help with child trustfund!

kirsty1981

I have 2 sons both have accounts with the halifax. I put thier £250 voucher in the accounts and have been paying £10 a month into each account...... got statement today and they now have £240! less than what they started with! do I leave it where it is and pray it starts making money for them or cut our loses and switch the accounts to a savings no risk account? please help!!!

dunstonh

less than what they started with!

as you would expect. Nothing wrong with that though.

do I leave it where it is and pray it starts making money for them or cut our loses and switch the accounts to a savings no risk account?

Investments zig zag in value. Always have, always will. You get good years and bad years. 2008 was a bad year for money already invested but a good year for regular payments (at least the end part was). 2009 should be a good year for long term investments as well, although short term is still volatile.

Savings accounts do have risk. You have shortfall risk and inflation risk. Savings rates tend to give very little or no capital growth in real terms. So, sticking it in there will give the child £240 in real terms later in life. Given the small value involved, it makes sense to utilise investments as at least you stand to make some real capital growth potentially and if not, its not going to be much of a loss.

kirsty1981

dunstonh wrote: »

as you would expect. Nothing wrong with that though.


Investments zig zag in value. Always have, always will. You get good years and bad years. 2008 was a bad year for money already invested but a good year for regular payments (at least the end part was). 2009 should be a good year for long term investments as well, although short term is still volatile.

Savings accounts do have risk. You have shortfall risk and inflation risk. Savings rates tend to give very little or no capital growth in real terms. So, sticking it in there will give the child £240 in real terms later in life. Given the small value involved, it makes sense to utilise investments as at least you stand to make some real capital growth potentially and if not, its not going to be much of a loss.

thanks. I have cancelled my direct debits to those accounts and am going to set up direct debits to their savings accounts. I'll leave the £240's where they are and see what happens. do you think thats the right thing to do? I really appreciate your help, thanks again

winenwhine

I've just opened 2 of the Halifax child regular savers account - they give 8% interest, but...
max of 100 pcm and 1200 per year, but a child can have lots of these accounts opened for them by different adults.

dunstonh

I have cancelled my direct debits to those accounts and am going to set up direct debits to their savings accounts.

That is basically the reverse of what you should be doing. You bought high with the £250 and now its low and when you should be buying (especially on a monthly) you are stopping and putting it into cash which was higher when you started but now lower.

The stockmarket is back to around 2005 prices. You get events like this on average once every 7 years. You take the bad years and the good years and average them out. You dont just pick the good years or the bad years in isolation and make decisions on that basis. No-one enjoys a drop in the markets but they happen. For you when buying monthly with 16-17 years to go, then this is actually a very good thing to happen. Even if it looks bad now.

kirsty1981

dunstonh wrote: »

That is basically the reverse of what you should be doing. You bought high with the £250 and now its low and when you should be buying (especially on a monthly) you are stopping and putting it into cash which was higher when you started but now lower.

The stockmarket is back to around 2005 prices. You get events like this on average once every 7 years. You take the bad years and the good years and average them out. You dont just pick the good years or the bad years in isolation and make decisions on that basis. No-one enjoys a drop in the markets but they happen. For you when buying monthly with 16-17 years to go, then this is actually a very good thing to happen. Even if it looks bad now.

oops! so I should carry on with my direct debits into the trust fund accounts? as you can tell I have no idea about these things! I did expect them to lose money with how things are at the moment, but I wasn't sure what to do for the best. should I set the £10 a month back up now or wait untill things get bettr or what? lots of thanks again x

dunstonh

If you wait for things to get better, the unit price will go up and you would have missed out on buying those units cheaper. The markets will recover before the recession is showing signs of recovery. It could be up around 30-50% before you see things improving on the news.

Many people make the mistake of waiting until its gone back up and reinvesting. Just in time for it to go back down again. With your monthly payments, you average out these ups and downs and bad periods are good for long term regular contributions and only really bad for those that want their money out now and cant wait.

JayZed

Dunston (as usual) gives good advice, Kirsty.

By investing you are basically buying "units", which go up and down in value (hopefully up, over the long term). Value is, in effect, the same as price. The value of these units is currently low, which means they're cheap - so now is the time to buy them (i.e. put money into the investment).

The important thing to remember is that this is a long-term investment (18 years, as it's a Child Trust Fund). As long as you are buying the units - i.e. putting money into the fund - then it's better for the value (price) to be lower. It's only when you come to sell the units (presumably when your sons turn 18) that you want the value to be high.

kirsty1981

Thank you so much, I didn't understand that whilst I'm paying in each month I was buying shares I thought that the money I had paid in was lost, I understand now that the £10 each a month has been buying shares at a low value, but when things get better the value of those shares will rise? so I will re-set up the direct debits again?
Thanks again, I really think that they should offer advice for people when they recieve their childrens vouchers, everyone I know and who I have spoken to (apart from you) don't really understand them.
thanks again you've really helped, I was worried I'd messed up! thanks x