ETF child portfolio

Child portfolio with ETF: A head start for life

Felix Niederer

Wealth grows best with a long investment horizon. That's why True Wealth offers a true ETF portfolio for kids and teens that doesn't give away returns.

True Wealth brings a key innovation to the Swiss market: a genuine children's portfolio, in the child's name, with an individual strategy. In such a portfolio, the assets of children and young people can grow over the long term.

Those who plan with a long investment horizon can take more risk when investing. In return, they can expect a higher return. The higher return is then reinvested – thus creating exponential growth with compound interest over a longer period of time.

Anyone investing for children and young people should therefore take advantage of the child's long investment horizon. After all, it takes a whole 18 years from birth to the age of majority. Whether you pay in the investment regularly, for example in monthly amounts, or as a one-time investment: during this time, a nice financial cushion can grow, for training, studies, starting a career or perhaps to become active in business.

With such an ability to take risks, it would therefore be only logical if an investment in shares were the norm in children's and young people's accounts in Switzerland.

But it is not – quite the opposite.

Opportunities for returns wasted

Whether parents, godparents, godmothers or family friends: Until now, those who wanted to invest for children and young people in Switzerland did not have much choice. The only products on offer were inflexible fund products or savings accounts with low interest rates:

Fixed-interest children's or youth savings accounts. UBS, Raiffeisen, Postfinance, ZKB and many other banks in Switzerland call it preferential interest rates, which they offer on savings and gift accounts for children and young people. It is true that the interest rates are indeed often higher – at least compared to other savings offers from the same bank. Unfortunately, however, this still does not result in as high a return as one might expect from shares. For the most part, interest rates cannot even keep pace with inflation.

Fiduciary managed securities portfolio. An investment in securities is also quite possible for children and young people. Traditional banks often offer savings plans with funds. They often charge high fees, which eat up part of the return. Newer wealth managers such as Findependent or Inyova also offer different strategies. But all these securities investments for children and young people have one thing in common: they are in the name of an adult, not the child.

Fair to the child

Many of the solutions that exist today call themselves «gift savings plans» or «gift accounts». Legally speaking, however, nothing has been given away yet: only if the account is in the child's name is it also guaranteed that the money will later benefit the child.

Today, it is possible at some banks to give the account a name. However, this is legally only a so-called rubrication. You could just as easily keep the account under the heading «laundry room» or «playground» - a heading does not change anything in terms of ownership.

From the point of view of the child - and the donors - the portfolio should be in the child's name. In legal terms, this is known as tied child assets: the assets are the property of the child, even if he or she cannot dispose of them until the age of majority, i.e. 18.

Tied assets have a clear advantage. Everyone, whether mother or father, whether godmother, godfather or grandparent, can pay into the same account without worry. They all have the certainty that the money will benefit the child, no matter what the future holds.

Only one thing changes in the child's tied assets when he or she reaches the age of majority: the young person may then fully dispose of his or her assets himself or herself. There is no need for time-consuming portfolio transfers or expensive liquidations and reinvestments of securities.

Choosing the right type of account now will save the child unnecessary stamp duties, brokerage fees and trading margins later. (And if you invest in actively managed mutual funds for your child instead of ETFs, you should also be prepared for staggeringly high transaction costs for buying and selling. Another reason we don't recommend active funds).

And what if the child squanders it all at 18?

As a parent, you may be thinking: but what if my child isn't mature enough at 18 and squanders the money? No one knows your child better than you.

If you're worried about this: Divide the amount and give only enough until the age of majority so that your relationship with your child won't fall apart because of it.

Hold back the rest until the child is of age. This sum can also remain well invested in their own portfolio until then.

Talk to your child before he or she is of age and offer to give him or her an extra bonus if you agree together on how all the money should be used.

Invest like the big boys

So a True Wealth child portfolio doesn't have to be liquidated when the child grows up. It grows up seamlessly with him – no netting, no transfers, no more hassle or expense. It stays in his name and becomes a normal portfolio.

This sounds so obvious that one wonders: Why hasn't this been around for a long time?

But in fact, True Wealth's children's portfolio is a complete novelty in the Swiss market: a real custody account, in the child's name, invested in securities. Just as simple, transparent and cost-efficient as our adult clients appreciate in their portfolios:

Always tailor-made: Whether young or old, with us all clients receive an investment portfolio with an individual strategy.

Broadly diversified: Typically, our clients' portfolios contain equities, bonds, real estate, commodities and cash.

Low-cost thanks to ETF: Keeping costs low means getting more out of your returns. That's why we rely only on ETFs - and build portfolios with a total expense ratio (TER) starting at 0.15 percent.

Guaranteed only for the child

We don't hold the children's assets. We at True Wealth are only the wealth manager. This means that we can buy and sell securities in the custody account in accordance with the investment strategy. All assets are held in custody at the custodian bank.

The custodian bank for our children's portfolios is Basellandschaftliche Kantonalbank (BLKB) – a bank with a state guarantee. The money is invested there in the child's name, and no other person can withdraw it for themselves.

The assets are therefore tied to the child – but not to True Wealth as the provider. You can switch to another account in the child's name at any time, if you wish.

All transactions and all investment decisions in the account are 100 percent transparent. Parents retain the final say: they have the final say on what strategy is used to invest the assets. Ideally, however, you do not make this decision alone - but let your protégé participate.

Education grows with the assets

Parents also decide whether the child can prepare strategy adjustments in his or her account. For this purpose, the child gets its own login. This allows him to make investment suggestions in his own portfolio. At any time, the child can see which decisions his or her parents are taking over from him or her – or what the parents are deciding instead.

With the login to their own portfolio, children and young people not only have an insight into decisions and transactions, but also into what is happening on the markets. They experience live how their assets fluctuate in value. That this is quite normal on the markets - and that a well-diversified portfolio often soon recovers from temporary setbacks.

This is how children and young people learn resilience – and that it pays to stay the course. In the long term, the young person gains an essential insight in addition to the assets in the portfolio – the conviction: Patience leads to the goal.

At the age of 18, young adults are best prepared to make their own decisions about their investments. Because with a children's portfolio at True Wealth, he has learned how.

Building wealth while instilling values for life: With a children's portfolio from True Wealth, you not only ensure the right investments and a cushion in the future. Your offspring will experience responsible money management at an early age, learn to make more conscious purchasing decisions and adopt an appropriate attitude toward personal wishes – for the best start in life.

Simply open, save together

A good start should be as simple as possible. An investment in securities is possible from a deposit of 1'000 francs. Anyone can pay into the children's account: Aunt, uncle, godparents, grandparents or family friends and, of course, mother and father. To open the account, a parent or guardian must sign, i.e. only the father or mother can open the account for their child.

Neither parent needs to be a True Wealth customer beforehand – and no one needs to become one if you only want to keep a child's account. But if mom or dad invest with us, there are advantages, because you save on fees together with the child. The higher the amount you invest together, the more discount there is on the asset management fee. From a sum of 500'000 francs, it drops from 0.50 percent down to 0.25 percent.

If you want to learn more, read more about the children's account here. If you want to get started right away: Parents can open a portfolio for their own child here. And if you want to support a child who is not your own, you can recommend the child portfolio to parents.

Disclaimer: We have taken great care with the content of this article. Nevertheless, we cannot exclude the possibility of errors. The validity of the content is limited to the time of publication.

About the author

Felix Niederer

Founder and CEO of True Wealth. After graduating from the Swiss Federal Institute of Technology (ETH) as a physicist, Felix first spent several years in Swiss industry and then four years with a major reinsurance company in portfolio management and risk modeling.


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