Best Way to Invest $1,000 for a Child

SHORT ANSWER: The best way to invest $1,00 for a child is through a savings account.

Learn what can children invest in while navigating a changing financial world. Modern investment opportunities such as robo-advisers can automatically manage investment portfolios. With the legal supervision of a guardian or parent, children can begin investing. When starting your child’s financial journey, consider investing $1,000 while discussing the importance of strong spending habits and financial literacy.

Quick Look: Ways to Invest $1,000 for a Child

• Savings accounts for kids
• Stocks for children
• 529 savings plan
• Bonds and treasury securities
• Robo-advisers
• Custodial Roth IRA

6 Best Ways to Invest $1,000 for a Child

Children can start investing with the supervision of a parent or legal guardian. Use custodial accounts as an opportunity to build financial confidence while spending quality time with your child. Explore the best investment accounts for kids while selecting the best age-friendly educational and financial resources. Consider starting with $1,000 to determine how well your child navigates and grasps financial concepts. 

1. Savings Accounts for Kids

Savings accounts are things to invest in as a kid that encourage strong saving habits. Youth-focused savings accounts promote valuable life skills by encouraging saving while offering interest. Minors are not legally permitted to open savings accounts, so a trusted family member or legal guardian will likely need to help set up and navigate the account.

One of the best reasons to create a savings account for kids is to show them how saving and spending works. A savings account encourages minors to take notice of how to build wealth. Consider promoting savings habits by implementing goals and using stickers as rewards. Investing early in a child’s future allows you to build and direct a savings account until the child is prepared to take control. 

2. Stocks for Children

Stocks are an excellent opportunity for kids to learn about the value of long-term investing. While teaching a child about stocks, consider opening a custodial brokerage account. The account will be under the control of an adult account holder until the child reaches the age of majority. Depending on the applicable laws, a child can automatically gain control over the account once they reach the legally-required age. The legal age varies between states. Think about introducing kids to free virtual simulations of the stock market to increase their exposure to stocks while they learn from a real custodial brokerage account.

3. 529 Savings Plan

According to the U.S. Securities and Exchange Commission, a 529 Savings Plan provides tax benefits focused on saving for education. The account offers state and federal tax incentives. The plans are supported by various states and are designed to help families plan for future educational costs like college.

4. Bonds and Treasury Securities

Bonds are a type of security that provides interest for a specific period of time. It’s possible to purchase bonds for children. Bonds, Treasury bills and Treasury securities are issued by the U.S. government. Review the TreasuryDirect website to decide which selection would be best for your child. Bonds and securities are viewed as safe and stable investments. 

Think about purchasing Series I bonds in your kid’s name. Series I bonds provide fixed interest and an interest rate tied to inflation. Series I bonds can be an excellent investment because it safeguards against inflation. The bonds grow by obtaining interest and steadily increasing the value of the principal. The principal value increases as interest is added to the bond. 

5. Robo-advisers

Robo-advisers are online investment platforms that implement automated algorithms. These automated financial services build and manage investment portfolios. Some robo-advisers offer custodial accounts for your child while functioning as an educational resource. 

6. Custodial Roth IRA

According to the Internal Revenue Service (IRS), a Roth IRA is subject to similar rules as a traditional IRA. However, an individual can leave funds in a Roth IRA for their entire life.  

For older children, a custodial Roth IRA might prove beneficial. Kids with their first jobs might be eligible to contribute their earned income. As a custodial account, the parent or guardian will be considered the account holder until the child reaches the state-specified age of majority. A simple way to think about a custodial Roth IRA is that the account is owned by a child but overseen by an adult. A custodial Roth IRA provides kids with the opportunity to start saving for retirement. A custodial Roth IRA will usually need to be changed to a Roth IRA once a child reaches the age of majority. Saving early encourages extended tax-free growth. However, keep in mind that the accounts are not tax-deductible. 

Advantages of Investing $1,000 for Your Child

Explore the advantages of investing $1,000 for your child such as creating long-term savings and compounding growth.

Compound Growth

Compound growth indicates the annual growth rate over a multi-year period. The growth tends to vary depending on when an individual decides to start and end investing. Investing early allows your kid to benefit from compound growth over an extended period. One key benefit of compound growth is that you are able to reinvest your funds and continue growing your investment. The child will get returns on the original investment as well as previous returns. 

You can calculate the compound annual growth rate (CAGR) to reveal the rate of return on an investment from start to finish. The calculation requires you to know the initial invested amount, the anticipated final amount and the number of years invested. The CAGR does not examine risk, and it can help estimate future growth rates that might determine how you decide to invest for your child.

Long-Term Savings

Investing early can provide your child with many long-term savings opportunities. Before investing, think about making a long-term savings plan that details anticipated needs and financial goals such as purchasing a car or eventually building a business. Speaking with your child about long-term savings goals can introduce them to the concept of saving while teaching them about the importance of patience. 

Financial Education

Involve your child as you build their investments to teach them about the importance of financial literacy. As your child grows, you can make the lessons more substantial. Teaching your child to save can create lifelong healthy habits. Help your child become familiar with risk management and the importance of discipline to emphasize slow and steady wealth. Today, many companies offer engaging money-related games and products designed to educate kids from an early age about the importance of making smart financial decisions.

Investing for Your Child's Future

Planning ahead with financial investments for a child's future sets the stage for a bright and financially stable future. While the best approach may vary depending on individual circumstances, a diversified strategy often yields the most promising results. Whether through a 529 plan for education savings, a custodial account for flexibility or a combination of methods, the key is to start early and allow compound interest to work its magic. By making this investment and teaching the child about financial responsibility along the way, you're not just providing funds for their future—you're empowering them with valuable life skills and a head start on financial security. 

Frequently Asked Questions