subject: Investing Tips - How To Build Up A Nice Sum Of Money For Your Children [print this page] With the spiralling cost of things such as housing, car insurance and higher education, many parents are looking to save money for their children from an early age so that they are financially secure when they reach adulthood. So with that in mind, I want to discuss how you can go about building a nice sum of money for your children to enjoy when they get older.
The easiest way is simply to open a straight-forward savings account. Interest rates are not particularly high at the present time, but it's pretty much risk-free (providing your savings provider doesn't go bust) and if you reinvest the interest payments as soon as they are paid, you can take advantage of the compounding effect, which can make a big difference in the long run.
Another option is to invest in bonds. These are similar in many ways to savings accounts, but they are not without their risk. The company issuing the bond may go bust in future years, which will not only mean that your interest payments will stop, but may also mean that you lose your initial stake as well. This risk is offset but higher interest payments, but you don't want to take too many risks with your children's money.
That leaves one other viable option and that's to invest in stocks and shares. This is quite a risky approach to take but when you take a long-term view, with a view to selling in 10 or 15 years time, for instance, then this risk is substantially reduced. Furthermore it becomes a really effective way of building up a nice nest egg for your children.
The key to success is to hone in on only the very best companies on the stock market. In other words the market leaders that are at the forefront of their industry. They should have a long history of dividend and earnings appreciation, and this growth should be expected to continue for many years to come.
If you do this, then the share price will definitely rise in the long term to reflect these growing profit figures. Yes there will be times when the wider market falls and pushes your own companies' share prices down as well, but the price will always correct itself and reflect true market value in the long run.
So it is not that hard to generate a decent sized amount of money for your children's futures. As long as you start early and you keep on reinvesting any income you receive along the way, whether it's interest payments or dividends, for example, then you can create substantial capital growth.
by: James Woolley
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