Posted by When my son was born, I decided that I wanted to do something tangible for his future. Having learnt about index investing and the power of compounding only in my thirties, I realised that I could help my son start his investing journey much earlier than I did, allowing him to benefit from a significantly longer time horizon.
So, my wife and I started investing small amounts of money for him on special occasions: Christmas, birthdays, and occasional gifts from relatives. Over time, these contributions will compound. The amounts may be modest, but time gives them the chance to grow into something meaningful.
At the same time, I was fully aware that starting early is only part of the equation. Financial education matters just as much — understanding why we invest, what trade-offs we accept, and which values we implicitly support is as important as investing itself.
This post explains how I approached long-term investing for my child, why the solution I chose is similar to the one I use for my own portfolio, and how this choice also serves an educational purpose beyond purely financial considerations.
Note: while I write in the first person for simplicity, these investment choices reflect discussions and shared decisions with my wife.
Same principles, different timeframe
Investing for my child follows the same principles I apply when investing for myself and my wife. The objective is unchanged — long-term capital growth — but the longer time horizon allows these principles to be applied with fewer compromises.
In practice, this translates into the following criteria:
- An 18-year investment horizon, aligned with legal adulthood in Italy.
- Irregular contributions, mostly linked to gifts and celebrations.
- A 100% equity allocation, justified by the long horizon.
- Broad diversification, to capture global market returns and avoid active bets.
- Passive instruments, to minimise costs and maximise expected returns.
- A strong focus on tax efficiency, given that this is a taxable account and that retirement-only tax-advantaged vehicles are not relevant at this stage.
- Accumulating funds*, to avoid unnecessary taxation on distributions.
- Maximum simplicity, as small portfolios benefit the most from it.
Simplicity matters
Because the invested amounts are relatively small and contributions are occasional, complexity quickly becomes an enemy.
Managing multiple funds would require repeated decisions about which ETF to buy and in what proportion at each contribution. This added decision-making gradually erodes the simplicity that makes passive investing effective.
In addition, using multiple ETFs would require manual rebalancing, which in a taxable account often generates taxes, unless it can be achieved exclusively through new contributions. Even in that case, rebalancing introduces additional mental overhead.
Accumulation over income distributions
Since the goal is capital growth rather than income, distributing funds make little sense: distributions are taxed immediately at a 26% rate in Italy and reinvesting them manually introduces additional inefficiencies.
Accumulating ETFs, by contrast, reinvest dividends internally without triggering taxation. Over an 18-year horizon, this difference compounds meaningfully.
Sustainability and ethical considerations
This is the one area where my child’s portfolio intentionally diverges from my own. I wanted this investment to also serve a future educational purpose. For this reason, I selected a “screened” ETF.
ESG — Environmental, Social, and Governance — refers to a set of non-financial factors used to assess how companies manage environmental impact, social relationships (with employees, customers, and communities), and corporate governance. Rather than being a framework designed to “do good”, ESG is primarily meant to evaluate a company’s exposure to sustainability-related risks and practices beyond traditional financial metrics.
A well-known limitation of the ESG framework is that it is not fully standardised across index providers. In addition, ESG criteria can be implemented in different ways within indices, including:
- Screening, where companies or entire industries with poor ESG ratings or significant controversies are excluded from the underlying benchmark universe.
- ESG Enhancement, which can take different forms. This may involve positive screening, where only the best ESG-rated companies within each sector are included, or weight-tilting, where companies are over- or underweighted relative to their market-cap based on their ESG scores.
In this case, I opted for a screened ETF, as this approach remains the most faithful to the corresponding non-screened, market-cap-weighted index. It allows me to avoid exposure to companies involved in major environmental, social, or governance controversies, without making strong assumptions about the screened index outperforming its parent benchmark.
Instead, I see this ETF choice as an opportunity to later explain to my child how capital allocation can reflect values, why certain exclusions exist, and how ethics and finance often intersect — albeit imperfectly.
Why not use the same ETF I use for myself?
From a purely financial perspective, the same global all-world ETF I use personally would have been perfectly adequate: highly diversified, low cost, physically replicated, and extremely tax-efficient.
However, it is not screened and therefore it doesn’t serve the educational purpose I had in mind for my child. In addition, I already have significant exposure to the same issuer (Vanguard) across my personal investments, and I wanted to reduce issuer concentration risk at the family level.
For this reason, after extensive research among accumulating screened ETFs, I selected iShares MSCI World ESG Screened UCITS ETF (Ticker: SAWD, ISIN: IE00BFNM3J75). This fund met all my constraints simultaneously — something that turned out to be surprisingly rare.
Note: at the time this ETF was selected (January 2023), it was explicitly marketed as an ESG product. In 2025, BlackRock removed the “ESG” label from the names of several ETFs, following updated European guidelines on the use of sustainability-related terminology. The underlying index methodology, however, remains unchanged and continues to apply the same screening criteria. I continue to use this ETF because it excludes the most controversial companies, while avoiding active bets tied to ESG factors.
This episode highlights how the term “ESG” can be interpreted in different ways, and why focusing on index methodology matters more than labels.
Why this specific ETF
Consistent with the principles outlined earlier, SAWD was selected as a long-term, taxable investment for my child for the following reasons:
- Large and mid-cap exposure across developed markets: while adding small caps and emerging markets would have improved diversification, their absence is not a deal breaker, given the higher turnover they tend to introduce.
- Screened, not ESG “enhanced”: excludes controversial companies, without heavily distorting the parent MSCI World index.
- Broad diversification with ~1,200 holdings.
- Physical replication using an optimised (sampled) subset of index constituents, rather than synthetic replication via derivatives.
- MSCI index methodology: industry benchmark and transparent rules.
- Ongoing costs of 0.20%: same as the corresponding non-screened iShares Core ETF.
- $5.6 billion AUM in January 2026: strong fund size for a screened ETF.
- Launched in 2018: reasonable track record for this category.
- Low turnover (3.55% in 2025): crucial in a taxable account.
- Very small tracking difference (around 0.02% on average), with the ETF’s return slightly exceeding that of the index, effectively offsetting part of the expense ratio.
Final thoughts
This ETF choice is not meant to be impressive. It is meant to be globally diversified, tax-efficient, and easy to explain to my son one day. It also reflects a choice to exclude the most controversial companies, as a way to introduce the idea that capital allocation carries responsibility and that ethics can matter in business.
If I succeed in teaching him that time matters more than timing, simplicity beats cleverness, and investing is about discipline rather than excitement, then the investment will have paid off — regardless of the final number.
Disclaimer
*This article is not financial advice. It reflects my personal views, developed through independent study, and is intended as a reminder for myself and for readers interested in the topic.
This discussion reflects my perspective as a long-term investor based in Italy, where accumulating ETFs offer tax deferral advantages. Applicability elsewhere depends on local tax rules.
I am not affiliated with Vanguard, BlackRock or any other financial institution. The ETFs referenced were selected independently based on a combination of objective financial criteria and subjective considerations.