Wealth accumulation: 5 tips: invest money for the offspring | news


Stock market crashes in the past have led to uncertainty among many investors and thus also among parents who want to invest money for their children. Added to this was the corona pandemic, which not only put significant pressure on share prices for a while, but also left a financial mark on many families.

But in order to build up wealth over a longer period of time, parents can hardly avoid the stock market. In particular, if returns are sought that are above the current inflation rate.

In this context, the focus is particularly on broadly diversified equity funds or ETFs (Exchange Traded Funds), which offer a lower risk of loss than individual stocks. ETFs are funds that are traded on the stock exchange and usually track a stock index, such as the DAX. This is an easy way to invest in a whole package of stocks. The advantages of ETFs are, for example, that in contrast to actively managed funds, ETFs incur fewer fees and ETFs can be bought and sold on the stock exchange at any time. In addition to a one-time investment in an ETF, parents can also make a monthly payment into an ETF savings plan. The amount of the monthly installments in such a savings plan can be flexibly adjusted, which means that they can be increased, reduced or even suspended at short notice. With some ETF savings plans like OSKAR, the rate is invested in several ETFs at the same time, so that the risk is even lower.

Possible investments are, for example, an ETF on the global stock index MSCI World, which combines many stocks from different countries and industries. This diversification reduces the risk of loss. With a DAX ETF, you invest in all companies in the DAX and thus bet that the German economy will develop positively. In the long term, high returns are possible here. In the last fifty years, investors have suffered no losses if they invested in German blue chips and held them for at least 12 years, no matter when they bought or sold. Annual returns have averaged around eight percent over the past five decades.

It is important to note that the longer the investment horizon, the lower the risk of a negative return. Anyone who is already investing in ETFs for the youngsters can ride out short-term fluctuations on the stock market and achieve a higher return.

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home savings

Building savings contracts have a minimal risk. As a home saver, you save a certain amount at a fixed interest rate. This savings phase lasts about seven to ten years. After this savings phase, the home loan and savings contract is “ready for allocation”. The saver can then take out a home savings loan from the building society, the interest rate of which has already been negotiated at the beginning of the contract, or he can have the amount saved and interest paid out. This could be done, for example, at the start of training for the next generation.

It is important to know that home savings contracts are only worthwhile if a positive interest rate trend on the market can be expected. Favorable interest rates on loans make home savings contracts unprofitable. Depending on the features of the contract, however, higher returns can often be achieved with a home savings contract than with savings accounts, where in times of low interest rates penalty interest may even be due.

Daily allowance and fixed deposit

A call money account can also be attractive for parents who want to invest money for their own offspring, as such an account offers a high level of security and at the same time regular interest income. A call money account is a special interest-bearing account with a bank that the account holder can access at any time. There are also no notice periods. However, a disadvantage for the investor with a call money account can be that the bank has the freedom to change the interest rate and correct it downwards at any time. Interest rates are often only guaranteed for a certain period of time, for example for the first four months after opening an account. Currently, the interest rates for the first few months are only around one percent. One way of always securing the best interest rates is to change the underlying bank regularly, which of course involves a certain amount of effort.

Call money accounts are not intended for general payment transactions, which excludes transfers or direct debits. In order to make bookings, a reference account is required, such as a standard current account. The transfer to the reference account can take one to three bank working days, which can lead to problems if the credit balance is to be accessed at short notice. With a long-term time horizon, as is the case when saving for one’s own offspring, this aspect should be neglected.

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But overnight money accounts are also rather unattractive in times of low interest rates, since the interest on the capital rarely compensates for inflation. Nevertheless, higher interest rates can usually be achieved here than on savings accounts.

Investing in time deposits also serves the safety aspect. In contrast to call money, fixed-term deposits cannot be accessed at short notice. With a fixed deposit account, you decide to invest an amount for a certain period of time, usually several years, at a fixed interest rate. The longer the period, the higher the interest rate. As a rule, direct banks offer the best conditions. Thanks to the deposit protection fund, the savings are absolutely safe. Savers have to be careful with the term: This can be extended if the contract is not terminated in good time before the current contract expires. If you forget to close the fixed-term deposit account in good time, the capital may not be available when your child starts training or moves into their first apartment.

Fixed-term deposits can be a building block in the investment of money for the offspring, but generous returns cannot usually be achieved here either. In many cases, investors actually lose money over a longer period of time when interest rates are lower than the current rate of inflation.

housing association

In Germany there are more than 2,000 housing cooperatives that manage a portfolio of more than two million apartments and have a total of more than three million members. In order to become a member, shares in the cooperative must be purchased. In return, one receives compensation in the form of a dividend and has the prospect of a cooperative apartment at a low rent. Depending on the cooperative, this dividend can be up to four percent of the capital employed. Around 50 of the 2,000 housing cooperatives also have a limited banking license, which means they can offer interest products such as savings books, time deposits or savings bonds. The savings books of the housing cooperatives often offer interest rates that are higher than the level of savings books at banks and savings banks. Children and teenagers in particular get good conditions here. The savings are used to build and maintain living space and do not flow into the capital market, as is the case with many banks. The money of the savers is also secured by the self-help fund of the GdW (Federal Association of German Housing and Real Estate Companies).
However, cooperatives often only accept savers from the region.

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Investing in real estate

Even far away from savings accounts and ETF investments, parents can provide for the financial future of their children – for example through real estate investments. Investments in real estate funds are one possibility here. Buying a property – possibly even in the child’s name – can also be a worthwhile investment. If the child does not want to live in the property later, an attractive regular income can be achieved by renting it out. If the property has already been paid off at this point, the monthly costs for the property owner are usually limited. Passive income can therefore be achieved with real estate – a very worthwhile option, especially when starting a career.

It should be noted, however, that real estate owners cannot dispose of their real estate assets flexibly. If you are planning a larger expense that is not covered by the monthly rental payments, you have to sell the property – depending on how time-sensitive the money requirement is, you may not always be able to achieve the optimal sales value.

Digression: Are cryptocurrencies like Bitcoin suitable as an investment for children?

With cryptocurrencies such as Bitcoin & Co., enormous returns have sometimes been achieved in recent years. Against this background, many parents ask themselves whether a crypto investment is worthwhile for their children’s wealth accumulation.

It is important to know in this context that Bitcoin and other cryptocurrencies are speculative investments whose probable value development – also due to a lack of long-term historical experience – is difficult to predict. Crypto investors take great risks and accept strong fluctuations, so digital coins are not a safe form of investment.

Against this background, cryptocurrencies are interesting as an addition to a depot, but complete investments in digital currencies are not recommended due to the lack of diversification.

Editorial office

Image sources: ollyy /, Katy Spichal /