Last night I was putting my son, Wilbur, to bed and reading him some books. He’s got a big bookshelf in his room and a dozen in rotation at any one time.
I asked him if he wanted to read Cheeky Monkey Joins the Circus. He went on to tell me a full story about how the teacher at daycare today called him a cheeky monkey for standing on the chairs whilst he was trying to do an octopus puzzle.
It was amazing. It was the first detailed story he’s ever told me. He even clarified a few points, the octopus was orange and he likes puzzles.
We were like two mates recounting their day. Had he asked what I did I’d have told him I watched Xero Limited (ASX: XRO) drop 5% on the back of their acquisition news and even got an email from their corporate communications team because I got the CEOs name wrong.
Hopefully we can get Sukhinder on the Australian Investors Podcast, we’d love to get into the detail of the long term vision. And I am really sorry about getting her name wrong, nothing annoys me more than receiving an email, “Hi Michael” or “Martin we spoke a few months ago…”.
If Wilbur had a look of concern on his face about this I would have reassured him, don’t worry mate you’re diversified. Xero is 1% of your Australian share exposure via the Vanguard Australian Shares ETF (ASX: VAS). It’s the 20th largest position in the index and VAS is 40% of his portfolio.
We didn’t get into that because we were already on to Steam Train Dream Train, click-clickety clack down the track!
I’ve been investing for Wilbur since he was six months old and I created the Rask Invest Luna portfolio so I could invest for him via Rask Invest. I wasn’t going to do that unless it was managed in a fashion that I would do for him myself.
Kids don’t fit into stock standard portfolios
I believe Luna is one of the only accounts designed specifically for kids. There are other platforms that allow you to invest on behalf of kids but this is into their standard models which are managed with all investors in mind, not kids.
On the surface it looks incredibly simple, we hold just two ETFs, the above mentioned VAS and iShares S&P 500 ETF (ASX: IVV).
But Luna is about what it doesn’t do that what it does.
How we rebalance gradually over time for a kids investment
Given the significant tax implications on income for kids, Luna is designed to have incredibly low turnover. In fact, we do not rebalance it. Rebalancing between the two ETFs by using contributions made by the investor.
When cash comes in it will go into the ETF that is most underweight compared to our static model. This way, we avoid major capital gains tax implications by selling units to rebalance between the two.
But why VAS and IVV specifically for kids investing?
When selecting these two ETFs for the portfolio we really thought about the need for future sale events. Yes, we could have chosen an all growth ETF but they have multiple asset classes within them and are internally rebalanced. So, even if we didn’t sell, transactions and CGT events would be taking place within the ETF.
We could have chosen a high growth thematic, but by design these are created to capture a thematic of the time and are not designed to be perpetual.
To us, VAS and IVV are two ETFs that are unlikely to be usurped by cheaper and more efficient products. They have low internal turnover due to their passive index tracking and the major indices themselves are an evolving thematic, with the holdings reflecting the major trends of the time.
Investing not just for when they’re kids but a lifetime
I regularly contribute small amounts to the account and eventually, I plan to transfer the assets across to Wilbur directly to form the foundation of his own portfolio. I hope he continues to add to it, buy new investments, and take the dividends and go travelling. My job between now and then is to make sure he knows the value of what he has and doesn’t blow it all on a car…there’s a good chance he’ll never own a car!
Here’s a our full guide on investing for kids. Give it a read over the weekend. If you have any questions, say g’day to Martin or Marshall or Michael or whatever his name is on the chat!
Just a real quick one before I go, today I’ve spoken about an investment product. Please ensure you read the product disclosure statement, our financial services guide and target market determination and before investing for kids talk with your accountant and seek out financial advice. You will find the PDS, TMD and FSG on the Rask Invest site. All information above is general advice only.
