[Insight & Opinion] Two Paths for Pension Savings Accounts in Your Child's Name: Domestic vs. US Markets

Long-term Investment and Tax Savings at the Same Time
If Korea's Value-Up Initiatives Fall Short,
Investors Will Inevitably Shift to the US Stock Market

Let's answer the following question.

'You are planning to open an investment account in your child's name. Which of the following would you choose?'

① Korea KOSPI 200 ② China CSI 200 ③ USA S&P 500 ④ Europe Euro Stoxx 50

This question was faced by the author three years ago. For minor children, it is possible to gift 20 million KRW tax-free every 10 years. Even without a large sum, small amounts can be gifted using the organic fixed deposit system. Recently, many people have been using this system to open securities accounts for their children and invest in overseas stocks. When the author made a gift 13 years ago, there was little concern. At that time, direct overseas investment was difficult in Korea, so one had no choice but to subscribe to domestic stock funds or overseas stock funds. Of course, buying domestic stocks was possible, but due to various concerns, funds were chosen. However, when considering the second gift, the situation changed. The options have increased significantly compared to the past. It became possible to directly purchase overseas stocks or ETFs, buy domestic stocks, or invest in various overseas ETFs created domestically. The choices are on a completely different level compared to 10 years ago.

When giving lectures on pension investment, the author always recommends opening a pension savings account in the child's name. Unlike the USA or Japan, Korea does not offer tax benefits for accounts in children's names, so the pension savings account is suggested as an alternative. For reference, anyone who is a Korean citizen can open a pension savings account, so even a newborn baby can join.

The main reason for recommending opening a pension savings account is that it allows for long-term investment and tax savings simultaneously. To maximize tax benefits, overseas investment is preferable. General overseas funds or exchange-traded funds (ETFs) require dividend income tax, but if managed through a pension savings account, only a low-rate pension income tax is paid later.

Returning to the initial question: if you want to invest over a long period using a pension savings account for your child's future, where would you invest? Probably, most people would choose ③ S&P 500.

People who think about their child's future are likely to make decisions from a long-term perspective. This means they would choose the option with a higher trust that stock prices will rise over the long term. In this sense, it is natural that more people choose the US stock market over the domestic market. The author also ultimately chose an ETF investing in the US stock market for the child's pension savings account. Of course, there can be differing opinions. Some may argue that the domestic stock market is currently very undervalued, and since the US has had an unstoppable run over the past 10 years, the domestic market is more advantageous now. Others might suggest diversifying investments between the US and domestic markets. All these opinions are valid. However, judging by current investor attitudes, the majority likely favor constructing a portfolio centered on the US market.

The Korean stock market is currently undergoing a major transformation. From 2025, 20% of the population will be aged 65 or older, entering a super-aged society, and conflicts between generations regarding the National Pension are beginning to surface. If the ongoing value-up efforts do not settle well, there seems to be no way to stop investors from abandoning the domestic stock market (Gukjang) and moving to the US stock market (Mijang). In an era of low growth and aging, global diversification is essential. Korea is included in the global market. For the Korean stock market to earn long-term trust from investors, the currently discussed value-up initiatives must be properly implemented.

Sang-geon Lee, Head of Mirae Asset Investment and Pension Center