JO Johnny What is the best way to invest with my kid money ?

[Soulsensei]

I actually don't want to top up my child's CPF account with my money. I want him to take ownership of his CPF. When he gets old enough, I will persuade him to park his angbao money there, though. Haha.

Personally, I aim to save at least $5k in my child's CDA account. I feel that that's the cornerstone of his savings (at least for now).

[HeyAnna]

Hi @Johnny ! Good question. 2 things you can consider (and teach your kid good habits at the same time!):

Central Provident Fund (CPF) & Special Account (SA)

Parents can consider topping up their kids’ CPF Special Account (SA) with their hongbao money. The first S$60,000 of combined CPF balance enjoys up to 5% annual interest. As the money cannot be withdrawn till your child is 55, he/she can leverage the long-time horizon and take advantage of the power of compounding!

Let's say you make a cash top-up of S$500 to your child's SA every January for 20 years, he will have about S$15,500 in his SA after 20 years. This is based on 4% interest per year.

If you have a windfall like winning a big lottery prize, by topping up your baby’s SA with the prevailing Full Retirement Sum of S$181,000 this year (year 2020), this amount will grow to S$1.56 million based on 4% annual interest, when he/she reaches age 55. That’s the power of compounding!

Investments

A portion of a child’s hongbao collection can be set aside for investments, say in a diversified portfolio of unit trusts. You can check out DBS digiPortfolio which offers ready-made investment portfolios that are designed to provide instant global diversification to grow your wealth. Another option is DBS Invest Saver which offers a simple way to start investing in two exchange traded funds via a Regular Shares Saving Plan.

Some parents prefer to park the savings in an endowment (savings) insurance policy which is earmarked to fund their children’s varsity education.