When it comes to planning for our children’s future, we often think about saving for their education. But have you ever thought about using the stock market as a tool to secure your educational aspirations? That’s right, investing in the stock market for your children’s education is more than just a Wall Street tactic: it can be a smart, strategic move that sets them up for success.
- Why invest instead of saving?
- How and where can I invest?
- Kinderrekening-beleggen, Brand New Day
- How does it work?
- How much does it cost?
- What are the yields?
- What are the risks?
- What about taxes?
- Investment modes in the Kinderrekening-beleggen account
- Model portfolios
- Portfolio green model
- Free Investment
- Conclusion
Why invest instead of saving?
Investing in the stock market gives the best results. You may think that saving money each month for your child is enough, but if you do this, the money you save will be eaten up by inflation. Investing that money instead of just saving it will make it grow over time and benefit from compound interest.
- The power of compound interest: The growth of invested money is compared to a magic tree that produces golden fruit. The longer the investment time, the higher the return due to compound interest.
- Fighting the inflation monster: Holding cash can be detrimental in the long run due to inflation, which decreases its purchasing power. The stock market offers the possibility of money growing at a rate that equals or exceeds inflation.
- Preparing for the future: By investing for your children at an early age, you are building a fund that could be used for their college education, to help them buy a home or for other important goals in their adult life.
- Teaching financial habits: Involving your children in the investment process can be a great way to teach them about the importance of saving, investing and financial planning from an early age.
How and where can I invest?
In the Netherlands there are several options to do this, one of them is an investment account for children from Brand New Day, this is the account I use for my baby and here I tell you about my experience and the features of this account.
Kinderrekening-beleggen, Brand New Day
How does it work?
Parents or legal guardians may open an investment account in the child’s name. A maximum annual tax-free contribution of €6,633 by parents and €2,658 by grandparents and other relatives is allowed.
As parents you have control over the account and can make investment decisions on behalf of the child. Once the child turns 18 the account is transferred to his or her name and he or she acquires full control over the assets.
Brand New Day offers predefined investment options (model portfolios and green model portfolios) and also the possibility to choose funds individually (free investment). These investment modes are detailed below.
You can deposit money manually whenever you want or create a scheduled investment where at the end of each month they will take the money from your bank account and invest it for you within 5 business days of your deposit. This solution is ideal for those who do not want to worry about remembering to transfer money to the investment account each month and having to select which fund to buy.
How much does it cost?
Brand New Day stands out for its low costs, which means that more of the money invested goes to the growth of the child’s capital. In addition, there are no costs associated with the lack of funds in the account, and no fees are charged for the purchase, sale or exchange of investments.
Model portfolio costs
Green model portfolio costs
Free investment costs
In the most expensive account, costs represent 0.70% of the yield.
To open your account or get more information about the service you can click on the banner below. By doing so, you will help support the blog and future articles.
What are the yields?
In the table below you can see the average yields of each model since 2010.
| Modelo | Muy Ofensivo | Ofensivo | Neutral | Defensivo | Muy Defensivo |
|---|---|---|---|---|---|
| Promedio | 7.72% | 6.09% | 4.73% | 3.32% | 1.85% |
| 2010 | 6.28% | 5.64% | 5.00% | 4.37% | 3.73% |
| 2011 | -5.50% | -2.79% | -0.08% | 2.62% | 5.33% |
| 2012 | 13.05% | 11.01% | 9.98% | 6.95% | 4.92% |
| 2013 | 24.54% | 18.79% | 13.04% | 7.28% | 1.53% |
| 2014 | 8.94% | 8.93% | 8.91% | 8.90% | 8.88% |
| 2015 | 1.05% | 0.86% | 0.66% | 0.46% | 0.27% |
| 2016 | 7.26% | 6.31% | 5.35% | 4.39% | 3.44% |
| 2017 | 15.60% | 12.21% | 8.82% | 5.43% | 2.04% |
| 2018 | -9.21% | -7.19% | -5.18% | -3.16% | -1.14% |
| 2019 | 22.75% | 18.84% | 14.94% | 11.03% | 7.13% |
| 2020 | 10.61% | 8.11% | 6.83% | 5.49% | 4.08% |
| 2021 | 22.50% | 14.92% | 9.86% | 4.80% | -0.25% |
| 2022 | -15.97% | -15.77% | -15.63% | -15.49% | -15.35% |
| 2023 (hasta junio) | 11.44% | 8.47% | 6.49% | 4.51% | 2.54% |
Brand New Day has a yield calculator that you can consult.
What are the risks?
When you invest, there is always the possibility of losing some of the money you invest; risk is always part of investing. It is important that you only invest money that you can afford to lose. Investing for the long term (years) is a way to reduce the risk of losing money. The more time you invest, the less likely you are to lose money. That is why investing in a children’s account with an investment horizon of up to 18 years has less risk than investing money that you will need in the short term. The image below shows the returns obtained over a period of 20 years, green the return on an investment and black the return on a savings account. In no 20-year period has there been a negative return. You can read more about it here and also read the Investment Risks post.
The calculations were performed by Brand New Day. Data for investments are from the S&P 500 index (in USD, from 1928 to 1969), the MSCI World index (in USD, from 1970 to 2004) and the MSCI World index (hedged in euros, from 2005 to 2019). Data for savings include the yield on US T-bills (in USD, from 1928 to 2002) and the average annual interest rate on Dutch savings accounts without fixed term (source: DNB, from 2003 to 2018). These calculations do not include possible deducted costs.
What about taxes?
As it is a children’s account, what is there is not considered for your Box 3 taxes. And as mentioned above you can deposit €6,633 from parents and €2,658 from grandparents and other relatives tax free for the account.
Investment modes in the Kinderrekening-beleggen account
Brand New Day offers equity and bond index funds, both of which are well diversified, as with its other investment accounts which you can read about in the post on Investment account for beginnersoffers three ways to invest: Model investment (Modelbeleggen), green model investment (Groene modelportefeuilles) and free investment (Vrij Beleggen). The difference is that in the model investment you choose a model created by Brand New Day experts, while in the free investment version you choose your own funds to create your own model.
Model portfolios
When you choose to invest in a model portfolio, you are delegating the task of selecting the assets in which to invest to a team of experts. These portfolios are predefined and diversified, which means that your money will be automatically distributed in a variety of professionally selected funds.
The mechanics are simple: you simply decide how much risk you are willing to take by selecting an allocation between stocks and bonds. From there, the Brand New Day team takes care of the rest, allocating your investments according to the selected portfolio.
Risk allocation options range from very defensive to very offensive, allowing you to tailor your investment strategy to your risk tolerance and financial objectives.
The table below shows the amount of stocks and bonds that each investment profile has in the model portfolios:
| Modelo | Porcentaje Acciones | Porcentaje bonos | ||
|---|---|---|---|---|
| Muy ofensivo o agresivo (Zeer offensief) | 100% | 0% | ||
| Ofensivo o agresivo (Offensief) | 70% | 30% | ||
| Moderado (Neutraal) | 50% | 50% | ||
| Conservador (Defensief) | 30% | 70% | ||
| Muy conservador (Zeer defensief) | 10% | 90% |
Portfolio green model
The green portfolios offered by Brand New Day are an excellent option for investors who wish to combine their financial objectives with their ethical and environmental values. These portfolios are designed to invest in sustainable stocks and bonds, which means that your money will contribute to companies and projects that promote social responsibility and environmental protection.
For this type of portfolio they have a bond fund (BND Green Bond Indexfonds) and an equity fund (BND Duurzaam Wereld Indexfonds Totaal).
| Portfolio | Shares | Bonds |
| Green – Very offensive | 100% | 0% |
| Green – Offensive | 70% | 30% |
| Green – Neutral | 50% | 50% |
| Green – Defensive | 30% | 70% |
| Green – Very defensive | 10% | 90% |
Free Investment
This option allows you to take full control of your investments. Unlike the predefined investment model, with free investment you decide in which funds you want to invest your money.
By opting for free investment, you will have access to a variety of carefully selected investment funds. Brand New Day offers 9 stock funds and 7 bond funds so you can diversify your portfolio according to your preferences and risk tolerance. Some of the funds available include:
- BND Wereld Indexfonds Hedged
- BND Duurzaam Wereld Indexfonds
- BND Emerging Markets Indexfonds
- BND Euro Staatsobligatie Indexfonds
- BND Green Bond Indexfonds, among others.
You can consult all the investment funds available on the Brand New Day website, to visit them you can click on the link below, with this you help the blog and future articles.
A little more information for the pros
Conclusion
Invest in a Children’s Account is a smart financial strategy that can provide long-term financial security and stability for your children. With diversified investment options, competitive rates and a proven track record of performance, Brand New Day offers an attractive solution for those who want to secure the financial future of their loved ones from an early age.
