Investing as a New Parent - FAQ
Becoming a parent and raising a child is a challenging, yet rewarding task. As you add another member to your family, you're also entering into a new chapter in your financial investment journey. This stage of life provides you with new ways to financially invest for your own future, as well as your child's, so it's important that you understand all of the opportunities available. Below you'll find several frequently asked questions that many new parents pose as they evaluate their financial investment strategies.
What new financial investment opportunities should I consider as a new parent?
Rather than doing a complete overhaul of your financial strategy once you become a new parent, it will probably be more beneficial to do some minor adjustments. One of the most overlooked investment strategies new parents face is their own retirement. Planning for your child's future is important, but don't forget about yourself! Continue to make your own financial future a priority.
In terms of new financial opportunities for new parents, you'll want to discuss life insurance, education funds and your long term financial investment strategy with your advisor.
What do I need to know about life insurance?
While it's not a requirement, life insurance is a way to protect yourself and your loved ones. Life insurance can act as a financial safety net during a troubling time. There are different types of life insurance, insurability factors and various coverage options to weigh when deciding on a policy. Because your unique life insurance needs are so important, we do recommend educating yourself and evaluating your specific needs and speaking with your financial advisor for specific recommendations. Some of the basic terms to understand, include:
- Whole-Life Policies - are considered permanent insurance and merge life insurance and investment funds. With a whole life policy, you are purchasing a fixed amount of money to be received upon death.
- Term life insurance - has no element of financial investing, and provides coverage for a fixed-period of time. You will pay a monthly premium that is determined by age, health and other insurability factors.
- Beneficiary - this is the person that will inherit the earnings of the life insurance policy when the insured person passes away. As a new parent, you will want to consider who the beneficiary of both the parents' and children's policies will be.
- Premiums - are what you will be paying for the life insurance. Understanding how much and how often you'll need to pay is important in your overall financial budget.
Where should I be in terms of financial investments at this point in my life?
Now that you've added a loved one into your life, it's time for you to reconsider where you're at financially. At this stage in your life, it's wise to reassess and organize cash flow, evaluate the need for life insurance, consider a college fund for your newborn and lay the groundwork for long-range investments. Please review our new parent sample portfolio asset allocation chart and talk to your representative about your specific financial goals. One thing is clear at this pinnacle moment in your life: having a firm investment strategy is indispensable.
How should I start establishing a college fund for my child?
Establishing a college fund is a smart choice for new parents looking to give their child a head start while they're still young. From savings bonds to custodial accounts, college funds come in a variety of forms. See some examples of college investment alternatives below to help guide you in deciding what investment plan is right for you and your loved one.
- Bonds - act as a loan that's promised to be paid back in full with interest after a duration of time. From savings bonds to treasury notes, there are a multitude of options available for you to consider.
- 529 College Savings Plan allows you to set aside money for your child's education, and the federal government won't tax withdrawals if it's used for higher education. It doesn't take a lot of money to start an account, and the money can be used at any higher education college or university across the country.
- CDs - (certificates of deposits) are savings tools that typically offer higher earnings than traditional savings accounts and include traditional, bump-up and liquid cds, among others. CDs also have early withdrawal fees associated with them, so you won't be tempted to withdraw from it.
- Mutual Funds - are professionally managed investments, often made up of stocks, bonds and cash.
- Custodial Accounts - are under your control until your child reaches legal adulthood. A custodial account is designed to put you in charge of your child's future finances.
- Stocks - (common and preferred) provide an investor a piece of ownership in a corporation that's translated into a claim on a piece of the corporation's resources and incomes.
What will my new baby mean for my taxes?
Being a new parent, you may often find yourself overwhelmed by unexpected expenses. Fortunately, in addition to providing your family with smiles and laughter, your newborn will also have an effect on your tax benefits. Claiming your son or daughter as a dependent provides you with a dependent exemption, as well as a child tax credit until they become a legal adult. If you're a new parent, you can't afford to ignore the tax benefits provided by the federal government for parents of newborns.
If you have a question that isn’t covered on this page, or are looking for more information regarding investment opportunities as a new parent, please contact SII Investments today.