Long term gowth for Grandchildren
Discussion
Currently 3 and 5 years old and both have low four figure savings in a building society. We pay £20 a month into each to their accounts.
I know we ought to be doing better than that and I'd like to invest to achieve long term capital growth up to medium risk levels for them.
Any pointers where to start?
Cheers Chaps
I know we ought to be doing better than that and I'd like to invest to achieve long term capital growth up to medium risk levels for them.
Any pointers where to start?
Cheers Chaps
river_rat said:
A Junior ISA with Intelligent Money/Vanguard/someone else with low fund charges?
That's what I have set up for my children who are slightly older than your grandchildren.
Probably weighted towards 100% equity based bearing in mind the long investment window.
I don't disagree with the advice of a low-cost passive tracker. I would question conventional wisdom of 100% equities because the evidence - at least, past 20 years - has seen slightly better returns and significantly less downside during recessions / slowdowns in 50/50% equity / [sovereign] bonds than 100% straight-up equities. Note: based upon US equities and US long-duration bonds.That's what I have set up for my children who are slightly older than your grandchildren.
Probably weighted towards 100% equity based bearing in mind the long investment window.
As River_Rat states Vanguard provide a number of global low-cost passive funds where you can decide on the equity / bond split.
The only other piece of advice is if you annualise each grandkid's contribution, it's £240. Even low fees eat in to your returns, especially if your contribution is relatively small. Therefore you may wish to think about contributing either once every 6 months (£120) or once per annum (£240).
Julian and co (and others ) can advise on a contribution frequency to get the approproriate balance between contribution amount, fees, and growth.
poster said:
I would question conventional wisdom of 100% equities because the evidence - at least, past 20 years - has seen slightly better returns and significantly less downside during recessions / slowdowns in 50/50% equity / [sovereign] bonds than 100% straight-up equities. Note: based upon US equities and US long-duration bonds.
I think you are right on the data but it’s worth bearing in mind we have experienced a 30 year bull market in fixed income with rates going from >10% to 2% in the US - long duration has clearly done best out of that.It’s not clear to me that the next 30 years can or will look like that (I can’t see bonds tightening another 800 bps to -6%!)
It
Jaguar steve said:
Currently 3 and 5 years old and both have low four figure savings in a building society. We pay £20 a month into each to their accounts.
I know we ought to be doing better than that and I'd like to invest to achieve long term capital growth up to medium risk levels for them.
Any pointers where to start?
Cheers Chaps
It’s certainly a difficult one but I expect the IFAs on here are doing this all day long for clients. I know we ought to be doing better than that and I'd like to invest to achieve long term capital growth up to medium risk levels for them.
Any pointers where to start?
Cheers Chaps
Tax efficiency and fees over such a long period is going to be really important, especially fees with the amounts we are talking about going in so it may transpire, as suggested above, that it is hugely cheaper to buy once a year rather than each month depending on the charging structure chosen for execution.
I’m not sure there is much to be gained from cash, I think most arguments favour anything other than cash over the long term. Plus, they will be able to create their own cash each month once they complete their education.
Active or passive? I’m inclined to think passive as otherwise you have not just market risk but also manager risk to compensate for. A market may well fall but it will come back without you having to do anything whereas an active manager may not.
Personally, I prefer the pension route because there is no other investment on the planet that can come close to giving a 20% instant return on new money, delivers tax free returns going forward and will help your grandchildren through their working life by either giving them a reassurance, helping stimulate them to add to the pot or allowing them to take a break from paying in if they need to but be there when arguably they are at their most vulnerable, with no parents or grand parents to bail them out or help them and no ability to work for new money.
In my mind it is in late retirement that children (in a normal family) will be most vulnerable. It’s the parents and grandparents responsibility to guide them through education and help them to achieve the best they can in that regard and to recognise that how they achieve to 16, 18 or 21 will define to a very strong effect their earning capacity for the rest of their life and therefore whether they will be living in a council flat, renting someone elses’ property or buying their own.
You can aim to leave them a lump of money for their early life when you die and hopefully that will be a long way down the road and when they are grown up and maybe even settled down and need a lump sum the most and have run the gauntlet of desperately needing a car that is more expensive than it needs to be etc.
But that’s all a personal choice. Once you’ve chosen the wrapper and nailed down the costs then it probably boils down to cash, passive or active and there’s quite a bit of coin tossing with how to blend the three but I think I would err on being mostly passive.
DonkeyApple said:
It’s certainly a difficult one but I expect the IFAs on here are doing this all day long for clients.
Tax efficiency and fees over such a long period is going to be really important, especially fees with the amounts we are talking about going in so it may transpire, as suggested above, that it is hugely cheaper to buy once a year rather than each month depending on the charging structure chosen for execution.
I’m not sure there is much to be gained from cash, I think most arguments favour anything other than cash over the long term. Plus, they will be able to create their own cash each month once they complete their education.
Active or passive? I’m inclined to think passive as otherwise you have not just market risk but also manager risk to compensate for. A market may well fall but it will come back without you having to do anything whereas an active manager may not.
Personally, I prefer the pension route because there is no other investment on the planet that can come close to giving a 20% instant return on new money, delivers tax free returns going forward and will help your grandchildren through their working life by either giving them a reassurance, helping stimulate them to add to the pot or allowing them to take a break from paying in if they need to but be there when arguably they are at their most vulnerable, with no parents or grand parents to bail them out or help them and no ability to work for new money.
In my mind it is in late retirement that children (in a normal family) will be most vulnerable. It’s the parents and grandparents responsibility to guide them through education and help them to achieve the best they can in that regard and to recognise that how they achieve to 16, 18 or 21 will define to a very strong effect their earning capacity for the rest of their life and therefore whether they will be living in a council flat, renting someone elses’ property or buying their own.
You can aim to leave them a lump of money for their early life when you die and hopefully that will be a long way down the road and when they are grown up and maybe even settled down and need a lump sum the most and have run the gauntlet of desperately needing a car that is more expensive than it needs to be etc.
But that’s all a personal choice. Once you’ve chosen the wrapper and nailed down the costs then it probably boils down to cash, passive or active and there’s quite a bit of coin tossing with how to blend the three but I think I would err on being mostly passive.
This is what I've done. Started a SIPP when baby was 6 months old. As DA recommends, I went for a low-fee Vanguard Lifestrategy fund.Tax efficiency and fees over such a long period is going to be really important, especially fees with the amounts we are talking about going in so it may transpire, as suggested above, that it is hugely cheaper to buy once a year rather than each month depending on the charging structure chosen for execution.
I’m not sure there is much to be gained from cash, I think most arguments favour anything other than cash over the long term. Plus, they will be able to create their own cash each month once they complete their education.
Active or passive? I’m inclined to think passive as otherwise you have not just market risk but also manager risk to compensate for. A market may well fall but it will come back without you having to do anything whereas an active manager may not.
Personally, I prefer the pension route because there is no other investment on the planet that can come close to giving a 20% instant return on new money, delivers tax free returns going forward and will help your grandchildren through their working life by either giving them a reassurance, helping stimulate them to add to the pot or allowing them to take a break from paying in if they need to but be there when arguably they are at their most vulnerable, with no parents or grand parents to bail them out or help them and no ability to work for new money.
In my mind it is in late retirement that children (in a normal family) will be most vulnerable. It’s the parents and grandparents responsibility to guide them through education and help them to achieve the best they can in that regard and to recognise that how they achieve to 16, 18 or 21 will define to a very strong effect their earning capacity for the rest of their life and therefore whether they will be living in a council flat, renting someone elses’ property or buying their own.
You can aim to leave them a lump of money for their early life when you die and hopefully that will be a long way down the road and when they are grown up and maybe even settled down and need a lump sum the most and have run the gauntlet of desperately needing a car that is more expensive than it needs to be etc.
But that’s all a personal choice. Once you’ve chosen the wrapper and nailed down the costs then it probably boils down to cash, passive or active and there’s quite a bit of coin tossing with how to blend the three but I think I would err on being mostly passive.
I use and recommend AJ Bell you invest, I've heard recommendations for Interactive Investor as well. I think AJ Bell charges £1.50 per transaction and 0.25% per annum, this is relatively low but in any case I'd invest for the whole year if poss rather than monthly.
Vanguard have been promising a SIPP wrapper for some time... When that's launched it might offer an even cheaper route to getting VG funds. Should that be the option you choose.
Edit to add: the way I've written that makes it sound like DA was recommending VG. To be clear, I was trying to echo the 'low-fee' recommendation and not speak for DA!
Edited by ILikeCake on Tuesday 19th November 09:41
Yup. £1.50 looks really cheap but on a £20 monthly investment it’s a 7.5% up front fee.
The average UK worker is probably putting something like £100-£200 a month into a savings plan. If they are buying two products then that’s what? 1.5-3% in fees on money in?
You can see that micro investing can have its performance totally decimated by the fees. Paying 7.5% on money in, paying the market spread if applicable, paying the ongoing fund fees, however small, plus say some form of ongoing wrapper charge and you start needing 20-30% returns a year, guaranteed, every year to get a better return than just cash in the post office.
Sometimes the cost of converting cash completely decimates the potential upside that you are looking to achieve from making that switch and sometimes it is better to pool all the monthly amounts into a lump sum that ensures the most efficient fee structure and that might not even be annual but possibly even 5!to 10 years worth so as the ongoing charges at the outset do not consume all the potential returns.
Maybe rather than £20/month, or even £240/annum the logical amount is closer to ten years up front of £2,400? where the initial sum is large enough to make the dealing charges near irrelevant but most importantly to be able to generate sufficient returns to cover the ongoing charges of a wrapper?
If the wrapper charge is £24/annum then that represents 1% of the initial but if you’re looking at say 5% annual returns then those charges are 20% of your gain.
So in the case of an ISA you’re paying 20% on your profits to avoid income and capital gains taxes that the child isn’t liable for in the first instance.
I know ISA charges are typically much lower these days but if you are a non tax payer, which in basic terms a child is, why would you pay for a wrapper that you don’t need? How many people in the UK have been sold a wrapper to shelter them from income tax and CGt liabilities that don’t exist for them?
With small amounts of money there is a point at which cash offers the far superior risk adjusted return because of the destruction of wealth caused by enormous fees and charges. You need to calculate the point at which the size of the investment pot overcomes those charges and brings them into being a modest amount that doesn’t impact performance relevantly.
I look at Nutmeg for example and see a machine that is raping someone. Whether it is the client being raped or the investors I don’t know but the individual accounts are so small that they can never be profitable and one of the two parties has to keep covering those fees for as long as there are salaries to be paid and lights to be kept on as there can never be enough investment returns to cover fees and give a return.
The average UK worker is probably putting something like £100-£200 a month into a savings plan. If they are buying two products then that’s what? 1.5-3% in fees on money in?
You can see that micro investing can have its performance totally decimated by the fees. Paying 7.5% on money in, paying the market spread if applicable, paying the ongoing fund fees, however small, plus say some form of ongoing wrapper charge and you start needing 20-30% returns a year, guaranteed, every year to get a better return than just cash in the post office.
Sometimes the cost of converting cash completely decimates the potential upside that you are looking to achieve from making that switch and sometimes it is better to pool all the monthly amounts into a lump sum that ensures the most efficient fee structure and that might not even be annual but possibly even 5!to 10 years worth so as the ongoing charges at the outset do not consume all the potential returns.
Maybe rather than £20/month, or even £240/annum the logical amount is closer to ten years up front of £2,400? where the initial sum is large enough to make the dealing charges near irrelevant but most importantly to be able to generate sufficient returns to cover the ongoing charges of a wrapper?
If the wrapper charge is £24/annum then that represents 1% of the initial but if you’re looking at say 5% annual returns then those charges are 20% of your gain.
So in the case of an ISA you’re paying 20% on your profits to avoid income and capital gains taxes that the child isn’t liable for in the first instance.
I know ISA charges are typically much lower these days but if you are a non tax payer, which in basic terms a child is, why would you pay for a wrapper that you don’t need? How many people in the UK have been sold a wrapper to shelter them from income tax and CGt liabilities that don’t exist for them?
With small amounts of money there is a point at which cash offers the far superior risk adjusted return because of the destruction of wealth caused by enormous fees and charges. You need to calculate the point at which the size of the investment pot overcomes those charges and brings them into being a modest amount that doesn’t impact performance relevantly.
I look at Nutmeg for example and see a machine that is raping someone. Whether it is the client being raped or the investors I don’t know but the individual accounts are so small that they can never be profitable and one of the two parties has to keep covering those fees for as long as there are salaries to be paid and lights to be kept on as there can never be enough investment returns to cover fees and give a return.
This is why (if you choose Vanguard funds add the way to go) the vanguard platform is appealing.
0.15% platform fee on the first £250,000 (drops to 0% after then), low ongoing fund costs, and no purchase fees or charges to move between funds.
They've also recently reduced the ongoing charge fees for many of their funds.
It's just a shame their pension wrapper isn't ready yet.
0.15% platform fee on the first £250,000 (drops to 0% after then), low ongoing fund costs, and no purchase fees or charges to move between funds.
They've also recently reduced the ongoing charge fees for many of their funds.
It's just a shame their pension wrapper isn't ready yet.
Jaguar steve said:
..... I'd like to invest to achieve long term capital growth up to medium risk levels for them.
Any pointers where to start?
Any pointers where to start?
I gifted an asset to be held on behalf of my grandson in February.
Cost was £1,700 and it already has a value of £2,025.
Hopefully growth will continue, but that is a spurt, so cannot expect that rate. Small amount of income has been received in addition.
My method has been successful, but is rather traditional and long-term, so is suitable for very young children where there is likely to be a 20 year investment period. Not popular though with many on this forum, who often suggest pensions and funds for these circumstances.
There are some tax advantages when gifting to grandchildren, which don't apply when parents gift to their children, but only really makes a difference when the sums involved increase.
Edited by Jon39 on Tuesday 19th November 18:15
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