Investing for Children – Time is on your side

The long-term nature of investing for children means that small payments into a Junior ISA can really add up.

Friday 29 July 2022 Author: Owen Foulkes

Rising house prices, record inflation and stagnant wages mean that today’s children are growing up in a more expensive world than their parents. The good news is that even making small scale investments for children when they are young can provide them with a significant nest egg by saving small amounts of money each month into a stocks and shares Junior ISA.

If you invest £25 a month from birth, your child could benefit from a pot worth £8,791 by the time they reach age 18, assuming an investment return of 5% a year after charges.

Investing £50 a month could produce a pot worth £17,853, while investing £200 a month could grow to £70,331, enough for a 25% deposit on an average house in the UK.

This money could be hugely beneficial for a child going off to university or buying their first home.

Where to Start

Your first stop for children’s savings should be stocks and shares Junior ISA, which enables you to invest money for your child in a tax-efficient way.

You can invest up to £9,000 in each tax year and there is no tax charged on the income or capital gains earned.

The money cannot be accessed until your child turns 18, at which point it converts to an adult ISA. Your child is then free to withdraw some or all of the money or continue to invest.

You can open a stocks and shares Junior ISA with an online investment platform or contact your Financial Adviser who will be happy to start the process for you. Many platforms have a regular investment service, which lets you set up monthly payments starting from just £25 a month.

 Starting Small

Investing little and often can turn into a decent-sized pot surprisingly quickly, particularly if you reinvest dividends.

In fact, evidence suggests regular monthly investing performs better than making large one-off or ad-hoc investments. This is because you smooth out the ups and downs of the stock market.

You buy more shares or fund units when prices are low and fewer when prices are high.

When you are investing for children, you typically have a long investment time horizon, which means you can afford to take on risk.

History shows equities have the potential to deliver the strongest returns over a long period. However, to ensure a less bumpy ride it is important to have some diversification in your portfolio.

Funds such as unit trusts or investment trusts can be effective ways to achieve diversification.

The most important thing to remember is to start early and start small, the sooner you start the better your chance of providing your children with the highest level of return.