Q. My son is turning one in a few months and I was considering purchasing some shares for him instead of toys (as I’m sure he will get enough of those). I have never purchased shares before and I have a very limited and probably traditional mindset when it comes to finances. My thinking is long term and if I invest in one of the big four banks or Telstra he may have a little sum by the time he is 18 or so. Or should I just be saving the money for him in an interest-bearing account?
Rachel, you mention banks. Telstra would do just fine, as would any decent share with a two decade or so time frame.
But my rule with long-term money in the bank is to not provide your bank with a low-cost source of money; instead, buy the bank.
It lends your money out at a higher rate than it will pay your son, so I’d rather own bank shares than a bank account over a couple of decades.
We started doing this with our kids two decades ago and bought a couple of bank shares, some Woollies and Coca-Cola Amatil and over time other well-known companies.
Shares such as CBA have done well. When they were very young CBA was around $7. Today it is over $70. Much better than a bank account!