Friday, August 5, 2016

I would like to buy a stock or bond for my newborn grandchild. What would you recommend?

Dear Sir/ Madam, you are on the right track, while thinking on financial instruments as a gift for your newborn grandchild, instead of thinking gold or such non-income earning avenues.
Between bonds and equity, the later is better, especially considering that the child is just born and has a very, very long and bright future ahead for the initial investment to multiply, on the back of the ‘Miracle of Compounding’, espoused by Albert Einstein.
A bond, though appears to be relatively safe, has its own woes. It will yield a fixed regular income but no capital appreciation. On the contrary equity offers both regular income in the form of dividends as well as capital appreciation. If you think equity investments are complex, you may invest the money in an Exchange Traded Fund (ETF) like Goldman Sachs’ NIFTY BEES, or any mutual fund.
The key to investing, however, is to simply forget about it. By the time child grows up to the 40s, he or she already would have achieved ‘Total Financial Freedom’. Just imagine what a wonderful thing financial freedom is - one does not have to work - one may work in areas of passion, purely for the joy, rather than the drudgery of making a living!

Note: This is a reproduction of the question I had answered on the website ‘Quora’.

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