Where to invest for your children

There's a lot to think about when investing for children, so Moira O'Neill asks Fidelity's Maike Currie where to invest money for your young family.

Moira O'Neill, editor of Moneywise magazine, owned by interactive investor:

There are lots of reasons to invest or save on behalf of a child, and parents will know what those reasons are, but what they won't know is the best way to do it.

Maike Currie, Investment Director, Fidelity International:

Well, a very good way to save for a child is via a Junior ISA. The beauty of the Junior ISA is that the money is locked away until your child reaches age 18. Now, unfortunately, that means you can't get the money if you want to use it for something like school fees, but it does enforce a savings discipline.

We did some number-crunching and we found that if you put away £42.50 a week, that's about £194 a month, since your child's born up until the age of 18 ... we assume investment growth of around 5% and we detract fees that you'll pay, your child might end up with a pot of £57,000 when they reach age 18.

Moira O'Neill:

And that's going to be enough, hopefully, to put them through university.

Maike Currie:

That's right. As we know, student fees have been rising, the interest on university fees has been going up, and even if you don't use it for university, you could use that money to help them get a foot on the property ladder, which we know a lot of young people are struggling with.

Moira O'Neill:

Now, £42.00 a week isn't achievable for every family, but you can ask your grandparents or friends and family members to contribute to the Junior ISA as well - because they're allowed to put the money in.

Maike Currie:

That's right. That's a very good point. So you, as the parent or guardian, have to set the Junior ISA up, but once it's set up, anyone can contribute: grandparents, godparents, uncles, aunts, and for grandparents in particular, this could be a good way of mitigating inheritance tax.

Moira O'Neill:

Now, once you've worked out how much you've got to save per week or per month or even per year, then you've got to work out what to put it into. What do you think parents should be choosing as an investment inside the Junior ISA?

Maike Currie:

I do think a lot of parents will be tempted to go for a cash Junior ISA, but as we know, interest rates are at record lows, and your child has a long-term horizon to ride out the ups and downs of the stockmarket, so you can actually afford to take some risk, and what you really want is capital growth.

So investments like emerging markets or equity funds, global equity funds, where you give them exposure to a range of different regions, are good investments. And, of course, the other key thing is, over the long term, costs really do add up, and this is where tracker funds or ETFs have their advantage.

Moira O'Neill:

I've certainly chosen a tracker fund for my own children's investments. I did actually think about choosing active management, where you have the opportunity to increase your performance above a tracker fund, but I thought, I don't know if I want to take that risk on their behalf. I would choose an active fund for me, but I've chosen trackers for them, because I think they've got the time for it to grow, and it's a really useful way of building up regular amounts over time.

Maike Currie

Absolutely, so if you looked at something like a tracker fund that tracked global equity markets, you would be keeping costs low, you could leave it there, forget about it, and you get that exposure to all the different regions, so I think that's a very sensible approach.

Moira O'Neill:

Have you done something for your daughter, Mika?

Maike Currie:

I have in fact set up a Junior ISA for her, I have chosen a global equity fund, and I've also looked at a few trackers, just to keep those costs low. Because ultimately, I want to leave the money there ... I have to leave the money there ... until she reaches age 18, so I want something that's low maintenance and low cost.

Moira O'Neill:

I think low maintenance is the way forward when you're a busy parent; you don't really want to have to spend a lot of time thinking about the investments.

Maike Currie:

Absolutely.

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