DIY Investor Magazine
/
March 2014
13
THINGS TO CONSIDER
Money put in cannot be taken out until the child is 18 and
when they reach that age, the pot is theirs alone to do
what they will with it. Alternatives to a Junior ISA could
be to save into a standard child’s savings account, invest
using a standard DIY investing platform account or select a
children’s specific investment plan and an attraction may
be that the account can be accessed before the child
reaches 18.
Investment companies, banks and building societies offer
children’s savings plans which use a child’s personal tax
allowance, currently £9,440, as an amount they can earn
a year before being taxed. If you are not using all of your
own annual ISA allowance you could set aside some of this
to invest for your children, with a pot earmarked for them
within your own DIY investing account.
Although it may not work for those that max out on their
allowance or have a large number of children, a couple with
two children could efficiently accommodate two additional
savings plans for their children within their existing stocks
and shares ISA.
TRANSFERRING FROM A CTF TO
A JUNIOR ISA
The Treasury says transfers will operate in the same way as
moving from one ISA provider to another. Once you have
chosen a provider to move to it will typically take up to 15
working days to transfer to a cash account and 30 days for
stocks and shares; you have to transfer the full amount from
your CTF before then closing it and the existing provider
cannot refuse.
WHAT INVESTMENTS SHOULD
YOU CONSIDER IN A JUNIOR ISA?
Investing for children is a long-term game, so you can
afford to take more risks than you might do with your
own money but you should still make sure that you
create a balanced portfolio to ensure that your risk is
spread across sectors and asset classes.
Unless you are a dedicated DIY investor then picking
individual shares may not be the best move; a fund or
investment trust will allow you to spread your risk and
require less work.
Try to select a complementary range of investments,
balancing growth investments – those in companies
where you expect to see a rise in their share price over
time and mainly deliver returns – with income
investments – companies that pay dividends which can
be reinvested to deliver solid returns from compounding
over time.
Charges are a key consideration - high management
fees eat into returns and over 18 years this can deliver a
sizeable drag on how much an investment makes for your
child.
Passive tracker funds carry low management
charges – the HSBC FTSE 250 Tracker, for example,
which tracks the mid-share index charges 0.25% and the
Vanguard FTSE UK Equity Index just 0.15% - whereas some
contend that the improved returns from a good active fund
manager more than justify the additional cost; choose
wisely though because many active funds may charge
handsomely yet still under perform passive index trackers.
Increasingly popular are investment trusts which offer
a managed portfolio but with low fees. With so many
things to consider, it may just be too tempting to let the
ISA deadline slip and ‘start next year’ – but then spare a
thought for those facing student loans of £50,000 and
the fact that the average age of a first time buyer in
London has now topped 40 – and think what an even
modest regular savings and investment plan could do to
help your children in the future.
