Top Advisor Shares How You Can Build Wealth for Your Kids Without Being an Expert

Becoming a parent is a life-changing milestone and a significant financial responsibility. American families pay almost half of college costs out-of-pocket, averaging $13,760 per student each year. For new parents, there’s pressure to secure their child’s future, and it can be overwhelming. However, the right investment strategy can make all the difference.

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

How To Start Investing as a New Parent

Build a Consistent Savings Habit

“Start by looking at your budget and figuring out what you can consistently save,” Tanimoto said. “Automate it so your paychecks are set aside before you spend it.” Setting up automatic transfers to a dedicated investment account ensures you’re paying your future self first, not just covering today’s bills.

Choose Simple, Low-Cost Investments

A total stock market index fund is a straightforward and relatively inexpensive way to get broad exposure to the market. “A low-cost total stock market index fund is a simple place to begin,” Tanimoto said. Index funds and mutual funds are ideal for long-term goals, offering 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 actually investing. I see parents leave money in cash or overly conservative accounts for years,” Tanimoto warned. “Inflation chips away at it the whole time. If the money is meant for the long term, it needs to be working for you in the market.”

Keeping savings in cash may feel safe, but it can erode your purchasing power over time as inflation takes away its spending 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. Over 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-free.
• Roth IRAs for Kids: If your child has earned income, you can open a custodial 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.
• Custodial Accounts (UGMA/UTMA): These accounts enable you to invest on behalf of your child, transferring control to them when they reach adulthood.

Don’t Make Things Too Complicated

“Keep it simple. Automate your saving and investing so it happens without effort. Start with what you can and let consistency do the heavy lifting,” Tanimoto emphasizes. The key, he said, is to start early and stay consistent, letting compound growth work in your favor.

The Bottom Line

New parents don’t need complex 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. Begin with what you can, stay consistent, and let your investments grow alongside your family.