One of the biggest conundrums parents face is managing their own emotions when a stock market, real estate market, or any other risk asset takes a dive. On one hand, it's painful to watch your portfolio shrink. Every dollar you lose represents time, the most valuable commodity of all.
On the other hand, there's a quiet thrill knowing your children now have a chance to buy at lower prices.
After a prolonged bull market, it's natural to wonder whether our kids will be financially screwed as adults. We're already seeing it play out with young adults today. They're struggling to find well paying jobs and unable to afford decent homes in most major cities. So they end up returning home to their parents, which is a great way to save, but a tough way to launch.
If asset prices continue compounding at high single digit or double digit annual rates, what does life look like for them in 10 or 20 years? We could very well see the median home price in America top $1 million in 20 years. Every year a child spends in school rather than working and investing is another year they fall further behind as prices rise without them.
So whenever the market corrects, instead of wallowing in my own losses, I get genuinely excited to fund my children's accounts and buy the dip. A downturn finally gives children the ability to catch up, if they or their parents invest for them.
War, Rising Oil Prices, and New Investments For My Kids
Every year, I make it a point to fund both of my children's custodial investment accounts up to the annual gift tax limit. In 2026, that limit is $19,000 per child, unchanged from the year before.
Two weeks before the war, I had sold just over $100,000 in stock to take some risk off the table, letting it sit in a money market fund earning 3.3% annualized. Then, after the start of the second week of war-driven volatility, with the S&P 500 sliding toward its 200-day moving average near 6,600, I decided to put that cash to work.
I transferred $19,000 to each child's investment account. On the morning of Monday, March 9th, I invested ~$5,000 each into the Vanguard Total Stock Market Index ETF, VTI.
I don't know where the bottom is. I’m hoping 6,600, the approximate 200-day moving average for the S&P 500. Or maybe we head down to 6,500 if oil prices rocket higher. Surely, my new investments for them could continue to go down. But with the S&P 500 down roughly 6% from its highs, I was glad to be doing something for their future.
Over the past 20 years, I've made it a habit to dollar-cost average whenever the market corrects by 1% or more. A correction greater than 5% gets me giddy. That excitement keeps building until we hit roughly 20% down, at which point the fear starts creeping in.
Maybe this time the world really will come to an end. But of course, it never does. The market always finds a bottom, and eventually goes back up.
Given how volatile the past month had been, I didn't have the conviction to deploy the full $19,000 at once. But $5,000 each felt like a meaningful start, with more to come if the market continued to slide. My wife can also gift $19,000 a year too if things get really bad.
There's something that just feels right about investing for your children. Not only do you give, but you also take action as well. Most of whatever money I have left in the end will go to them anyway. I might as well put it to work now, when it has decades to compound.
How I Think About Investing During a Correction
Let me share the mechanics of how I actually deploy money when the market pulls back. I think this framework is useful for anyone trying to invest for their kids without the stress of trying to time a perfect bottom.
I use a simple tiered approach. When the S&P 500 drops 1% to 2%, I invest between 5% to 10% of my cash, enough to feel like I'm participating but not so much that a further decline would sting. My cash continuously gets replenished with passive investment income, rental income, and online income each month.
A 3% to 5% correction gets me meaningfully engaged. I start allocating between 10% to 40% of my cash, knowing that each leg down is another opportunity to lower my average cost.
By the time we're down 10%, I'm deploying as aggressively as my risk tolerance and cash reserves allow, usually somewhere between 40% to 75% of my cash.
At 20% or more, the fear starts to kick in, but I usually end up investing aggressively with 75% to 100% of my cash. It's stressful, temporarily living paycheck to paycheck. However, historically, I know the odds are in my favor if I can just hold on until a recovery. Having no money motivates me to save and earn.
The key mental shift is this: I'm not trying to call the bottom. I'm trying to dollar cost average into a market I believe will be higher in 10, 15, and 20 years. For a child's custodial account with that kind of time horizon, near term volatility is an opportunity.
Having a preset plan helps take the emotion out of the decision in the moment. When fear is highest, the plan tells me to buy, not freeze.
The Three Phases of Helping Our Children
What really struck me during this correction was a simple realization: before prices dropped, I actually forgot to transfer any money to my kids' custodial investment accounts, and we were already more than two months into the year. I was entirely focused on protecting my own portfolio.
The correction snapped me out of that mode and reminded me that my children's financial future deserves just as much strategic thought as my own.
There are essentially three distinct phases in which parents can make a meaningful financial difference in their children's lives, and most people only ever think about one of them.
Option 1: The Inheritance (the main one)
For the longest time, the default assumption was simple: work hard, accumulate wealth, enjoy retirement, and leave whatever's left to your children when you die. It's the path of least resistance. You never have to worry about running out of money because you're keeping it until the end.
The problem is timing. If you live into your 80s or 90s, which is increasingly common, your children may be in their 50s or 60s when they finally inherit. By that point, they've already navigated the hardest financial chapters of their lives largely on their own: finding jobs, buying homes, raising kids, building retirement accounts.
The inheritance arrives too late to matter most.
Option 2: Strategic Gifting During Early Adulthood
The second phase is more intentional. You gift money to your children during their most difficult financial years, typically from their early 20s through their mid 30s. This is when a financial boost matters most. They're relocating for a first job, saving for a down payment, or trying to build an emergency fund while also paying off student loans.
A $50,000 gift at age 25 is worth far more to a young person than $200,000 at age 55. The earlier dollars have decades to compound, and they arrive at a moment when the recipient actually needs them. Many parents who are financially comfortable haven't thought explicitly about this. They're still operating on the inheritance default. It's worth reconsidering.
When I sadly sold my house too soon, at least it was a quick 13-day all-cash close with no contingencies. The buyer was making good money at big tech, but it was the Dad who wired the entire sum over in a preemptive offer.
The 2026 annual gift tax exclusion is $19,000 per person per year. That means a couple can gift $38,000 to a single child annually with zero gift tax implications. Grandparents, uncles, and aunties can gift money too. Over a decade of consistent gifting, that's a substantial head start.
Option 3: Investing for Your Children From Birth
The third phase is the most powerful of the three. You start saving and investing for your children while they're still at home, ideally from birth or early childhood. Start with opening up a 529 plan the year of their birth, and then a custodial investment account.
Consider the math. If you invest just $5,000 per year into a custodial brokerage account starting when a child is born, and that account earns an average 10% annual return, you'll have contributed $90,000 by the time they turn 18. But the account will be worth over $250,000, thanks to compounding. That's a life-changing number for an 18 year old just starting out.
Beyond the custodial account, there's the custodial Roth IRA. Once your child earns any income from a part-time job, lawn mowing, babysitting, or a formal summer job, they're eligible to contribute to a Roth IRA up to the amount of their earned income (capped at $7,500 in 2026). Earned income is key here.
The Roth is arguably the single most valuable financial account a young person can own. With children's low income, contributions are usually tax-free. Growth is tax-free. And withdrawals in retirement are tax-free.
With kids at home for 18 years, we have the opportunity to teach them about investing for at least 10 years. The goal isn't just to hand them money. It's to teach them what the money is doing and why it matters. Every market correction becomes a lesson. Every new contribution is a conversation.
New Financial Goals For Each Child
If I can average a $20,000 a year of contribution for the next 10 years and my kids accounts grow by 8% a year, their custodial investment accounts could conceivably grow to $657,000 by ages 15 and 18.
With fewer jobs for entry-level workers due to globalization and AI, it helps to have a financial insurance policy just in case they can't find work. Cars, homes, aspirational careers, and having children all cost money. They might smartly skip college as well, if they can't get grants and scholarships to make the return worthwhile.
This is a new challenge I’m willing to take on since my own personal finance challenge is almost over. Having more money is not going to make me more free. But helping them build financial security in the future, if they need it, gives me a worthy mission.
Save Your Children To Save Yourself In Retirement
You might not agree with creating generational wealth. However, financially insecure adult children become a financial burden on their parents.
The best retirement planning you can do isn't just maxing out your own 401(k) and building an even larger taxable portfolio. It's also giving your children the tools and the head start to stand on their own two feet.
Market corrections and crashes hurt our children less simply because they have less to lose. But if we handle those moments well, they become some of the most valuable financial education our kids will ever receive.
Real-time lessons in patience, perspective, and the long game that no classroom can teach. Real money hurts more when lost, which is exactly why using real money to invest is important.
Start Now, Even If It's Just a Little
If you haven't started investing for your children yet, don't let the perfect be the enemy of the good. You don't need to max out the gift tax limit on day one.
Open a custodial account. Invest $500. Set up a recurring $100 a month contribution, you won't even notice the money is gone. Then there's the free $1,000 in Trump Account money for kids born between January 1, 2025 and December 31, 2028. The most important thing is to start, because time is the one input you can never get back.
If the market is down, even better. You're buying assets for someone who won't need them for 15 or 20 years. That's not something to stress about. That's something to get excited about. Every correction enables children to catch up, even for just a little bit, as the world runs away.
Have a plan for deploying money at different drawdown levels. Talk to your kids about what's happening in the market. Let them see the account balances go up and down. Give them a financial life that started before they were old enough to understand it, and the education to appreciate it once they are.
The 18 years your children are at home is the most underutilized wealth-building window most parents never think about. Let's change that.
Readers, have you opened 529 plans, custodial investment accounts, or Roth IRAs for your children yet? How are you teaching your kids about personal finance so they can be more financially independent as adults?
Track Your Investments So You Can Invest More Confidently For Your Children
The easiest way to know how much to invest for your kids during a market correction is to know your own portfolio inside and out. That means understanding its asset allocation, income generation, and returns so you can deploy cash with conviction instead of fear. You can do that with Empower and its free investing tools.
Recently, I went to the post office to send out a dozen signed copies of my USA Today bestseller, Millionaire Milestones. If you're interested in participating in the promotion, you can sign up for a free financial consultation with Empower. You can read about my experience and the instructions in this post.
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Where do you withdraw or put the cash to use from during the drawdowns? You mentioned your passive income. Are you leveraging that or taking our cash from funds such as treasuries, savings with the plan to replenish the cash later on?
Passive income and treasury bonds usually. Then there are the private fund windfalls on occasion. How about you?
I try to keep some cash around for downturns in treasuries. I usually try to avoid taking out of savings. What approach do you suggest? Seems like you may be a little more aggresive.
Hi Sam,
Good article, but you didn’t mention that you can gift your kids stock. I can’t afford to gift $18k a year, but I can gift a few thousand dollars of stock that I have the highest gains on.
I then sell the stock in the custodial account while staying within the kiddie tax limits and buy VTI for them.
Maybe make enough so you are comfortable (not too much more) and end generational wealth so our kids and our youth in general can try to stand on their own 2 feet!
Hi Sam,
Talk about how you are paying taxes on the gains in these custodial accounts. My understanding is the gains in these accounts become your liability at your marginal rate. I’d appreciate a discussion about how you handle this. Roth gains are of course tax feee growth. But custodials are different.
Thanks!
Great question. Taxes are definitely one of the downsides of custodial investment accounts compared to a Roth IRA.
The taxes on custodial accounts follow what’s called the “kiddie tax” rules. For 2026, the first roughly $1,350 of a child’s unearned income is tax-free, and the next $1,350 is taxed at the child’s tax rate, which is usually 10%. Any investment income above that amount is taxed at the parents’ marginal tax rate.
Because of this structure, I try to keep the accounts tax-efficient. Most of the investments are broad index funds and ETFs that generate minimal capital gains distributions. I also try to avoid frequent trading so gains can compound rather than being realized every year.
In practice, the annual tax bill will be fairly manageable because the majority of the growth will be unrealized capital gains, which aren’t taxed until the investments are sold. And I’m a low-to-average income earner now. I expect my income will continue to go down as I do less.
Of course, Roth IRAs are superior from a tax perspective because the growth is tax-free. But the trade-off is that Roth contributions require earned income, which most younger kids don’t have. Custodial accounts are more flexible and allow parents to invest for their children long before they start working.
For me, custodial accounts are simply one tool in the toolbox alongside 529 plans and eventually Roth IRAs once the kids have earned income.
How about you? How are you thinking about saving and investing for your children?
Thanks. I started UTMA accounts for them, but stopped contributing for the following reasons 1) I’m not sure getting money when my kids are 18 is right for them 2) concerns about extra taxable income 3) decisions to keep socking money for 529s and own retirement 4) hard to model if we’ll
be eligible for any aid or not
Great advice! I hope to have enough money in my children’s accounts when they graduate from high school so they don’t have to go to college. What’s the point of wasting money on a college education if you have enough money at 18 years old to last a lifetime?
I love your writing and mindset! I currently max out my 401k. Should I also contribute to my Roth IRA prior to investing for my kids? They do already have funded 529 plans.
If you are in the 24% or under federal marginal income tax bracket, I would try to max out your Roth IRA for retirement diversification purposes.
And if your children can earn income, I would definitely open up a Roth IRA for them too.
Hi Sam,
Do you ever worry that by saving this amount of money for your kids you will rob them of the desire, struggles and determination to succeed in life on their own?
I’ve struggled with this myself. I understand the desire to provide a safety net to your children. I did the same to a lesser degree than you with my kid. However, as my daughter has grown, she’s 25, lives on her own, pays all her own bills, except cell phone, there’s still a sense of entitlement. When I was her age, or any age, I didn’t expect anything from my parents. It was sink or swim on my own. I 100 percent attribute that to my success. Reading your blog over the last decade, it sounds like you were in a similar situation and look what you’ve achieved.
Parenting is a bitch. I guess only time will tell if we did it right or wrong.
Thanks, Bill
Hi Bill,
I do worry. But with each passing week, I worry less because I’m seeing how precarious the future is for our children. Further, as a stay at home dad, I have the time, energy, and motivation to teach my kids about money and making a living.
I will know whether they are heading towards being spoiled and entitled, or being more appreciative and hard working. If they head more towards being entitled kids who take everything for granted, then they will lose our financial support once they graduate.
It is hard for me to imagine a situation where they are lazy, spoiled, and entitled after 13 years of educating them about work ethic and personal finance. But, anything is possible! Will be a fun and challenging journey for sure.
Sam
Related: https://www.financialsamurai.com/rental-property-maintenance-with-your-kids-solves-two-problems/
Your kids will not want to work because they will have grown up watching their dad not have to work. Perhaps they can take over the website or pursue an acting career?
You could be right. But it’s been great working with them during the summer and winters on various projects around the house and at rentals.
What are some of the things you are doing with your children to ensure that they work for their money?
Related: https://www.financialsamurai.com/a-summer-job-landscaping-a-rental-property-with-my-children/
https://www.financialsamurai.com/rental-property-maintenance-with-your-kids-solves-two-problems/
lol! I hope you’re right!
The only issue I see with that is sometimes you can’t tell if a kid is spoiled until they are no longer receiving help. My cousins grew up with money and it never occurs to them to even reach for the check when dining out with their parents. That would drive me nuts with adult children.
I have also thought about this dilemma. I think all we can do as parents is teach our kids the value of investing/financial literacy and hope it sticks. It’s like showing them other life skills like how to brush their teeth. When we showed them how to brush we provided them with the toothbrush to do the job. We didn’t tell them to go buy the electric toothbrush on their own. The same with investing. By showing them how to do it and getting the snowball rolling starting young they get to see the importance of investing.
I have been trying to figure out the best way to start transferring wealth to my young kids and one disadvantage of establishing a custodial brokerage account is that this has a significant impact on their ability to qualify for financial aid. As it appears that you intend to contribute quite significantly to your children’s custodial brokerage accounts each year, I was curious if you had analyzed the different ways to start investing for your kids and your thought process on ultimately choosing the custodial brokerage account route.
For our situation, we have paused contributions to custodial brokerage accounts for this reason and focused those contributions instead on overfunding the 529s given that there is some flexibility for them to convert that to a Roth at some point and also have the flexibility to pass that onto their kids if they are fortunate enough not to need the full amount for their own education. Would love to hear your thoughts.
Yes, after over 20 years of paying six figures in income taxes, and property taxes, I have come to peace that I will have to pay full freight for college tuition, if they attend.
Also, once your income is over $350,000 or have a net worth of over $5 million, you are unlikely to be able to receive free financial aid for college.
Are you over or under those income and net worth thresholds?
If you are over, then focus on merit aid.
See: https://www.financialsamurai.com/income-limit-to-qualify-for-college-scholarships-grants/
https://www.financialsamurai.com/recommended-529-plan-amounts-by-age/
Yes, that makes sense if there is no potential benefit of financial aid. We are just on the border currently where there may still be some benefit of financial aid, but there is also the potential of us retiring early (and we also had kids a bit later in life) so there could theoretically be some strategic timing to reduce income in the run up to college age for our kids that may impact their eligibility for financial aid. However, after reading through the post you linked to, I guess that won’t matter if, with a bit of planning and luck, we continue growing our net worth the way we want.
Helpful insight as usual, thanks!
My suggestion is to not operate your life to be dependent or expect financial aid from college, the government, or any institutions. Instead, to focus on building as much wealth as possible to be able to fully take care of yourself and your family. If there is aid, awesome. If not, no big deal as you never expected some.
This way, you take your foot off the brakes in terms of how much wealth you can build. The sky is the limit.
The aid can go to those who are truly struggling. Feels better this way.
Best of luck!
“… it’s natural to wonder whether our kids will be financially screwed as adults. We’re already seeing it play out with young adults today. They’re struggling to find well paying jobs and unable to afford decent homes in most major cities.”
I don’t know if I buy it. Certainly not on the surface. Our kids must have their own agency in their success or failure. The market we live in (came up in) is not the market that the greatest or boomer generations came up in either. This is a generational thing. I’m not sure our kids generation is exceptionally more challenged than we were.
I refuse to let them concede to failure and being [financial] losers before they even have a go at it. I had a negative net worth for 20+ years post high school before it started growing exponentially. I took risks. I started and sold a business. Then I invested the proceeds wisely. I was over $2M in the hole before the tide turned. This is life.
I agree. Our perspectives are dramatically skewed by recency bias, too. Think about if you were born in the 1920’s, or worse, right around 1900. In either case, as a male, you’d be forced to fight in the bloodiest wars the world ever saw, and you’d live through the worst financial crisis in US history at a time when we had far less in the way of medical and technological advancement. To top it off, in the south, most people didn’t have air conditioning! We have it pretty good.
I love your approach and strategic mindset. Downturns can be super stressful, but taking a spin on them and looking at them as an opportunity to help our children is really great! Thanks for always shining a light on the positive and helping set up the rising generations for success.
No prob. It can be hard to buy the dip when there’s so much carnage and uncertainty. But as soon as one starts thinking about their children, who have a much longer time line and potentially a much harder life, then it becomes easy to invest directly for them.
Got to have a reason for investing!
Marching to a dystopian future.
Dystopian shows are always my favorite.
Are you not saving an investing for your children?