Choosing a child trust fund investment involves weighing several key factors. First, you must consider how aggressively you want the money to grow. Second, you must weigh that against the amount of risk you are willing to take. Finally, you need to factor in how much money you have to invest and make sure you arrive at a diversified portfolio of investment products.
When choosing a child trust fund investment, the two factors that most directly relate to each other are risk versus potential gain. The more risky the investment, the more you have the potential to grow the money in the trust fund. You do, however, risk losing the money if the riskier investment does not pan out. Thus, you should consider the child's age and how soon he or she will need the money that is being invested. If the money is not needed for a longer period of time, then you can consider investing in something more risky since there will be time for the investment portfolio to recover if the money is lost.
Examples of a possible investment that might be considered a more risky child trust fund investment would be an investment in an individual stock. That stock could have the potential to go up, but it could also go down. Various real estate investments, or the most risky and speculative investments such as currency exchange trading or buying commodities futures, can have tremendous potential for reward, but the money could very easily be lost if you are not an extremely well educated investor. Safer investments may include a mutual fund or a government bond, but your interest rate and return on investment will be lower.
The safest investment, of course, would be a savings account. The interest rates on such accounts, however, may not even keep up with inflation, so this may be a poor choice unless you have a large amount of money already and the money will be used very soon so none of it can afford to be lost. The best thing to do, if you have a sufficient amount of cash to invest, is to have a mix of risky and safe investments.
Your financial knowledge will also dictate what a good child trust fund investment is. If you have the knowledge to understand more different types of investments, then you may be more able to take on things that can give you a larger return. If you do not have this knowledge personally, it can be a good idea to get help from an investment adviser to manage the child trust fund investment.
