INVESTING FOR CHILDREN – SPECULATE TO ACCUMULATE?

All parents will agree that the wellbeing and happiness of their children are up there in their priority list accompanied by breathing and eating. Along with good memories of childhood holidays and extravagant Christmas gifts one thing that we can do for our children is help them to make a start in life when the time comes for them to leave the nest. What better way to start adult life than with a cash injection to help get the show on the road?

So, where to start, when to start and how to make sure that the nest egg isn’t a yolk when the time comes.

I’m looking at Junior ISAs here on my laptop, they’re offering 3%-ish, some more, some less,

I ask myself, what’s the point? 3%! Are you kidding me? I put a grand in and get 30 quid!

Nonsense, I’d rather spend the grand on a couple of days in France expanding my child’s cultural horizons, a much better investment (IMHO).

It’s a tax fee £30 though. No, it’s still a waste of time.

Want to really torment them, why not set up a Child SIPP? Invest the maximum £2,880 per year (£3,600 including tax relief) from birth to age eighteen and achieve a 5% investment return, and junior benefits to the tune of £700,000. When they’re 55.

If you want to invest on your child’s behalf and send them off into the magical adventure that is their 20s and 30s and perhaps enable them to still be carefree in the 40s, there’s only one answer, speculate; Lucky Jim in the 2.30PM at Haydock Park, on the nose.

‘Want to really torment them, why not set up a Child SIPP?’

I’m kidding, of course but what would be wrong with investing outside the box of the JISA that is being peddled as the answer to the masses, get your kids into the next Uber, the next Google, the next PayPal.

Your investment will either perform spectacularly or it will fall flat on its face, the good news is that it won’t give you £30 per £1,000 invested. Additionally, it’s interesting; do it all on your 4G phone on the 7:26 to Waterloo.

So, where can you take a little bit more risk with your cash, in pursuit of riches?

Well you could take that £10,000 that you currently have languishing, doing nothing, in your cash ISA and stick the lot into Fund Twenty8 from Syndicate Room.

What is it? Its an EIS qualifying fund that invests in private companies that raise cash on Syndicate Room, one of the larger equity crowdfunding platforms.

EIS? Enterprise Investment Scheme is a series of UK tax reliefs launched in 1994, It is designed to encourage investment in small unquoted companies carrying on a qualifying trade in the United Kingdom.

Crowdfunding? Isn’t that all pizzas and beer ?

Well, no it isn’t, in fact Syndicate Room have a rather interesting way of being, they have a professional investor take part in each fund raise on the same terms as the crowd which has a few consequences.

• Valuations which the companies put on themselves when raising cash could be considered to better reflect the value of the company than if a professional investor were not involved.
• The type of company raising funds tends to be more complex / with lots of IP, the kind of company that would possibly find it challenging to get noticed on other equity crowdfunding platforms.

The fund industry has long preached the mantra that you should lessen your risk of losses by spreading your money across multiple assets and the best way to do that is to let them do it for you. Fund Twenty8 does just that, genius!

A word of warning, once your cash is in, there’s no easy way of getting it out, the companies that the fund invests in are not traded on an exchange, so they are very illiquid, you are in it for the long haul.

So you’ve put  your £10,000 to work, if you want to do some regular savings there are a few options for you.

‘Crowdfunding? Isn’t that all pizzas and beer ?’

Junior ISA (JISA) which come in two flavours, Cash and Stocks & Shares and you have to chose one or the other, your child can’t have both.

Junior Cash ISAs can only be opened by a parent or guardian but anyone can contribute. If you’re investing over the longer term, a Stocks and Shares JISA is generally more widely recommended, as within these there is the potential for capital growth, not just a few percent a year interest. Just like the standard ISA, money inside a JISA is tax exempt.

What about the fund managers?

Good question and they have good answers, I’ll take Aberdeen as an example. They offer a JISA that allows you to invest in a broad range of the investment trusts that they offer. You can put lump sums in and they’ll take regular savings at £30 per month, nice and easy. If you don’t fancy active management, there are lots of tracker funds and ETFs that you can put the cash to work in that can be held within a JISA.

NS&I Children’s Bonds are another tax free savings vehicle, parents, guardians and grandparents can contribute up to £3,000 per issue in total, this would be the option that I myself would explore last as all that is on offer is a a bit of interest compounding tax free. With interest rates as low as they currently are, there’s not going to be a huge amount of uplift in the bond when your son or daughter turn 16 and can manage it themselves.

Finally, there are Regular Savings Accounts & Instant Access Accounts from the banks and building societies. These typically offer you a lovely interest rate at outset but switch to paying out less about as soon as the provider thinks that you’re not looking. If you really want to know which one is currently offering the best rate, to draw you in, Moneyfacts is the place to go.

In summary, the message is that a bank account may be better than a sock; a savings account may be better than a bank account; a passive fund may perform better than an active one because it’s cheaper. Investing over a long period is the only way and over a long period equity generally performs best and private companies can give mind blowing returns just don’t put all your eggs in one basket. Go on Jim!

DIY – for the record, Dianne does not work for Syndicate Room, or own a racehorse!