2024 Lucky Money Investment Guide: 4 Ways to Grow Your Kid's Red Envelope with 8%+ Annual Returns
In this article, you'll learn:
Hey there, all you lazy folks who want to be lazy but can’t, and those who can’t be lazy but wish you could! Lunar New Year has come and gone once again. It’s not just the season for gaining weight — it’s also when wallets get stuffed (or emptied)! As soon as the reunion dinner wraps up, adults start performing magic tricks, pulling red envelopes (紅包, cash gifts in red packets — a Lunar New Year tradition) out of their pockets with smiles brighter than the braised fish on the table, spreading blessings and New Year greetings to kids and elders alike.
And then, those beloved little ones end up with a mountain of 壓歲錢 (yā suì qián, lucky money given to children during Lunar New Year). Besides immediately spending it to beat inflation, shouldn’t we think about smarter ways to make that money grow, rather than just parking it in a bank deposit earning a measly few percent interest?
In an Era of Low Birth Rates, Teaching Kids About Money Matters More Than Ever
More and more banks have been rolling out parent-child financial plans, encouraging parents to set up separate accounts for their kids’ education funds with dedicated-use purposes. But we all know that buying mutual funds through banks means paying more fees, and those hidden costs can eat into your returns.
Key Points for Choosing a Children’s Account
If you’re thinking about opening an account for your little one, I’d suggest applying for one with “spending limits” or “spending notifications” before they’re financially independent. After all, before age 20, they’re spending your money. This might relate to privacy, but before kids reach legal age, parents bear joint legal responsibility. Knowing what your kids spend money on is also a form of care and concern.
Parent-child accounts are basically a bank marketing product. What banks are selling are invisible financial products, and most of the profits from these products come from transaction fees. Of course, you definitely need a bank account, but if possible, why not open a brokerage account while you’re at it?
2024 Children’s Account Bank Offers Reference
| Bank Account Name | Transfer Perks | Securities/Fund Fee Discounts | Foreign Currency/Trust Account | Daily Spending Limit | Other |
|---|---|---|---|---|---|
| Sinopac MMA | v | ||||
| Taishin YBO Children’s Membership | v (Incoming/1x monthly) | v (Lifetime 30% off, 1x) | |||
| Fubon Little Tycoon Plan | v | v | |||
| Union Bank Happy Passbook | v (Securities 35% off / Fund 50% off) | v | |||
| E.SUN Yueh Happy | v | v (Trust account only) | |||
| O-Bank Parent-Child Account | v | ||||
| CTBC Saving Diary | v |
The Purpose of Opening an Account Is to Put Money In — If You Want It to Grow, Open a Brokerage and Trust Account Too
If you visit enough relatives during New Year, you could easily end up with over NT$10,000 in red envelopes — though of course you’ll be exchanging red envelopes with other friends and family too. But what’s certain is that the kids will have a sum of lucky money that can be saved and used as an education fund for the future.
When opening a bank account, don’t forget to open a brokerage account at the same time. Then you can use these 3 methods to keep growing that money.
3 Ways to Make That Money Snowball
Strategy 1: Dollar-Cost Averaging
My own experience is putting my kid’s red envelope money into their account each year and setting up automatic recurring investments in ETFs. ETFs save you a ton on the management fees, manager fees, and countless other charges that mutual funds require. Through dollar-cost averaging, even if you only invest in an ETF tracking Taiwan’s top 50 large-cap stocks, it’s likely to outperform many thematic funds in the long run.
Here’s how it works: take the total red envelope money received each year, divide it by 12 months, and set up or adjust the monthly deduction accordingly. As long as you have NT$1,000 or more, you can generally meet the minimum investment requirement.
Dollar-cost averaging not only effectively spreads out your entry points but also gives you a chance to discuss the growth of funds in your kid’s account together each month.
Strategy 2: Dollar-Cost Averaging + Taiwan-US Combo
If parents have sufficient budget, I’d suggest investing in US ETFs in addition to Taiwanese ones — for example, S&P 500 or other index ETFs. The future is unpredictable, of course, but as an investment target, the US is still a tech-leading powerhouse. Splitting your monthly recurring investment in two also diversifies risk while enjoying growth from different assets. You can check out Affordable ETF vs. Luxury ETF: Which Is Better for Long-Term Investing?, which analyzes the differences between investing in Taiwan and US ETFs.
Strategy 3: Skip Dividends, Compound Your Way Up
The worst thing is choosing a dividend-paying fund and then spending all the dividends. I previously wrote about Fuh Hwa Taiwan Tech Dividend 00929 — If You Don’t Do This One Thing After Buying, Your Losses Will Be Huge!. Although that article is about 00929 specifically, the overall point is that you need to reinvest dividends for your assets to truly grow. The power of compound interest is beyond what you and I can imagine — because it’s the Eighth Wonder of the World.
Tip
“This is the kind of investment strategy you can sleep on.” The great thing about investing in an index is that it’s pretty hard to see an index continuously declining. If it’s heading straight down non-stop, that index is basically heading for extinction.
Strategy 4: Earmarked Funds, Deposits Only
Earmarked Funds
This money can only be used for specific purposes and can’t be casually moved around. This ensures the funds are used in alignment with set goals. For example, a kid’s lucky money designated as an education fund can only be used for tuition and related educational expenses. Setting goals this way prevents the funds from being spent on a whim.
Deposits Only
“Deposits only” is more of a philosophical approach. The main idea is that once you’ve locked in on trustworthy ETFs, you just need to keep investing long-term to earn returns — no need to stress about daily stock fluctuations. In EP17: This One Thing Buffett Said Made Me Even More Determined — Earning NT$38,000 but Spending NT$41,000, How Do You Live?, I mentioned the story of Ruth and David Gottesman, a couple who were 60-year Berkshire Hathaway shareholders whose early investment in Berkshire grew to $3 billion.
Further Reading
The Lazy Conclusion
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