The doyen of the personal finance industry, Noel Whittaker, answers a question about investing for the grandchildren – or for yourself.
I’m building up some funds for the grandkids. At the moment I have two bank accounts with about $1000 in each. I keep hearing about ETFs (exchange traded funds), but don’t really understand them. Is that a better place for these funds? Or do you have another suggestion? And do I need to write this into my will?
A. It’s important to understand in whose name the money should be in. You could have the money in your name, but that could have implications for Centrelink as it builds up, or in a parent’s name as trustee for the child or in the parents’ own names. An ETF is a share-based investment, often an index fund, but I would not be worrying about that until you have about $5000 to invest.
The following information is from Noel’s book, Making Money Made Simple.
ETFs are funds that trade on a stock exchange, just like ordinary shares. They combine the investment advantages of a managed fund with the ease and cost-effectiveness of share trading.
You can use ETFs for cost-effective, easy access to markets and asset classes you might not otherwise have access to, such as debt, derivatives, currency and commodities.
Two index funds I use myself are:
- SPDR S&P/ASX 200 ETF (STW)
- Vanguard Australian Shares Index ETF (VAS).
If you want to add a bit of spice to your life, you could go the other route and have a go at picking shares yourself. As somebody who has been trying to do this for many years, I can assure you it’s much harder than it seems. For starters, the key to being successful is to find an undervalued share, which is hard to do given the wealth of information available. Most of the weekend papers publish brokers’ tips; if you choose a stockbroker they will make recommendations for you, or you could subscribe to blogs, magazines or newsletters that specifically focus on finding value in the share market. As far as I’m concerned, it’s all too difficult, and way beyond the scope of this book. But best of luck, if that is the way you want to invest.
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Noel Whittaker is the author of Making Money Made Simple and several other books on personal finance. You can learn more at noelwhittaker.com.au
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