I’m saving money to give my child at 18. I opened a CD account, but is there a better way to grow this cash?

For many investors, a broad market index fund will be the best option, as it offers low fees and instant diversification. For example, an S&P 500 ETF tracks the performance of the 500 largest U.S. companies and is widely considered to reflect the performance of the market as a whole.

You can set up automatic investments into the fund each month as you contribute, and the growth will be effortless.

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Of course, there is some risk when investing, and over time, your investment will rise and fall. However, because you won’t need this money for several years, you have the time to ride out fluctuations in the market and historically the market has always recovered and reached new heights.

The S&P has produced an average annual return of around 10% since its inception in 1957, so you should earn more than you would in a CD, and much more than you’d earn if you just kept the money in a regular savings account.

Of course, it’s critical that you review your investment objectives at least annually and rebalance your portfolio if your risk tolerance changes. And you might not want to invest the entire portfolio in equities.

You could also choose a target-date fund, with the year your child turns 18 set as the target date. Target-date funds are usually used for retirement investing, as they automatically rebalance your investments based on the timeline when you’ll need the money. Unfortunately, you’d likely pay higher fees with this approach.

You also have another option if you’re willing to think outside the box.

If your child starts earning as a teenager, you could contribute to a custodial Roth IRA for Kids for them up to the amount they earn or the annual limit ($7,000 for those under 50), whichever is lower.

You’re only allowed to contribute earned income to a Roth IRA. Still, Roth IRAs allow the money to grow tax-free. Contributions (not earnings) can be withdrawn at any time tax-free and penalty-free as long they benefit the child.

If you manage to grow the account to $10,000 by your child’s 18th birthday, that would turn into over $1 million by their retirement age of 67 at a 10% average annual ROI — even if they never contributed another dime.

Setting your child up for a future as a multi-millionaire may be an even more valuable gift than just putting aside a little bit each month and handing them a lump sum at 18.

Of course, if you have enough money, you could do both, putting money into both a brokerage account and a Roth IRA so you can help them both start his life and enter their later years in a great financial position.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.