How to invest in your child's future 🍼

Congress is currently rushing to pass the One Big Beautiful Bill Act, a budget reconciliation bill backed by President Trump, ahead of the July 4 weekend.

The bill has many provisions, including extending the 2017 tax cuts and reducing spending on social programs such as Medicaid and SNAP.

It would also create a new type of investment account for children, dubbed “Trump accounts,” and seed each one with a $1,000 contribution from the federal government. Here’s how the proposed Trump accounts stack up to other investment accounts for kids.

Eligibility: Available to every U.S. citizen under age 8 whose parents have work-eligible social security numbers. Parents can open a Trump account for their child, or an account will automatically be opened for their child (subject to an opt-out) the first time they file a tax return after the child’s birth, assuming the child is eligible and doesn’t already have a Trump account.

Government contribution: $1,000 per child upon account opening, for children born after 2024 but before 2029.

Contribution limits: $5,000 per year, subject to cost-of-living increases in tax years after 2026.

Tax treatment of contributions: Contributions are not tax-deductible.

Tax treatment of distributions: Distributions are not allowed before age 18. Between ages 18 and 25, accountholders can withdraw up to half the account balance for qualified purposes (education expenses, business loans, or a first-time home purchase). From age 25 through age 30, accountholders can withdraw the full account balance for these qualified purposes. At age 31, the account is terminated and any remaining balance is distributed (unless rolled over to another tax-advantaged account). Qualified distributions are taxed at the long-term capital gains rate, while unqualified distributions are taxed at ordinary income tax rates, plus a 10% penalty.

Effect on financial aid eligibility: Unclear based on the text of the bill. Several publications have speculated that Trump accounts may be counted as student assets on the Free Application for Federal Student Aid (FAFSA), and could thus significantly reduce eligibility for need-based aid.

Eligibility: The beneficiary must be under age 18, or be a special needs beneficiary, at the time the account is opened.

Government contribution: None.

Contribution limits: $2,000 per year per beneficiary. Contributors with modified adjusted gross income of $95,000 ($190,000 for married couples filing jointly) can contribute a reduced amount. No contributions are allowed from taxpayers with a modified adjusted gross income of $110,000 or more ($220,000 or more for married couples filing jointly).

Tax treatment of contributions: Contributions are not tax-deductible.

Tax treatment of distributions: Distributions are tax-free if used for qualified education expenses. Non-qualified distributions of earnings are subject to income tax plus a 10% penalty. All funds must be distributed within 30 days of the beneficiary’s 30th birthday. Any remaining funds are automatically cashed out after that date and treated as a non-qualified distribution. Excess funds can be rolled over to a new account for a new beneficiary to avoid penalty.

Effect on financial aid eligibility: Low. ESAs are treated as parental assets rather than student assets on the FAFSA.

More information: What is a Coverdell Education Savings Account?

Eligibility: Available to all U.S. citizens or legal residents with a valid Social Security number or tax ID.

Government contribution: Varies by state. Some states offer seed contributions, others offer contribution-matching programs.

Contribution limits: Some states have a lifetime contribution limit, usually somewhere around $500,000.

Tax treatment of contributions: Contributions may be subject to the gift tax exclusion, up to applicable limits for your filing status. They’re not tax-deductible federally, but some states offer a tax benefit for contributions.

Tax treatment of distributions: Distributions for qualified educational expenses are tax-free. Non-qualified distributions are subject to income tax plus a 10% penalty.

Effect on financial aid eligibility: Low. 529 plans are treated as parental assets rather than student assets on the FAFSA.

More information: 529 plans by state

Eligibility: Any adult can open a UGMA account for a minor. UTMA accounts are not available in Vermont or South Carolina.

Government contribution: None.

Contribution limits: None.

Tax treatment of contributions: Contributions are subject to the gift tax exclusion, up to applicable limits for your filing status. They’re not tax-deductible federally.

Tax treatment of distributions: Distributions are fully taxable at the child’s income tax rate.

Effect on financial aid eligibility: High. UGMA and UTMA accounts are treated as student assets on the FAFSA, and can significantly reduce eligibility for need-based financial aid.

More information: UGMA & UTMA accounts

Eligibility: Available to all children with earned income and a parent or other adult guardian to manage the account. Basic personal information such as Social Security numbers may be required to open the account.

Government contribution: None.

Contribution limits: $7,000 per year or child’s annual earned income, whichever is lower.

Tax treatment of contributions: Contributions are not tax-deductible.

Tax treatment of distributions: Contributions can be withdrawn tax-free at any time. Accountholders can withdraw up to $10,000 in earnings tax-free for a first-time home purchase after the account has been open for at least 5 years. All withdrawals are tax-free after the accountholder reaches age 59 ½. Otherwise, earnings withdrawals are subject to income tax plus a 10% penalty.

Effect on financial aid eligibility: None. Custodial Roth IRA balances are not reported on the FAFSA.

More information: Custodial Roth IRA

» MORE: Best custodial accounts

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Some of the accounts discussed above require the accountholder to choose their own investments. If you’re looking for a simple investment strategy for such an account, so-called “lazy portfolios” may be an appealing option.

These consist of just a few widely-diversified mutual funds or exchange-traded funds. Here’s an overview of some common lazy portfolios.

The laziest of lazy portfolios only contain a single mutual fund or ETF: a target date fund. These funds contain a diversified mix of stocks and bonds that automatically changes over time.

Many mutual fund custodians, such as Vanguard and Fidelity, offer target date mutual funds that are widely available in 401(k) plans, IRAs and other tax-advantaged accounts. If you’re investing through a brokerage account that doesn’t offer mutual funds, there are also target date ETFs available, such as the iShares LifePath series.

Typically, target date fund issuers offer a variety of funds that are labeled with target retirement years, often spaced out in five-year increments. For example, the iShares LifePath Target Date 2070 ETF (ITDJ) is intended for young workers who intend to retire around 2070. The LifePath Target Date 2045 ETF (ITDE) is for mid-career workers who want to retire around 2045, and the LifePath Target Date 2030 ETF (ITDB) is for workers on the cusp of retirement.

These funds tend to invest heavily in stocks (with a small bond allocation) when they are decades away from their target date in order to maximize growth, and automatically become more conservative (mostly bonds with a small stock allocation) as that target date approaches. If you’re investing for a non-retirement goal, such as future college expenses for a newborn, you could choose a fund with a target “retirement year” that corresponds to the child’s 18th birthday.

According to Morningstar, the average expense ratio of target date funds reached a new low of 0.29% in 2024. That’s not bad, but the fees can be even lower if you build a two- or three-fund portfolio of index funds and manage them yourself.

A two-fund portfolio consists of a diversified stock market index fund and a diversified bond market index fund.

These could be global index funds, such as the Vanguard Total World Stock ETF (VT) and the Fidelity Total Bond ETF (FBND), or they could be U.S.-focused index funds such as an S&P 500 ETF and a short-term U.S. Treasury ETF.

Initially, a two-fund portfolio should consist mostly of the stock fund — say, 80% stock fund, 20% bond fund — but over time, it should gradually shift toward bonds as you near retirement (or whatever your financial goal is).

Opinions vary about the right “ending allocation” of a two-fund portfolio; 80% bonds and 20% stocks or 60% bonds and 40% stocks are both possible answers. It depends on what level of risk you’re willing to tolerate at the end of your investment journey.

Many two-fund portfolios just consist of a U.S. stock index fund and a U.S. bond index fund. That’s enough for many investors, but it runs the risk of missing out on international stock returns. In the last year, for example, many international stock indexes have outperformed U.S. stock indexes.

The three-fund portfolio solves this problem by supplementing the two-fund portfolio with an international stock fund, typically a global “ex-U.S.” fund that invests in non-U.S. stocks, such as the iShares Core MSCI Total International Stock ETF (IXUS).

How much of the three-fund portfolio should be in the U.S. stock fund, and how much should be in the ex-U.S. stock fund? That’s up to you. The U.S. stock market makes up about 70% of the global stock market capitalization, so one potential rule of thumb is to follow that ratio. A three-fund portfolio built on that principle might initially consist of a 55% allocation to an S&P 500 ETF, a 25% allocation to an ex-U.S. ETF, and a 20% allocation to a bond ETF.

Much like the two-fund portfolio, the three-fund portfolio should get more conservative as it approaches maturity, which means gradually trimming the U.S. and international stock fund allocations and increasing the bond fund allocation, until it’s mostly bonds.

Lazy portfolios are designed to help you meet your goals with minimal thought and minimal effort — but “minimal” doesn’t mean “zero.”

How do you add money to a lazy portfolio? One popular approach is dollar-cost averaging: adding money on a regular basis, such as every paycheck or every month, and investing it proportionally in your mix of funds. This keeps your cost basis close to the long-term average price of the funds, while investing a lump sum potentially means buying in at a high.

We’ve also discussed how lazy portfolios should become more conservative over time. If you’re using a two-fund or three-fund portfolio, how often should you change the allocation, and by how much?

When it comes to frequency, studies suggest that annual rebalancing is ideal. A 2022 study by Vanguard found that more frequent rebalancing can drive up transaction costs (via mutual fund sales loads and capital gains taxes, where applicable), while less frequent rebalancing may allow the investment allocations to drift far from their target mix.

How much should you change the mix each year? One approach is to look, for each fund, at your initial allocation and your intended ending allocation. Subtract the initial value from the end value, and divide that by the number of years in your time horizon, to get the ideal annual change.

For example, suppose you have a two-fund portfolio that consists of an 80% allocation to a stock ETF and a 20% allocation to a bond ETF. Suppose you intend to retire in 40 years, at which time you want to have a 60% bond allocation and a 40% stock allocation.

That means you want the stock allocation to decrease by 40 percentage points over 40 years, and the bond allocation to increase by 40 percentage points over 40 years. So it would make sense to trim one percentage point off the stock ETF allocation, and add one percentage point to the bond ETF allocation, when you rebalance each year.

» MORE: Best brokers for ETF investing

Below is a table of blue-chip stocks that are reporting earnings in July, with the expected dates and average analyst estimates for their upcoming earnings reports.

We’ve filtered the list for companies with a market capitalization of at least $250 billion. These are high-volume stocks of which earnings reports are often major trading events for options traders and day traders.

Source: Nasdaq.com. Data is current as of July 1, 2025, and intended for informational purposes only.

» See our picks of the best day trading platforms.

Neither the author nor editor owned positions in the aforementioned investments at the time of publication.