Saving for children? Junior ISA risks?

Saving for children? Junior ISA risks?

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Discussion

ATV

Original Poster:

556 posts

194 months

Sunday 18th January 2015
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I'm thinking about setting up a Junior ISA for our child.

At the moment the JISA annual limit is £4,000 and you can use Hargreaves Lansdown to invest in shares and hopefully get a 5% return. For a newborn that would mean a potential contribution of £72,000.00 over 18 years, 5% investment growth of £45,676.59, total of £117,676.59 when the child turns 18.

Annual fees are 0.45% which works out at £18 for the first year and £450 if you have £100,000 towards the end (seems reasonable to me if you can get 5% per annum)

If Hargreaves Lansdown ever went bust, the shares would still be held in the nominees name (i.e. the parent or guardian). I'm thinking about buying solid blue chip stocks in a diversified portfolio (possibly 10 companies) which pay good dividends.

This seems the best investment from risk/reward ratio perspective but I'd welcome any other opinions or suggestions.

Thanks

gregf40

1,114 posts

115 months

Sunday 18th January 2015
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The good news is including dividend reinvestment you should get significantly more then 5% return over that time frame.

I wouldn't pick specific stocks though - just buy a FTSE100 or 250 tracker. Makes life much easier.

Big Pants

505 posts

140 months

Sunday 18th January 2015
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Just be aware that the day they turn 18, regardless of circumstance, the funds become theirs.

Potentially that's an awful lot of money to bestow upon a teenager. I look at my 14 year old now and can't say with confidence that giving her a large chunk of wedge in 4 years to use completely as she wishes will be money well spent.

schmunk

4,399 posts

124 months

Sunday 18th January 2015
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Big Pants said:
Just be aware that the day they turn 18, regardless of circumstance, the funds become theirs.

Potentially that's an awful lot of money to bestow upon a teenager. I look at my 14 year old now and can't say with confidence that giving her a large chunk of wedge in 4 years to use completely as she wishes will be money well spent.
This is why I've chosen to have nominee stock accounts for the children, rather than CTF/JISA. They're in my wife's name, and she has little other income, so they remain tax-free.

Tim330

1,125 posts

211 months

Sunday 18th January 2015
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Big Pants said:
Just be aware that the day they turn 18, regardless of circumstance, the funds become theirs.

Potentially that's an awful lot of money to bestow upon a teenager. I look at my 14 year old now and can't say with confidence that giving her a large chunk of wedge in 4 years to use completely as she wishes will be money well spent.
Do you have to tell them about the ISA? Would the provider write to them at 18. If not only tell them if they have behaved!

skahigh

2,023 posts

130 months

Sunday 18th January 2015
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Big Pants said:
Just be aware that the day they turn 18, regardless of circumstance, the funds become theirs.

Potentially that's an awful lot of money to bestow upon a teenager. I look at my 14 year old now and can't say with confidence that giving her a large chunk of wedge in 4 years to use completely as she wishes will be money well spent.
I opened a Junior ISA for my 6 week old daughter yesterday, have decided money from grandparents will be saved there and we will save in our own ISAs for just this reason. Would like to retain some control over the money we are saving for her.

marsred

1,042 posts

224 months

Sunday 18th January 2015
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Tim330 said:
Big Pants said:
Just be aware that the day they turn 18, regardless of circumstance, the funds become theirs.

Potentially that's an awful lot of money to bestow upon a teenager. I look at my 14 year old now and can't say with confidence that giving her a large chunk of wedge in 4 years to use completely as she wishes will be money well spent.
Do you have to tell them about the ISA? Would the provider write to them at 18. If not only tell them if they have behaved!
Yes, the provider will write to them direct when they turn 18 and tell them its theirs. But two years before that the kids are able to make investment decisions themselves, but not withdraw. So you can teach them the value of investing and hope they learn enough not to blow it on jaeger bombs and motorbikes!

Troubleatmill

10,210 posts

158 months

Monday 19th January 2015
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If you are worried about them getting their hands on the money, start them a pension.

They will be able to retire comfortably at 55.

oldaudi

1,306 posts

157 months

Monday 19th January 2015
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Due to the fact that handing over a 18 year alot of money scares the hell out of me I did something else.

You can educate your children as best you can regarding finances but I know that if I handed over £10,000s, to an 18 year old and they spent it all on a holiday to discover themselves after Id spent years investing it wisely for them would really grind my gears.

So, I opened a SIPP for them at the age of 5 and 3. Now 8 and almost 6. Not sure if its the best thing to do but It means they cant get it until 55. You can claim tax breaks so its a cost effective way of saving for them in my view.

Edited by oldaudi on Monday 19th January 10:07

Ginge R

4,761 posts

218 months

Monday 19th January 2015
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I would ask what your objectives in 18 years time would be, and how old are you now. Think about the end game - there is more than one way of skinning a cat.

If you simply want to fund education, consider the pros and cons a suitably cheap investment bond - it allows you to allocate accumulating 5% (max) segments of the bond to a child. Can not your parents, or even you if you are old enough, make extra contributions into a cheap pension? The legislation will soon allow, on death, funds to be passed tax free, or, if the pension owner is so inconsiderate to be alive in 18 years time, can you still use tax free cash or trivial pot regulations to help you?

Finally, ensure that the legal stuff is squared away - make sure that your will reflects your current and anticipated thinking. Everyone's circumstances are different, so take accountable advice that you trust, wherever and however it is derived, before making big decisions. The merits of seeing an adviser are invariably more than justifiable when making decisions based on your quandary imho.

SunsetZed

2,235 posts

169 months

Monday 19th January 2015
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Troubleatmill said:
If you are worried about them getting their hands on the money, start them a pension.

They will be able to retire comfortably at 55.
I wouldn't recommend this because the age that you can access Private Pensions is being increased to 60 and there's already talk of it being raised higher.

Ginge R

4,761 posts

218 months

Monday 19th January 2015
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It probably soon will be 60! Imminently, if you're currently under age 40 or so, access to personal pension savings will be raised to 57 (currently 55 and up from 50 just a few years ago) and thereafter it will lag behind the basic state pension age by 10 years. So, as that shifts inexorably to the right, so too, will access to your personal pension.

schmunk

4,399 posts

124 months

Monday 19th January 2015
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SunsetZed said:
Troubleatmill said:
If you are worried about them getting their hands on the money, start them a pension.

They will be able to retire comfortably at 55.
I wouldn't recommend this because the age that you can access Private Pensions is being increased to 60 and there's already talk of it being raised higher.
I think he may have been joking...

aka_kerrly

12,415 posts

209 months

Monday 19th January 2015
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ATV said:
Annual fees are 0.45% which works out at £18 for the first year and £450 if you have £100,000 towards the end (seems reasonable to me if you can get 5% per annum)

If Hargreaves Lansdown ever went bust, the shares would still be held in the nominees name (i.e. the parent or guardian).
The 0.45% annual management charge is only HL own product level charge. You also have to factor in the fund managers initial/annual charges thus the number of funds you hold within the JISA has an impact on the overall cost. Typically fund manager annual charges are 0.75>1.5% so having half a dozen funds soon starts to add up. It's worth checking for the availability of clean shares that don't pay any commission to as these can reduce the annual charges.

HL (like most investment providers) have "HL nominees limited" which is separate company regulated by the FCA used to register/hold assets so if HL does go down the pan the investments are still accessible.

Depending on your tax/income situation another alternative is to have a non ISA investment which allows you to register a general investment account into trust for the child.

JungleJim

2,336 posts

211 months

Monday 19th January 2015
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aka_kerrly said:
The 0.45% annual management charge is only HL own product level charge. You also have to factor in the fund managers initial/annual charges thus the number of funds you hold within the JISA has an impact on the overall cost. Typically fund manager annual charges are 0.75>1.5% so having half a dozen funds soon starts to add up.
How so - costs of say 2% on 10 lots of 1000 would are the same as 2% on one lot of 10000.

gregf40

1,114 posts

115 months

Monday 19th January 2015
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schmunk said:
I think he may have been joking...
I don't think he was...seems like a good idea to me.

voicey

2,453 posts

186 months

Tuesday 20th January 2015
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gregf40 said:
I don't think he was...seems like a good idea to me.
I think it is a great idea. I opened a cheap stakeholder pension for my daughter when she was born in order to give her a head start.

schmunk

4,399 posts

124 months

Tuesday 20th January 2015
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voicey said:
I think it is a great idea. I opened a cheap stakeholder pension for my daughter when she was born in order to give her a head start.
And when she wants to buy her first house, she'll..?

Ginge R

4,761 posts

218 months

Tuesday 20th January 2015
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Greg's right, in principle. At the risk of the principled tail wagging the pragmatised dog, if circumstances permit and encourage, the idea of inter/generational planning is brilliant; it's almost oriental in concept, like planting an oak tree you'll never see but one that you'll know will be enjoyed long after your time is up. Clients who are able to do it generally derive great pleasure and satisfaction out of it.

voicey

2,453 posts

186 months

Tuesday 20th January 2015
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schmunk said:
And when she wants to buy her first house, she'll..?
Use the money we're saving in her saving accounts I'd guess. Or maybe I'll put my hand in my pocket.

More likely, I'll get a buy to let at some point along the road which will become hers.