Nick Forgione
From your living room layout to your investment planning strategy, having young kids always changes things. Parents of young kids can use investment planning to expand the family’s financial safety net, and give kids a very early jump on growing their own wealth. There’s no one “right” way to approach investment planning for parents of young children, but there are several key strategies parents can consider discussing with their advisors.
INVESTMENT PLANNING STRATEGIES FOR NEW PARENTS INCLUDE:
Grow your emergency fund. As your family grows, you’ll want to be prepared for the unexpected. Whether that’s a home repair, emergency room visit or car repair, having an emergency fund will alleviate one element of an already stressful situation. You can also lean on your emergency fund if you or your partner is unable to work for any reason. Additionally, it’s imperative to have a plan to grow your emergency fund to keep pace with your family. Having a goal such as saving six-months of expenses can help you know if you are on track.
Your investment planning strategy comes in here because you want your emergency fund to grow, and you probably also want to keep this money somewhere accessible and low-risk. For example, real estate investments or securities need to be liquidated before you can actually use that money, which won’t be helpful during an emergency. On the other hand, high-yield savings accounts and money market accounts are popular choices for holding emergency funds because they both allow money to grow while being easy to access.
There are different ways to allocate money to an emergency fund, and every family’s financial situation is different. Your advisor can help you choose a path for including an emergency fund as part of your financial plans.
Save for education—but prioritize retirement investments.
Saving for college is often top of mind for new parents, sometimes before their kids are even born. As you plan for your child’s education, don’t forget about the early years. If you are considering private school, be sure to factor that into your plan. There’s no way to know exactly what your child will need when it comes to tuition or other education expenses, but starting to save early will give you options.
This is another area where a trusted advisor can help you navigate the balance of choosing education specific options, such as a 529 college savings plan, and other investment options to help you reach your range of financial goals, including your own retirement planning. Since 529 plans can only be used for education, they should be considered as part of the pie, not necessarily where all of your savings live.
Start estate planning.
Comprehensive estate planning becomes more important when you have a child. This includes making guardianship decisions for your minor children, and incorporating kids into your plans for transferring investments and other assets. Your advisor can help you answer questions such as: Who would manage kids’ 529 plans in the event of your passing or incapacitation? Should you establish trusts to hold investments and other assets with your kids named as beneficiaries? If so, who do you trust to be the guardian of that trust? These are just some of the areas parents should plan for, and hopefully you’ll never have to execute those plans!
Consider investing for your children.
There are a lot of good reasons to start an investment account on your child’s behalf. Compound interest, for one; by the time they reach 18, your initial investment could be more than doubled. Having their own investment account also creates an ongoing opportunity for you to talk to a child about money management, and for them to watch their money grow. Investing now could yield enough to help them buy a home or pay for graduate school someday and spare them from taking on debt early in their careers. Monitoring the investment together and teaching them about investing could be something you enjoy doing together.
Custodial investment accounts (UTMA or UGMA) allow a guardian to manage investments until a child reaches adulthood, at which point they take full control. As they get older they can weigh in on what stocks they want to buy or sell. But for now, you’ll have final say, including managing any tax implications incurred from selling investments.
INVESTMENT PLANNING FOR YOUR FAMILY’S FUTURE
Sachetta’s investment management advisors know that parents of young children want to make smart decisions for life’s road ahead. We’re here to make investment planning as simple as possible, so you know your family’s money is growing while you’re focused on other things. Whether you’re an experienced investor or just getting started, Sachetta’s wealth management services can help you. Contact us today.
Nick Forgione, is a Certified Public Accountant and holds a Master's Degree in Accounting from the University of Massachusetts Amherst. Since joining Sachetta in 2022 as an accountant, Nick has worked on projects on both the individual taxation and wealth management side of our company.