By Omolola Olorunnisola
You have to be very careful in selecting the right investment options. Make sure you and the child fully understand how the selected investment instruments work and the level of risk attached to each investment option. It would also help to diversify your investment in order to limit your exposure to risk. Investing in just one financial instrument means you may lose all your funds if the financial instrument goes south.
January – AKA the longest month of the year. The month where we make resolutions and falter after a few days. Resolutions, to me, are starting to seem like a waste of time; people find it hard to stick to them long enough to actually achieve them. Goals seem more realistic and achievable, as long as there are plans in place to help achieve them. While we are drawing up our goals for the year, why don’t we assist the kids in drawing up an investment plan?
What is an Investment Plan?
An investment plan shows you how to achieve your financial goals with investment. So before drawing up an investment plan, you’ll have to assess your finances, your income and expenses, your sources of income and savings/investment. Basically do an assessment of where you are financially, where you want to be by the end of the year, and then set up a plan (an investment plan) to help you achieve it.
Drawing up an investment plan for kids is part of helping them become financially literate. An investment plan for the year that is reviewed every quarter will reinforce the importance of effective money management in them. This will also go a long way in teaching them how to achieve set goals in other areas of life.
How Does One Draw Up a Good Investment Plan for Children?
As I’ve noted before, the first step in drawing up an investment plan is an assessment of what the present financial situation is.
What are your child’s sources of income? Does the child have any amount saved up? What does the child spend money on? Those are some of the questions to ask in assessing the present situation.
You need to also help identify where the child wants to be, financially, by the end of the year. How much financial growth is the child looking to achieve by the end of the year? All of these will inform how the investment plan will be designed. An investment plan will make no sense when there are no set goals because the sole aim of an investment plan is to help the child achieve his/her financial goals for the year.
The next step in drawing up an investment plan is to determine how much will be invested either monthly or quarterly and how much return on investment will help achieve the set financial goal. In setting up an investment plan for your child, you have to be very realistic. Make them understand that in order for us to be able to achieve the goal of a certain amount of money by December, they have to set aside xxx amount of money monthly/quarterly. Hence, their financial goals will be achievable. Also, knowing the amount of return on investment that will achieve the set goal will assist in picking out the right investment options.
The last step is to identify the investment options available to the child based on how much is to be invested, the goals set, and the level of risk the child is willing to take.
You might need to consult an investment expert to provide information and proper guidance on the investment options available. You can also do your research to know what options are available. You have to be very careful in selecting the right investment options. Make sure you and the child fully understand how the selected investment instruments work and the level of risk attached to each investment option. It would also help to diversify your investment in order to limit your exposure to risk. Investing in just one financial instrument means you may lose all your funds if the financial instrument goes south. So diversification helps, especially when you choose to invest in risky financial instruments.
It is important that this investment plan is reviewed at least every quarter, so as to make necessary adjustments in light of changes in the investment terrain.