Norwegian manager Odin has published seven reasons to consider gifting shares in equity funds to children for Christmas this year.
The manager notes that a NOK10,000 investment in an equity fund on behalf of a five-year-old child could become NOK370,000 by the time they are 55, based on average annual returns of 7.5%, or NOK145,000 when adjusting return over the period for an average inflation rate of 2.5%.
1. An equity fund cuts noise in the home
By all means, buy a noisy fire engine for the five-year-old but if you want peace and quiet then an equity fund makes sense. The only noise you may hear is the ‘ping’ when the monthly statement comes into the email inbox. This is one Christmas gift that brings peace to the home.
2. An equity fund can save junior from the luxury trap
Giving an equity fund as a Christmas present can lay the foundations for good habits among younger people. Sit down with them and explain how equity funds work. In contrast, the luxury trap continues to lay more debt on Norwegians, and contributes to financial experts tearing their own hair out over the lack of knowledge about personal finance.
The knowledge to look after oneself is perhaps the greatest gift.
3. You avoid buying gifts nobody really wants
Children probably want packages for Christmas. However, an equify fund can become a popular Christmas gift – perhaps not today or next year, but some time in future. Look forward to the day they are going to buy their first property or travel the world. Then, they will want to have some kroner in an equity fund.
4. An equity fund shows that you really care
Many Christmas gifts quickly lose their novelty. That is why it is a good idea to give something that they can enjoy over time. An equity fund will never be as exciting as a fire engine from Fireman Sam. Ask the five-year-old; you will get a clear answer to that question. But in contrast, the value of money in an equity fund will increase in value as the days go by.
Giving a fund as a Christmas present shows therefore that you really care, not just today but in years to come.
5. Money in an equity fund can contribute to making dreams reality
Whatever they decided to do, chances are that it will cost money. That is why putting money into an equity fund early makes sense, to use the compounding rate effect to do most of the work. After a few months there will be little return to boast about, but over time it can become a lot of money.
6. It reduces the chances of the kid moving back home as a 40-year-old
For all the parents who popped the champagne when their children moved out of the home in their 20s, it would be nice to think that they will not return home in their 40s.
Equity funds given to young children can contribute to a good start to adult life. Properly done it can awaken an interest in managing their own money, and avoid getting into financial difficulties later in life.
7. An equity fund is the Christmas present that can be put on autopilot
An equity fund may be boring, but running around shops for presents can be even worse for many. You can save yourself a lot of bother, not just today but in years to come. If you start a regular saving regime you can put Christmas presents on autopilot. You know what you will give as a gift every year. It will be like Elon Musk and his electric cars: they just run by themselves without the need to stress so much.