Investing for our daughter on top of CTF?
|Kids | Investing for Children
Asked by jameshogg, submitted
22 November 2011.
Our daughter is three and a half years of age, born in January 2008. We have always contributed the full amount annually into her CTF via a savings account. However we now wish to switch this to an investment plan, probably equity based rather than stakeholder for better potential profits and this is where we need more help. We do not envisage the requirement to access funds until she is at least university age, if she should prefer that route. Considerations for the funds may be: university education and associated costs (we hope we would be able to fund part of this), a deposit for a house, a nest egg for starting a pension scheme.
We intend to always contribute the maximum allowance into the CTF and also wish to start a monthly contribution of say initially £50 to £75 into another vehicle and wonder whether this is best done via a Children’s Investment Plan or even to start a pension scheme for her, or split the contribution between the two.
We are basic rate tax payers. We would recommend your suggestions ref the best options and funds / providers for our requirements.
Answered by Justin on 19 July 2012
Although the Government has closed CTFs for new babies and scrapped plans for the £250/£500 top-up at age 7, existing CTFs can run until maturity - although I suspect they'll be merged into Junior ISAs at some point. Anyway, good to hear you're topping up your daughter's, it should help give her a flying start to adulthood.
As for investing a monthly contribution into stock markets, an investment fund (e.g. unit or investment trust) is likely to be the most practical route. Plus it makes spreading risk easier.
You could use a pension, but your daughter won't be able to access the money until age 55 (probably higher still by the time she reaches that age). If you'd prefer this money goes towards her retirement rather than late teens then by all means consider a low cost stakeholder pension - she'll benefit from basic rate tax rebates on contributions, i.e. an £80 contribution will be grossed up to £100.
Buying funds via a 'platform' (using a designated account or bare trust - details here) and using a discount broker is likely to be the most cost effective and flexible route. Using a platform makes it simple to mix and match funds from a wide variety of different managers and subsequent fund switches are fast and straightforward. While discount brokers help to cut costs by rebating sales commissions. Take a look at our Guide to ISA discounts for more details (it largely applies to funds held outside of ISAs too).
As for funds, if you don't mind a fair bit of risk along the way I think emerging markets remain a good bet over the next 15 years, perhaps consider funds like Aberdeen Emerging Markets and First State Global Emerging Markets Leaders. But you may want to temper such risks with a UK equity income fund, where dividends and a focus on cash rich companies can help weather turbulent markets. Funds with good track records include Invesco Perpetual High Income and Threadneedle UK Equity Income.
Of course, once the investments starts building up to a reasonable size you might consider diversifying further.
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