Currently, the child benefits provided by the state amount to about 130 euros per month. If this amount were regularly invested from the child’s birth until adulthood, the accumulated sum could reach about 40–45 thousand euros in today’s money. Such funds can significantly contribute to financing studies abroad, purchasing a first home, or providing a financial foundation for starting independent living.
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Of course, investing is always associated with risk and periods of uncertainty, so to assess expected results, several scenarios can be compared. Suppose that child benefits will continue to grow with inflation in the future, so all calculations are presented in today’s euro value. Over 18 years, about 28 thousand euros would be invested in total, which the state allocates to parents.
Let’s evaluate two fairly simple strategies. The first involves investing the entire period in a broadly diversified global stock market. The second initially also relies on stocks, but as the period approaches its end, part of the investments is gradually shifted to safer instruments such as bonds. In these calculations, I choose low-cost investment products with an expense ratio of up to 0.2%.
Although no one can predict the future of markets and such returns are not guaranteed, long-term historical market data allow statistically modeling thousands of possible scenarios and assessing what potential results can be expected under different circumstances.
Higher returns, but also greater fluctuations
The first strategy is simple and popular among investors worldwide: invest all child benefits received over 18 years in an investment fund or ETF tracking the global stock market. Stocks historically offer higher returns among major asset classes over time, but their value can fluctuate significantly (typically about 10–20% per year). For this reason, they are not suitable for short-term goals, but a long investment horizon allows exploiting their potential.
The long-term real return on stocks (after inflation) is about 5% per year. Simulations show that in this case, the investment value after 18 years of regular investing would average more than 45 thousand euros. This is about 60% more than the total contributions, and this return already accounts for the long-term impact of inflation.
However, it is important to understand the risk as well. In different scenarios, the final result ranges from about 23 thousand to 95 thousand euros. In a small portion (about 13%) of scenarios, the investor experiences a loss at the end of the investment period. On the other hand, even with such fluctuations, this strategy outperformed the alternative of keeping money in an account in 95% of cases.
A strategy for those seeking more certainty
Not everyone is comfortable with the idea of investing solely in stocks for 18 years. The child’s adulthood is a clear investment horizon, so it is not always possible to wait for markets to recover after a major downturn.
In such a case, a gradual risk reduction principle can be applied. In the first part of the period (9 years), investments are made in stocks, and as the goal approaches, an increasing portion of the portfolio is directed to bonds. The calculation of this strategy’s results assumes investing in safe bonds with a real annual return of 1.2%. This strategy would initially not differ from the first one – we would see faster returns and greater fluctuations, but at the end, the return would become more stable and easier to predict.
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Modeling shows that this strategy would accumulate about 39.5 thousand euros on average, or 41% more compared to the amount contributed. This is a lower average return than investing solely in stocks, but the results are much more stable. In simulations, the final value usually ranged from 26 thousand to 65 thousand euros, and the probability of losses was lower.
Statistically, this strategy outperforms constant investing in stocks in only 30% of cases, but it provides much greater protection against market declines at the very end of the investment, at the child’s eighteenth birthday. Simply put, the investor sacrifices part of the potential return in exchange for greater predictability at the time when the accumulated funds will be needed.
Practically, this strategy can be implemented by investing in two low-cost and broadly diversified funds: one investing in the global stock market, and the other investing in investment-grade bonds. Then, periodic investments should be made into these funds according to set proportions. Over time, units of one fund would need to be sold and another purchased, so when implementing this strategy, it is worth considering the possibility of using an investment account regime.
The most important thing is to maintain discipline: invest regularly and periodically review asset allocation. Those who do not want to manage the portfolio themselves can also choose alternatives that automatically reduce risk. However, for greater convenience, higher management fees often have to be paid.
The greatest cost – doing nothing
Investing still seems complicated or risky to many. However, it is worth remembering that the decision to do nothing also has its cost.
Often, child benefits simply accumulate in an account. This provides a sense of security, but over time inflation reduces their value. In other words, the nominal amount may remain the same, but it will buy less and less. Therefore, in the long term, it is important not only to accumulate money but also to preserve and grow its purchasing power. The two discussed investment strategies would potentially increase the value of money by about 50% over 18 years, while the uninvested amount would likely depreciate by at least 20% due to inflation.
Finally, investing can become not only a way to save for children’s future but also an opportunity to learn together. Children cannot invest themselves, but they can observe how financial markets work, talk about saving, risk, and long-term goals from an early age. Such lessons often become no less valuable than the accumulated sum itself.
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