Top Advisor shares how you can build wealth for your children without being an expert

Becoming a parent is a life milestone and a major financial responsibility. American families pay nearly half of college costs out-of-pocket, an average of $13,760 per student each year. For new parents, there is pressure to secure their children’s future, and it can be stressful. However, the right investment strategy can make a big difference.

The good news: You don’t need to be a financial expert to succeed in saving for your family. “The hardest part is getting started,” said Jared Tanimoto, founder of Sedai Wealth. Investopedia. “Everything else builds from there.”

How to start investing as a new parent

Build a consistent saving habit

“Start by looking at your budget and see what you can consistently save on,” Tanimoto said. “Automate it so your paycheck is put aside before you spend it.” Setting up automatic transfers to a dedicated investment account ensures you’ll pay for your future first, not just cover today’s bills.

Choose simple, low-cost investments

A total stock market index fund is a straightforward and relatively inexpensive way to gain broad market exposure. “A low-cost total stock market index fund is a simple place to start,” Tanimoto said. Index funds and mutual funds are ideal for long-term goals, providing diversification and historically strong returns with minimal effort.

If you want to avoid getting a financial advisor, you might consider a robo-advisor. “A robo-advisor can work if you want a hands-off option,” Tanimoto said. These platforms automatically manage your investments based on your goals and risk tolerance.

Avoid inaction

“One of the biggest mistakes is not really investing. I see parents leaving money in cash or overly conservative accounts for years,” Tanimoto warned. “Inflation gets away from it all the time. If the money is for the long term, it should work for you in the market.”

Holding cash savings may be safe, but it may erode your purchasing power over time as inflation saps your purchasing power.

Take advantage of tax-advantaged accounts

• 529 college savings plans: These state-sponsored accounts allow your investments to grow tax-free when used for qualified education expenses. More than 16 million American families use 529 plans, with an average account balance of $30,295 as of 2024. Contributions may be tax deductible at the state level, and withdrawals for education are tax deductible.
• Roth IRA for children: If your child has earned income, you can open a Roth IRA. Contributions grow tax-free, and withdrawals for qualified education expenses or a first home are penalty-free. “You can use a custodial account or even a Roth IRA if your child has earned income,” Tanimoto said.
• Custody accounts (UGMA/UTMA): These accounts enable you to invest on your child’s behalf, transferring control to them when they reach adulthood.

Don’t make things too complicated

“Keep it simple. Automate your savings and investments so it happens effortlessly. Start with what you can, and let consistency do the heavy lifting,” Tanimoto emphasizes. The key, he said, is to start early, stay consistent, and let compound growth work to your advantage.

Bottom line

New parents don’t need complicated strategies to secure their family’s financial future. You can automate your savings, invest in low-cost index funds or use a robo-advisor, and take advantage of tax-advantaged accounts like 529 plans and Roth IRAs. Start with what you can, stay consistent, and let your investments grow alongside your family.