• 29/11/2022
  • By wizewebsite
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How to "save" for children in the long term through mutual funds? - Měšec.cz<

In addition to traditional savings instruments, it makes sense to include mutual funds for long-term "savings". Invest more precisely through them and thus get better value for money in the years to come than with traditional deposit products.

With the birth of a child, more and more parents are thinking about how to save some money for the future. For a mortgage, studies, travel, or just to start life. A safe bet is a traditional building savings account, which has a 6-year commitment period, but is an effective and safe savings tool for (not only) children.

However, if you are looking for a longer horizon, in this case, mutual funds are a significantly more advantageous tool than building savings, which are so popular in the Czech Republic. On the one hand, they can bring higher appreciation, and on the other hand, they are not limited by a maximum savings period of six years.

Don't "save" through investment life insurance

Some low-quality financial advisors arrange investment life insurance as "savings" for children, but this is the least suitable form because it is too expensive in terms of fees and costs. According to Jiří Kubík, financial advisor of the Partners group, mutual funds for children are more advantageous than investing through life insurance.

In addition, if parents want to protect their child from health risks, they should do so in their insurance policy or take out their own life insurance for the child. However, even in the case of mutual funds, everything is not all great.

It's an investment, it can fluctuate

Parents also need to know that the value of their investment can fluctuate significantly over time. Which is a tax for higher appreciation. In practice, this means having strong nerves and not canceling the fund at the first drop in the financial markets, points out Richard Siuda, member of the board and director of external sales at Conseq Investment Management, adding that this rule applies to any investment in the financial markets.

How much will mutual funds actually earn a child

The appreciation of invested money can be interesting. This is especially true when parents start saving immediately after the birth of a child. For example, if they decide to save 1,500 crowns a month for a child in a fund, by the time he turns 18, they can count on giving the child over half a million crowns at an assumed average annual appreciation of 5%. More precisely, the parents will save 324 thousand crowns for the child in the regular deposit alone, if we add to this amount the return (with an annual average appreciation of 5%) in the amount of 184,000 crowns, the total is 520 thousand crowns.

How to

This is already a good basis for a mortgage... A bonus is the fact that after three years of investing, they will not have to pay the state a 15% income tax. Investors are not threatened with any penalties if they stop sending money to the fund or skip the deposit for a while, says Kubík, according to whom parents do not even have to worry about the fluctuations of the financial markets when they make long-term investments of regular monthly deposits.

Offer for cautious parents

When choosing mutual funds as a savings tool for children, parents can also use so-called life cycle investment strategies. These are, for example, well-known programs from supplementary pension savings.

Compare mutual fund investment offers

I want to make a one-time investment

I want to invest regularly

My investment horizon is up to 5 years

My investment horizon is over 5 years

In practice, this means that the fund first invests dynamically, for example, in shares, but as soon as the child reaches the age of majority or the end of investing, the fund reduces its dynamics and starts moving money from shares to less risky assets. Such as bonds or money market instruments. The advantage of these strategies is to protect the invested money from the risk of a fall in the financial markets at the time when the investment selection is planned.

According to Jiří Kubík, however, this method of investing also has its disadvantages. The main one is that money in less risky assets will rarely bring interesting appreciation. So, if the fund withdraws money from shares, for example bonds, for five years, it will stop making interesting appreciation of the deposits during that time. Which only confirms the well-known truth that even time is money.

Solutions can then be mixed funds. Their advantage lies in the fact that they mix both shares and bonds, as well as other assets, so that if one loses, the other can earn and compensate for the losses, points out Kubík.

In this regard, let's add that domestic mixed funds have finally gotten rid of their bad habit of paying little music for high fees. And at the same time, they are also a solution for those investors who realize that it is ideal to change the ratio of weights of individual assets in the portfolio during the investment. In a mixed fund, the portfolio manager will do it for them.

To whom to write a mutual fund contract

When creating a financial reserve for children through mutual funds, one seemingly not very important circumstance must be carefully considered. Namely, whether the parents will have a mutual fund managed for themselves, or whether they will choose a contract in the child's name. At first it may seem like it doesn't matter, but it really doesn't. If they write a fund for the child, it will complicate not only possible handling of the funds before the child reaches the age of 18, but also after it.

If a mutual fund is maintained for the child, the parents can obtain money from the fund before the child turns 18, in principle only with the consent of the guardianship court. And they also have to come to terms with the fact that when the child turns 18, the investment belongs only to the child and the parents basically have no chance to influence how they deal with it, concludes Richard Siuda.