Is it too early to start a portfolio for my one-year-old child?

I have a one year old child. Is it too early to start a portfolio for my child, and would it be better to start off with a stock or a bond?

Co-Published on Investopedia

Co-Published on Investopedia

It is definitely not too early and I commend you for taking advantage of the incredible returns you can get by starting an account at one year old. I am assuming your child will not need the money for at least 18 years, and so a stock-heavy portfolio would be appropriate. I would even be comfortable with a 100% stock portfolio assuming other factors align and assuming you won't have need of the money, yourself. Choose a broadly diversified, low-cost fund (instead of an individual stock or bond) and you should be all set.

An index fund which tracks the S&P 500 would be an example to look at, or you could look at an S&P 1500 or Russell 3000 index fund if you want to invest more broadly to include smaller companies. Another option would be a global stock fund if you are looking to capture returns from companies around the world. Realize any of these funds will have a higher chance for losses during a market downturn verses a fund which invests in bonds or a mixture of bonds and stocks. At the same time, the fact you don't need the money anytime soon means you can safely let the money sit in the fund until the market recovers, no matter how long it takes to recover.

Identify the Goal for the Money

Another question you should ask yourself is what you want the money to be used for. This will determine the type of account to put the investments in. If it is for their education, you might want to invest in a 529 plan, as you will also enjoy tax advantages. Alternatively, a standard taxable account would be preferred if you want your child to have more flexibility with the money, say for goals such as starting a business, paying for a wedding, or buying a first house.

I would avoid a UGMA or UTMA account, as your child would have 100% ownership of the money at age 18 and you lose all control. UGMA and UTMA accounts will also reduce their financial aid for college. Unless you have a very specific need, there is no need to have your child's name on the account at all. Instead, just open up an account in your name (or you and your spouse) and contribute to the account knowing it is for your child. This will keep you in control of the money, and allow you to decide when and under what circumstances you want to give it to your child. 

Overall, your plan is amazing, and more parents should have the fore-thought you have in providing for your child's future. As a follow-up question, you should start considering how much you will actually need for college for your child and then calculate how much you need to invest each month to pay for college. Feel free to set up a meeting if you’d like help with any of it.


Joshua Escalante Troesh is a fee-only & fiduciary financial planner, a Tenured Professor of Business, and is ranked the #1 advisor nationally on Investopedia’s Advisor Insights platform. To explore working with him on your personal financial planning and investment advising needs, simply schedule a free Discover Meeting.


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