My son, Jack, just turned 1 the other day. In addition to a jungle themed party, toys, clothes, balloons, and a cake, he received $100 in cash. Granted, that’s not a ton of money, but it got me thinking: rather than just putting his future gifted money in our (his parents) account, it would be cool to set that money aside for him. It was gifted to him after all, I’m just in charge of it for now.
This, like most things in life, is not a binary decision. There are tons of things I could choose to do or not do with my baby boy’s birthday money. But I want to be smart with his money and eventually teach him to do the same when he is old enough.
So here are the ideas that I have, I don’t think I would go wrong with any one of these.
- Open up a custodian (UGMA or UTMA) taxable brokerage account in his name and put the money in the stock market. Since I generally follow the Boglehead investing philosophy, I would put the money in a broad market index fund such as the S&P 500 or a total market fund.
- Pros: Greater opportunity for growth over the years as I add more to it.
- Cons: Greater risk of losing account value if the stock market takes a dive.
- Open up savings account with a decent interest rate (I use Ally, personally) and let it sit. Or buy I-Bonds, same idea.
- Pros: Stable, secure
- Cons: Low rate of return
- Put it in a 529 college savings plan. I already have a 529 plan for Jack that I contribute to monthly, so I could just deposit this there and call it a day. But for whatever reason this option seems too boring to me. I want this money to be available to him one day for something he’s passionate about. Or maybe even to help him buy a car. I know that if I were a kid, I I’d probably be less-than-excited about my birthday money going towards my college education.
- Pros: goes towards his future education
- Cons: boring
Those are my top 3 ideas. If you have some other ideas, let me know in a comment!