Taking the right risks while one’s children are young could prove incredibly smart, even in the face of nearer-term risks that could bring forth substantial pain in the earlier years. Undoubtedly, just look back to the year you were born and ask yourself if you wish your parents had stayed the course and invested in shares of high-quality companies with the intent of giving you a head start in life. Indeed, odds are it didn’t really matter how volatile your birth year was, the right move was likely to buy and hold stocks for the decades that followed. Whether you were born before the 1987 stock market meltdown or during the turbulent 1970s, buying stocks for the long run would have been the right call.
Investing with a baby on the way is wise
As one prepares for a baby, staying invested in stocks, I believe, is a wise decision. Of course, heftier childcare expenses (daycare is a top expense for many in the early years) and the potential for lost income from staying at home should be prepared for. And if the emergency fund won’t cut it, I’d argue that selling some stocks can make sense if there’s nothing else left to cut from the budget. If there’s a sustainable income in place as this Reddit user has and an emergency fund that’s large enough to prepare for that baby’s first year, I’d argue there’s little issue with staying invested. Arguably, investing before or shortly after birth is the best way to allow them to take full advantage of the power of long-term compounding.
Just because one can unlock an additional few decades by investing before their newborn arrives doesn’t mean it’s alright to take on too much risk. Most notably, not being diversified could weigh heavily, especially in the face of a potential tariff-driven recession (or depression). Indeed, some firms can take a tariff hit to the chin without falling to the canvas. However, others may not be able to get back up depending on how hefty the tariff hit is. Given this, diversification remains key at a turbulent time like this.
Is putting three-quarters in a high-quality dividend ETF enough diversification?
The Reddit user has 75% in a very high-quality domestic dividend ETF named the Schwab U.S. Dividend ETF (NYSEARCA:SCHD | SCHD Price Prediction) and 25% in a very small number of names, which include blue chips like the Home Depot (NYSE:HD). While it’s better practice to diversify further, I see no problem with putting most of one’s eggs in a very high-quality basket of U.S. dividend stocks. Though an argument could be made to diversify the individual stock holdings further, I do think that the heavy allocation to SCHD makes the overall portfolio quite well-rounded. Of course, many investors are put off by a double-digit percentage allocation to a single holding. However, others have no issue with it. At the end of the day, if you believe in a business, there’s no shame in overweighting it in your portfolio.
In any case, the SCHD is a great one-stop-shop option for investors looking for a yield advantage. After slipping 16% off all-time highs (around the same as the S&P 500), the SCHD yields a generous 3.72%. Personally, I think going for high-quality dividend yielders, like those found in the SCHD, is a better move than being scared into CDs. While they’re going to feel a hit from the Trump tariff sell-off, I do think that over the next few decades, the SCHD will grow by a magnitude that would really help get one’s child off on the right footing as they eventually approach college age.
The bottom line
Indeed, if you have the opportunity to invest in your child’s future, you should go for it, even if it means embracing short-term pain for a shot at long-term gain. It’s been a painful 2025 for stocks so far, but more big up days like Wednesday can’t be ruled out, especially given Trump’s willingness to back down from tariff threats. I think that if China and the U.S. respond with reciprocal kindness rather than tariffs, the market will be roaring loudly again for investors.
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