Investor Clinic: Investing in ISAs and Pensions for young children


#1

Originally published at: http://whichinvestmenttrust.com/investor-clinic-investing-in-isas-and-pensions-for-young-children/
Ronald has come to our investor clinic to seek your feedback and help on where to invest for his four young grandchildren for the long term and for the very long term. Name: Ronald Your Portfolio: Cash ready to invest How long can you keep this money invested for? From 15 to 60 years…


#2

You can start a pension plan for a child? How can you do that if they don’t have a salary?

As I understand pensions you get a tax discount from your wages. I’m maybe not explaining that properly, what I mean is if you put in £100 to a pension in total you only pay £80 and the Government puts in the rest.

How can kids do that if they don’t have a wage? I might be being stupid but I just genuinely don’t understand this.


#3

You’re allowed to invest a smallish amount without having any earnings in to a pension @Donna. I’m not sure of the current amount but it used to be £3600 before the tax break. Even if you’re unemployed you can invest this amount in to a pension plan.

I think it is a really really good idea to start a pension for little kids Ronald for the reason you hint at, that it has such a long time to grow.

Have you seen that Scottish Life chart they have on here sometimes (which I can’t find) that demonstrates how much £100 invested in the stock market in 1955 grew to. It grew to over £100k with the divs reinvested. That is potentially what you could be doing for your grandkids mate, and I salute you for that.


#4

Do you mean Scottish Widows @harjinder and not Scottish Life?

If you mean Scottish Widows then the chart you’re referring to shows that £100 quid invested in the average of the stock market, so, a tracker (even if it didn’t exist then) grew to £153K IF you reinvested the div’s up to 2013, but only grew to £10k if you didn’t bother.

Here’s a link to it: http://whichinvestmenttrust.com/ignorance-destroying-ordinary-investors-pension-pots


#5

I use Alliance Trust for my daughter’s ISA @ronalds but I am sure Hargreaves and Bestinvest do them too. Probably more companies as well.

It is probably a good idea to have both your ISA and SIPPP plan with the same company but you also probably want to go with one of the providers that charge a percentage fee rather than a fixed fee which might be too high considering you’re investing a relatively small some of money.


#7

Thanks I’ll check them out. I suppose I should ask Barclays if they do them too.


#8

I’m not sure who the best fund supermarket is for such small sums @RonaldS but I think the concept behind what you are attempting is sound. It is possible that £4,500, if that is what you finally invest for them, could grow sufficiently over such a long time frame that that is all they need to save towards their retirement.

The one big uncertainty however is politicians. They could reverse the tax incentive, or place a punitive tax upon it. They are always tinkering with pensions. I expect higher rate relief to be abolished altogether.

If I was investing this sum I would choose the following funds:
Pensions, I’d be more adventurous and split equally between:
Scottish Mortgage
Scottish Oriental
Witan
Finsbury Growth & Income

For the children’s ISA’s I’d be a little bit more cautious but I’d through in some private equity too and go for:
City of London
Foreign & Colonial
Aberdeen New Dawn
Pantheon International Participations (PIP)


#9

@RonaldS
I would check the tables that are regularly published in the press (as a telegraph reader you could try http://www.telegraph.co.uk/finance/personalfinance/investing/isas/10611058/Tables-cheapest-fund-supermarkets-for-Isa-investing.html or http://www.comparefundplatforms.com/ )

As others have mentioned you will probably be better off with a provider that charges a % rather than a fixed fee until the money grows. Hargreaves Lansdown is easy to use - however assuming you are looking at JISA & SIPP accounts I suspect you will need to get the relevant grandchild’s parent to open and operate the account. (For non-earners the SIPP total is £2880 per tax year - which is grossed up-to £3600 by tax relief). I assume this won’t be a problem otherwise you will need to look at a non tax efficient account. One slight disadvantage of trusts over funds will the costs to re-invest dividends, so you may need to let them build up until you have a sum worth the transaction cost. Some providers offer dividend re-investment at a lower cost (e.g. ATS charge £5).

For the pension I would consider going with a global growth trust like Scottish Mortgage (SMT) or Witan (WTAN), which has a multi-manager type approach. For UK exposure you could add in Finsbury Growth & Income (FGT). Over time you could diversify into additional trusts but be aware of the transaction costs. Nothing wrong with @pauls choices.

For the ISA you will have slightly more money to play with, so I would consider more sector specific trusts
UK
Finsbury Growth & Income (FGT)
Blackrock Smaller Companies (BRSC)
JP Morgan Mid Cap (JMF)
Europe
Jupiter European (JEO)

As you rate a highish 7-8 on the risk spectrum you could throw in some
Private Equity
Pantheon (PIN)
or F&C Private Equity (FPEO)
Far East
Schroder Oriental income (SOI)
Emerging Markets
Utilico Emerging Markets (UEM)

In addition to reading the personal finance pages in your paper I would consider a subscription to a personal finance magazine - I find Money Observer has good coverage of trusts.


#10

You’ve had a lot of pretty good advice, especially with the recommended trusts @RonaldS I think figuring out which platform to is now your primary task.

I wouldn’t disagree with any of the fund recommendations.

Maybe a subscription to Money Observer would help too. I think it was on here I read a feature on investment magazines where Money Observer wa the most popular with readers but I can’t find the article. Maybe @scjim is aware of it. I definitely read it somewhere, if not here then maybe Motley fool.