into the stock. Here is a pretty good answer (it hasn’t taken dividend taxes into account):
“The ‘two-euro Ilkka’ of January 2016 has proven to be an excellent investment. The total return has more than tripled the capital in ten years. Most of this exceptional return has come specifically from large dividends and their compounding effect, as the share price alone ‘only’ doubled.”
