|
How should you invest yours?
By Harriet Meyer
When you've just had a baby, looking after your new family member is an all-consuming task. So with precious little spare time, deciding where to invest your child's money is unlikely to be top of your to-do list.
The Government now gives every child born after 31 August 2002 a child trust fund (CTF) voucher for £250, or £500 for lower-income families - with a further £250 or £500 at age seven. If you don't actively invest this within a year, it will be invested on your behalf in a default stakeholder account - so it pays to get your skates on and make the best decision for your child's future financial health.
But with an array of accounts to choose from, including cash, stockmarket funds and stakeholders, deciding on a home for the money can take time. Cash accounts may be the safest option and have proved popular with parents, with Abbey reporting that 66% of parents have plumped for cash. However, stockmarket investments have produced greater returns over the
long-term.
So how do those in the know decide? Here, five money experts - who are also parents - talk about what they did with their CTFs:
The pensions expert
After considering the various options for three-year-old son Jackson's CTF, Tom McPhail, head of pensions research at asset managers Hargreaves Lansdown, chose an eco-conscious fund. "My partner and I had a kick around on this and decided to go for an environmental fund in the end, because it suited the nature of this investment," explains McPhail. "It is money from the Government on our son's behalf and for his future, so there's a degree of synergy in that the fund also looks after the world's future."
In the end, the couple chose the Insight Investment Evergreen fund, through The Children's Mutual, managed by Alex Illingworth. It has an annual management charge of 1.5%. Any additional savings for Jackson are being put into other accounts rather than used to top this up. "It has done OK since we invested, but compared with other funds, it hasn't done fantastically well. Quite a large chunk of my self-invested personal pension (SIPP) is in the Jupiter Ecology fund, which has done much better."
Recently, McPhail has been considering moving the money, but he is inclined to let it run over the long-term to see if performance improves. "If it doesn't improve soon I might shift it into the Jupiter fund," he says. "It is a struggle to find good environmental fund managers and funds that tick both boxes - principles and performance."
He adds that he is not by nature an active fund manager. "I make investment decisions that stand for months and years rather than days and weeks - we have four kids and busy jobs so we don't have much spare time. But we can afford to do this and take a rollercoaster ride, as the investment has 15 years to run, and it's always sensible to invest in equities over a term like this."
He is enthusiastic about the underlying principle behind CTFs, as they are "encouraging early engagement with investment".
As for what he hopes Jackson will spend the money on, McPhail mentions the usual possibilities, such as property or travel. "It's a decision I'm happy for him to make when he gets there," he says.
The IFA
Although Emma Tozer's son, Joseph, was born in the first qualifying month for CTFs - September 2002 - it was a few months before she realised he was entitled to a voucher. "I wasn't really aware of the initiative when it came in, as I was extremely busy - being pregnant, your brain isn't really on the planet," says Tozer, an independent financial adviser at Westpoint Financial Consultants. "Also, because I am so busy working with other people's finances, the result is my own often suffer."
It was only when she returned to work in December that she found out about CTFs, and that Joseph was entitled to the £250. "I treated it as a bit of free money, and decided to pop it into the stockmarket and see how it did," she says. She chose the Halifax stakeholder CTF, investing in its FTSE 100 tracker, and tops it up with small additional sums whenever she can. "I will just leave it there and let it grow, as regardless of recent market turmoil, I think it should do well over time, so I'm not worried."
While Tozer recognises it is not going to grow to a "life-changing size", she hopes it will be a nice 18th birthday present for Joseph - to buy a car or contribute towards the cost of going to university.
The introduction of CTFs was "a bizarre spend of money by the Government", according to Tozer. "I am sure there are better things the money could have been spent on," she says.
The financial journalist
So do personal finance journalists practice what they preach? Emma-Lou Montgomery, former editor of Moneywise magazine and Shares magazine, certainly found her financial know-how came in handy when choosing where to invest one-year-old son Saul's CTF. "I invested the money in F&C because they have the most choice, with 15 different investment trusts, so I can tailor it to the risk level I want - which was medium to high-risk over the long-term," she says.
The fees are generally under 1% a year for each trust, and she chose to put the money into the Capital and Income Investment Trust. While she admits its performance has not been great yet, she says it is "early days", with 17 years to go before Saul gets the money.
"I will leave it to see how it does, and if the markets are jittery I will move it into something a bit safer nearer the time," she says. Despite being so young, Saul already has his eye on motorbikes, so with free rein to spend the money on what he likes at age 18, perhaps this will be his choice, she adds.
She says it is "reasonable to expect modest performance" with this small investment, which she is topping up by £25 a month. "Although if it starts treading water or going in the wrong direction, I will move the fund."
"Child trust funds are a good initiative," she adds. "But when you come to pick the right funds from the lists of different companies, you do wonder how people with little time or knowledge can make the decision - my experience helped, but even I found it difficult."
A lot of Montgomery's friends ask her whether they should invest in cash or shares. "For such a long-term investment, the stockmarket makes sense," she says. "But either way, it is best to put it into something rather than let it sit around, as you can change your decision later if you need to."
The fund manager
As manager of a CTF, Gregor Logan, father of two young children, was in an ideal position to make the right investment choice. He has a son, Ben, five, and daughter Laura, four. As his job involves keeping a close eye on the Family Investments Child Trust Fund, this was the obvious place for their CTF.
"I chose it partly because I manage it, and partly because, as the investment has an 18-year life, putting a very high proportion into equities is appropriate. It is also nice to have the flexibility to go into less volatile asset classes if the environment so dictates," he explains.
Initially, he chose the Balanced Managed fund, but recently switched to the Charities Ethical Trust, a stakeholder that he tops up by the full £100 a month. "When I first invested the vouchers the charities ethical fund wasn't available, so I switched to this recently because I think it's nice that it's a green fund, as it's for children," says Logan. "It screens companies for their activities and only invests in certain ones."
As equities typically provide real returns of between 5% and 7% a year, he is hoping for this level of performance. "If I anticipate a serious setback in the equity markets, perhaps I will go back to the balanced fund, which is less volatile and allows me to go into fixed-interest later on."
He hopes Ben and Laura will put the money towards their further education. "But the onus is on parents to educate children to be responsible with money."
The IFA
With two children qualifying for CTFs, James Gaston - an IFA for eight years and currently working for IFG Financial Services - thought it only fair to choose the same investments for both.
He invested in unit trusts through The Share Centre for Declan, five, and Phoebe, 18 months. "I wanted to use a range of
collectives, of which they have a long list, and I can access them at a low cost," he explains.
For the funds, he chose Invesco Perpetual High Income, Invesco Perpetual Distribution, Fidelity European, JP Morgan Natural Resources and Standard Life UK Smaller Companies. He tops up the CTFs by the full £1,200 a year, by contributing £100 a month to each.
"These funds give a spread of different asset classes and sectors," says Gaston. "I am hoping for growth of 9% or 10% a year, as they are all good funds."
He has already swapped the funds several times since opening the CTFs, which he hopes will be used to help fund further education. "I review them every year, and when Declan and Phoebe get a bit older I will reduce the risk - this will probably be when they are around 13."
Gaston says of the introduction of CTFs: "Anything that encourages people to save and think about their children's future is a good thing."
Useful links:
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View