How can children support their parents financially?
If children want to support their parents financially, the best way to do so is by helping with financial matters. The important thing here is to respect the parents' wishes and only to take action yourself at their explicit request. Recommendations for particular financial decisions should be made with the utmost caution, since these – if the investment performs differently than hoped – can come back to you.
Especially when parents do not feel confident managing their own securities account themselves, children can take this on for them by means of a power of attorney. The managed assets belong to the parents, who do not have to concern themselves with the technical details. Here, too, the rule is to respect the parents' wishes and not to make any decisions on your own authority.
Which type of investment is suitable for older people?
Even if your own parents are already retired, there are ways to protect their assets, at least partly, against loss of purchasing power through inflation. Given their advanced age, low-volatility forms of investment are often more suitable for this, which are also an option for short-term investing, above all:
- instant-access savings accounts (Tagesgeld),
- fixed-term deposits (Festgeld),
- short-dated government bonds and
- money-market ETFs.
Under certain circumstances, however, riskier or higher-return investments such as equity ETFs can also be an option even over shorter investment periods.
In principle, a long-term investment can still make sense in retirement. A look at the demographics in Germany shows that people are living ever longer – and are accordingly reliant on financial security for longer. Someone who begins investing at 65, for example, often still has a life expectancy of 20 years. If the assets are intended to provide financial security, equity ETFs can also be an option in retirement. Important when risk-bearing capacity is only low: use equity ETFs only as an addition and do not weight them too heavily.
The decisive factor: time
As a general rule: the sooner the parents need the money, the shorter the investment horizon and the safer – that is, the lower in volatility – the chosen investment should be. Where there is an investment horizon of 6 years or more, and better still 10 years or more, high-return investments such as equity ETFs can in turn ensure that the assets can grow over a number of years.
Take your retirement provision into your own hands early
Find out how you can start with private retirement provision right now and close your pension gap in our article: ETF retirement provision: close your pension gap.
Investing money for your parents: what to bear in mind
If you want to invest money for your parents, you have two options available: you can invest money yourself and pass it on to your parents (a gift), or you can support your parents in opening a securities account themselves.
Option 1: Support your parents with your own assets
If, for example, you open a securities account and want to invest money for your parents yourself, this money belongs to you. Passing the invested money on to the parents is, legally speaking, a gift. This also applies if you pay monthly sums into an ETF savings plan that runs in your parents' name. Within 10 years, you can give up to a tax-free allowance of 20,000 € to your parents tax-free.
From a monetary gift of more than 20,000 € within 10 years, tax is payable under gift-tax class II – depending on the sum gifted, this amounts to between 15 and 43 % gift tax.
Option 2: Support your parents in opening their own securities account
If the securities account runs in your father's or your mother's name, the invested money belongs entirely to your parent accordingly. If they do not want to manage the securities account themselves, they can have a power of attorney drawn up for you so that you can manage the securities account in your parents' name.
In vier Schritten zu deinem persönlichen ETF-Sparplan:
Get an investment proposal
Open an account
Set up a savings plan and deposit money
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3 tips on how you can support your parents with their investing
1. Understanding the basics of investing helps
The more comfortable your parents feel with an investment, the easier it is to support them with financial decisions. It helps enormously to understand some of the basics of investing. At quirion you will find a wealth of information all about investing, to help you become familiar with the basics of investing.
Investing made simple
2. Respect your parents' need for security
Even if you assume that a particular form of investment would promise more return – for many people in old age, the security aspect is the most important point when it comes to investing. Respect this need and give advice where it is wanted. In the end, every form of safe investment is better than letting the money lose purchasing power over the long term in a current account, which as a rule bears no interest whatsoever.
3. The simpler, the better
The more straightforward the chosen investment, the easier it is to decide on it. Unrealistic promises of returns or complex fee structures should generally make you sceptical. Trustworthy providers put their cards on the table – both with regard to the expected return and to all costs and fees incurred.
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Which type of investment is best suited to your parents?
For short-term investing, the focus is on security-oriented investments such as instant-access savings accounts (Tagesgeld) or money-market ETFs. In both cases, your parents' assets are available at any time and bear interest, so that the loss of purchasing power through inflation can at least be partly offset.
If your parents have several years available for investing and can withstand stronger price fluctuations in the meantime, higher-return forms of investment such as equity or bond ETFs can make sense. In this way, your parents' assets can grow continuously over the years, and risks such as a looming pension gap or possible care costs can be cushioned in good time.
Investing money for your parents with quirion
With quirion's digital investment, your parents can invest automatically in an ETF portfolio precisely tailored to their needs. They tell us (with your support if needed) what sum is to be invested and what financial goal they want to achieve – quirion handles the selection of the right ETFs for you.
