Investing for a child means time is your greatest asset. By starting at age three, you can capture decades of compounding growth. Schwab’s investing themes—like technology, sustainability, healthcare, and global growth—offer a practical way to create a portfolio that reflects the future. Think of it as planting seeds in fertile soil that will grow alongside the child’s life journey.
At age three, every dollar invested has over 60 years to work. That’s enough time for market ups and downs to smooth out, and for the power of compounding to build serious wealth. Schwab’s themes let you invest in the big ideas shaping tomorrow’s world, so your child’s portfolio reflects innovation, resilience, and long-term growth.
The Long-Term Advantage of Thematic Investing
Instead of asking what stock will go up next week, parents investing for a 3-year-old should ask: “What trends will shape the world over the next 30–50 years?” That’s where Schwab’s investing themes come in. These are curated baskets of stocks and ETFs built around powerful forces like innovation, sustainability, and demographics. For a child’s portfolio, it’s about alignment with the future, not chasing the present.
- Technology: artificial intelligence, semiconductors, digital infrastructure.
- Healthcare: biotechnology, medical devices, digital health platforms.
- Sustainability: clean energy, water management, climate solutions.
- Global Growth: emerging markets, global infrastructure, rising middle classes.
Questions Parents Ask
Common concerns when starting
- “Should I use a 529 plan or a custodial account (UGMA/UTMA)?”
- “Is investing in themes too risky compared to index funds?”
- “How much should I contribute each month?”
- “What happens when my child turns 18 or 21?”
- “Can grandparents contribute to the account?”
Why starting early is powerful
- Time neutralizes volatility—the longer the horizon, the smoother the ride.
- Even small amounts snowball: $50/month at age 3 could exceed six figures by adulthood.
- Teaches money lessons: when the child grows, you can show them what they own.
- Flexibility: custodial accounts can be used for more than just education.
Building Blocks of a Child’s Portfolio
A smart portfolio for a 3-year-old balances long-term growth themes with simple diversification. Parents can combine broad index funds (like Schwab’s total market or S&P 500 ETFs) with targeted themes that reflect future opportunities.
| Component | Role | Example |
|---|---|---|
| Core Index | Broad diversification, market baseline | Schwab U.S. Broad Market ETF (SCHB) |
| Thematic Growth | Exposure to innovation and future trends | Schwab Technology or Clean Energy Theme |
| Global Allocation | Participation in worldwide growth | Schwab Emerging Markets ETF (SCHE) |
| Bond/Income | Stability, ballast during downturns | Schwab U.S. Aggregate Bond ETF (SCHZ) |
This mix lets parents anchor the portfolio while also giving it forward-looking growth drivers.
Market Cycles and Patience
During Bull Markets
- Contributions feel instantly rewarding as balances rise.
- Resist the temptation to “go all in” on the hottest trend.
- Stay disciplined with contributions—it’s about consistency.
During Bear Markets
- Remember the horizon: a 3-year-old has 60+ years of compounding ahead.
- Bear markets are opportunities—shares are “on sale.”
- Automatic investing removes emotion from decision-making.
Practical Tips for Parents
01 — Automate Contributions
Set up a monthly transfer—even small amounts compound dramatically over decades.
02 — Mix Core + Themes
Use a simple index ETF for stability, add Schwab themes for growth potential.
03 — Use Custodial Accounts
UGMA/UTMA accounts give flexibility beyond college, unlike 529s which are education-specific.
04 — Reinvest Dividends
Turn income back into shares automatically—maximizing compounding.
05 — Think Long-Term
Markets swing, but time is the ultimate advantage. Stick to the plan.
06 — Teach Along the Way
Involve your child as they grow. Link their investments to real-life industries they can see and touch.
FAQ: Child Investing Basics
Should I choose a 529, UGMA/UTMA, or both?
A 529 plan offers tax-free qualified education withdrawals and potential state tax benefits but is education-specific. A UGMA/UTMA custodial account is flexible for any child-related expense but has less favorable financial aid treatment and the assets transfer to the child at the age of majority.
Are Schwab themes the same as sector funds?
No. Themes are cross-sector baskets focused on long-term trends (e.g., sustainability) and may include multiple sectors. Sector funds target a single industry (e.g., energy).
How often should I rebalance?
Once or twice a year is enough for most families. Use thresholds (e.g., +/- 5%) to trigger adjustments and avoid constant tinkering.
What if markets drop right after I invest?
That’s normal. With a 60-year horizon, near-term drops are noise. Keep contributing on schedule—downturns can improve long-run returns by letting you buy more shares at lower prices.
Myth vs. Fact
Myth
“It’s too early to invest for a 3-year-old.”
Fact
Starting early is the single biggest advantage you can give a child’s money. Time, not timing, drives the outcome.
Early investing isn’t about predicting the next hot stock—it’s about patient ownership of broad markets and the major themes that will define the next half-century.
Behind the Scenes: How the Account Works
- Open: create a 529 and/or UGMA/UTMA at Schwab; name a custodian for the child’s account.
- Fund: set up automatic monthly transfers; invite grandparents to contribute for birthdays/holidays.
- Allocate: pick a simple core index; add 2–4 themes that match your long-term view.
- Rebalance: adjust annually or by threshold; reinvest dividends.
- Transition: when the child reaches majority, plan the handoff with an education/launch budget.
When to Adjust the Plan (And When Not To)
Adjust when your goals change (e.g., college vs. general support), when contributions materially increase, or when a theme becomes an outsized portion of the portfolio. Don’t adjust because of headlines—consistency is the edge you have over the market.
- Adjust: major life events, large gifts, or a theme exceeding its cap.
- Don’t adjust: short-term volatility, sensational news, or fear/greed spikes.
A Practical Contribution Template
Monthly Plan
Amount: $50–$250/month Core Index: 60–80% Themes (2–4): 15–35% total Bonds/Cash: 0–10% (increase before college) Rebalance: annually or at +/- 5% drift
What it Achieves
- Simple to run and explain to family.
- Exposure to long-term growth drivers.
- Built-in discipline via rebalancing.
The Bottom Line
Investing for a 3-year-old is about planting a durable, future-oriented portfolio and letting time do the heavy lifting. Use a core index for stability, add a few Schwab investing themes to reflect the world your child will inherit, and automate the rest. Your role is to keep the promise—contribute, rebalance, and teach.
Want to take the next step? Open the account, pick your core, choose 2–4 themes, and set the monthly transfer. The earlier you start, the more compounding works in your favor.
Need help now?
Make a simple one-page plan, then open the account and automate contributions. Revisit once a year. Future-you—and future-them—will be glad you did.