The hardest part about investing for children is probably finding the spare cash in the first place. After the bills have been paid and we’ve saved for our own futures, there is often not a lot left over. But building a nest egg for your children could be easier than you think.
Here are three tips to get you started… and two Chelsea discounts
The good news is that even a small amount invested each month can have a significant impact. For example, if you invested £25 a month for a child starting when they were born and assuming 4% annual returns after fees and inflation, you could have a pot of money worth almost £10,000 (£9,765.35 to be exact) by the time the child turned 21*.
If you have a little more money to spare, then you can set yourself a larger goal – such as building a pot of money large enough to pay off university fees or to cover a house deposit.
Let’s take a goal of £30,000 for example, which would cover one of these aims. Using some real-life examples of children of Chelsea staff, we ran the numbers assuming a real return of 4% (6% after fees but allowing 2% for inflation)**.
|Age||Current savings||Estimated monthly savings to achieve £30,000 at age 21**||Number of months investing|
As you can see from the table above, the earlier you start saving the better. If two of those children were yours, it would mean investing between £200 to £250 per month. That’s a lot of money for most people but still achievable – especially if the grandparents can contribute too.
The low risk and more consistent option is obviously cash – but with interest rates nearer to zero than 4%, once you factor in inflation the purchasing power of your savings are actually being eroded. So that really isn’t an option today.
But with time on your side – up to 21 years in some cases – equities, although riskier, also offer potentially higher rewards. Obviously returns each year won’t be this uniform in reality – they will be higher and lower and, in some years, could fall in value. But there are some good funds out there that should be more than capable of achieving similar or even greater returns on average over time.
Funds such as T. Rowe Price Asian Opportunities Equity on the Chelsea Core Selection or Jupiter European Smaller Companies on the Chelsea Selection are worth a look for those willing to take a little risk over the long term, for example.
Those preferring a ‘catch-all’ option could consider the newly launched TM RWC Global Equity Income which has a reduced ongoing fee for Chelsea’s customers, while investors wanting an option closer to home could consider Marlborough Multi-Cap Growth, another Core Selection offering.
Once you’ve decided how much and where to invest, the next consideration is how to protect your investment from the tax man. A Junior ISA is really a no-brainer in this example.
The Junior ISA is a tax-efficient wrapper that allows anyone invest on behalf of a child – parents, grandchildren and even friends.
Junior ISAs must be opened by a parent or guardian but are held in the child’s name. The money cannot be accessed by anyone until the child’s 18th birthday, at which point it could be rolled into a normal ‘adult ISA’.
And the good news is Chelsea’s clients benefit from 0% platform and service charge when investing in a Junior ISA. All you will pay is the ongoing charge for the underlying funds you invest in.
Find out more about Chelsea’s Junior ISA here.
**Source: Chelsea Financial Services
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and do not constitute financial advice.