Thinking about investing for your child’s future? Here are some ideas, from Junior ISAS to property investment without a mortgage.
It’s Christmas time! Cue last-minute gifts, ugly jumpers and family reunions. In the spirit of things, it’s nice to think that the best things in life are free. Most of the time.
According to the Telegraph, “that’s certainly not true of children.” (1) So, after your turkey-induced-tiredness subsides, it might be worth planning a fruitful future for your young ones.
Parents are well aware of the cost of children. Consider school fees, holidays, food, university, activities, clothes, rent…The list goes on. It can seem daunting, but careful planning can make things look much more manageable.
The good thing is, time may be on your side. Put simply, “time is a powerful ally of the investor – so where you are investing on behalf of your children, you start with a great advantage.” (2)
We’ve written about the power of compound interest, but here’s an example of its potential:
“Assuming an annual return of 5pc after fees, £10,000 invested at birth would grow into £43,000 by the child’s 30th birthday. It’s the head start most 30 year-olds would dream of.” (2)
Also, longer time frames can make room for greater risk taking, which could result in potentially higher returns.
Saving for your child’s future has developed a nickname in the investment world: Nest Egg. This is “A substantial sum of money that has been saved or invested for a specific purpose.” (3) There are many ways to create a Nest Egg. Here are just a few:
Junior ISAS: Baby Savings
- A junior ISA is a long-term, tax-free savings account exclusively for children below 18 years old.
- “In the 2016 to 2017 tax year, the savings limit for Junior ISAs is £4,080.” (4)
- The first type of Junior ISA is a cash based ISA. This means you won’t pay tax on the cash you save up to the annual limit.
- The second type of Junior ISA is stocks and shares based ISA. This means your “cash is invested and you won’t pay tax on any capital growth of dividends you receive” up to the annual limit (4)
- Many banks and building societies act as account providers.
- “Money in a Junior ISA belongs to your child and can’t be taken out until they’re 18, though there are exceptions to this.” (5)
Junior Sipp: A Kid’s Pension
- It’s true, once your child is born, you can start a pension for them.
- “Up to £3,600 a year can be saved, with the Government automatically topping up payments up with the equivalent of 20pc tax relief, so total contributions only need to be £2,880 to hit the maximum.” (2)
- “Calculations show that if you were to invest £300 a month into a Sipp for the first 18 years of their life (even if they added nothing themselves during their adult life) they would have a very impressive £603,441 pension pot at the age of 65.” (2)
- A potential downside though is that the money is inaccessible until your child turns 55.
Property Moose: Property Investment Without a Mortgage
- Investing through Property Moose can eliminate the hassle of paperwork, sourcing and market knowledge.
- Diversification is also possible, considering the different types of opportunities on offer.
- In April 2015, property was listed as the “best performing asset class” (6) when researchers compared its returns to other investment types such as UK shares, cash ISAs and government bonds. (6)
- An everyday investor contributing £100 each month at an average of 7% net compound interest over 25 years (where an additional £100 plus the interest on the amounts already invested is reinvested) builds a net fund of £81,479.71 (7)
- So, if you invested £100 pounds a month for your child’s future from the day they were born, their 25th birthday present could be a sum of £81,479.71. This is assuming a 7% net compound interest.
- However, this type of investing carries higher risk to your capital.
Of course, it’s up to them how they spend or save that money. However, it equates to:
- Approximately 7 MA courses (assuming the child is registered as home status and the average cost of each MA is £11,000) (8)
- A 2-bedroom bungalow in Cheshire
- 3 weddings (assuming the average price of each is £25,000)
- 74-months’ worth of rent for a furnished studio in London, (assuming the average rent of a furnished studio flat in London is£1,072, as listed here).
Whichever option you choose, always remember it’s never too late or early to start investing. Look to the future for a fruitful Christmas yet to come.
Merry Christmas and happy holidays from the Property Moose team!
Written by Jenna Kamal
Sources
- http://www.telegraph.co.uk/sponsored/finance/future-proofing-finances/thirties/11327468/investing-for-children-future.html
- http://www.telegraph.co.uk/investing/jisa/seven-things-you-need-to-know-about-investing-for-children/
- http://www.investopedia.com/terms/n/nestegg.asp
- https://www.gov.uk/junior-individual-savings-accounts/overview
- https://www.gov.uk/junior-individual-savings-accounts/add-money-to-an-account
- http://www.sequre.co.uk/investor-advice/why-invest-in-property
- https://propertymoose.co.uk/blog/compound-interest/
- https://www.ucas.com/ucas/postgraduate/finance-and-support/postgraduate-fees-and-funding
Disclaimer and Legal
Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).
