Building wealth to make it easier for children to start their adult lives – there are various ways to do this. There is a lot to be said for using the return opportunities of the capital markets when building wealth. And despite price fluctuations, you don't have to expose yourself to unnecessary risks in doing so.
A driver's license, their own car, the first apartment. Perhaps studies in a big city. And in between, collecting impressions for life on trips large and small. Starting out in adult life can quickly become expensive. Everything is easier if parents start early to build up a financial cushion for their children. The question is which route makes this work as efficiently as possible.
Classic savings products
For many, the word "saving" is still closely associated with interest-bearing products like the classic savings account. But building wealth with these is extremely laborious. Because – despite the interest rate turnaround – they still yield next to nothing. According to figures from the Bundesbank, the effective interest rate for new deposits with a three-month notice period stood at just 0.74 percent on average in March 2024.
That is quite disappointing. Sure, since the interest rate turnaround, overnight and fixed-term deposits offer considerably more than a savings account, depending on the bank. But because falling key interest rates have been expected for a while now, many banks have already begun to scale back their interest offers. Savings products do offer a high degree of safety. But usually only modest return prospects in exchange.
Tapping into the return opportunities of the capital markets
In the past, the stock markets have shown that returns of six to seven percent per year are possible – over the long term and on average. There is no guarantee of this, of course, because higher return opportunities are always tied to greater risks. But over the long term and on average, the stock markets trend upward, in spite of all the fluctuations and crises. There is a reason for this: stocks give you a stake in companies and thus in the economy. And the economy, in turn, is geared toward growth.
The risks of investing in the stock markets can also be sharply reduced, above all through diversification. The principle: when many stocks are held in a portfolio, it is less dramatic if individual ones falter. No one can see into the future. Not even an expert knows in advance which stock or which stock selection is the best. So ideally you diversify as broadly as possible.
The broadest possible basis for a stock investment is the global stock market. But replicating it is not so easy. Buying all the stocks available worldwide would be far too expensive, so it is not feasible for small amounts of wealth. With a targeted selection and combination of low-cost ETFs, however, you can build an efficient portfolio in which return opportunities and risks are in the most balanced possible relationship, as in the global ETF portfolio from quirion. This contains around 8,000 stocks from more than 70 countries. On top of that, depending on the investor's risk profile, there is a larger or smaller share of bonds from around 3,000 issuers. Adding bonds can dampen the fluctuations of the equity components in the portfolio and thus the risk of losses.
An ETF savings plan Plus, for children too
There are also savings plans for the portfolio, starting from savings installments of just €25 per month. And so, even with small monthly contributions, it offers access to an investment strategy on a scientific basis and to the services of professional asset management. You don't have to worry about selecting and combining individual products yourself.
Parents can also set up such a savings plan specifically for their children. In that case, the money saved belongs to the child from the very start, and the child has sole right of disposal once they turn 18. In this case, parents also do not have to use their own saver's lump-sum allowance for any gains, for example from the regular automatic rebalancing.
. Every clearing account and every investment strategy has an IBAN. This makes it easy for friends and relatives to save along too. And together they all help build a financial cushion for children that eases their transition into adult life.
