child trust fund

bolino

I would like to set up a savings account for my niece and pay £5 a month into it until she is 18, after which she can spend it. Her parents have a government child trust fund but want to do something separately. I would also like to do this for her brother or sister when they are born. Any advice ? Want to go safe, not risky. Thanks!

dunstonh

Any advice ? Want to go safe, not risky.

At just £5pm you havent got a lot of choice. Investment risk it typically a minimum of around £20pm. So, you will have to go with shortfall risk and inflation risk instead with cash.

grey_lady

I'm also looking to do something similar but probably £25 any suggestions, I was thinking a unit trust fund or a tracker but really not sure?

Reaper

£25pm gives you much more choice. Forgive me for copy and pasting this from a post I made earlier today but the same questions do tend to keep cropping up...

The option I went for was an Investment Trust fund set up as a trust fund. It's not as complicated as it sounds as many of the investment companies will do the setting up of the trust for you for free. You (or the parents) could be the trustees. It is also tax efficient as the child's tax allowances can be used and it normally avoids most inheritance tax if that was an issue. For example:

Baille Gifford - I chose this one
F & C - longest running investment company

grey_lady

Thanks reaper will take a look, I had been looking at the post office/family friendly unit trust as it had been suggested on here but that seems to have bad reviews.

grey_lady

Can I ask why you went for the Baille Gifford plan over the F&C? Think I'm going to take a closer look at both of them, also the Po/family friendly unit trust, and I think HL have one top 200 fund that you can pay £25 a month into, and do some kind of comparison with the hsbc tracker, hhmm, I suspect a crystal ball would also be useful!

dunstonh

Inv Perp and M&G will both drop down to £20pm (two others to consider along with F&C).

grey_lady

The f&c information gives an example of 5.1% growth after charges (6% before) for the Foreign & Colonial Investment Trust through the childrens investment plan.

That doesnt seem all that great, I know 6% is an example but even so - does anyone know if that is typical for this kind of investment? wouldnt a tracker with lower charges outperform that? (although that wouldnt be in a bare trust - hhmm)

Thanks :-)

dunstonh

The f&c information gives an example of 5.1% growth after charges (6% before) for the Foreign & Colonial Investment Trust through the childrens investment plan.

That doesnt seem all that great, I know 6% is an example but even so - does anyone know if that is typical for this kind of investment?

6% is the industry standard rate for non-tax free investments. If the investment has returned 15% a year over 20 years then it still must use a figure no higher than 6% p.a.

wouldnt a tracker with lower charges outperform that?

a tracker tracking what? A gilt tracker, a FTSE tracker, an emerging markets tracker or one of the other many trackers available?

Charges are a secondary consideration not a primary one. Would you prefer 15% after 1.5% paid or 10% after 0.5% paid? You look at how and where you want to invest first then look at charges.

grey_lady

I didnt realise about the 6% being standard for tax-free investments but according to the fact sheet for the f&c investment trust the average annual return over 5 years is 5.74%.

The tracker I was thinking of was a HSBC ftst all share or 250, which i think has charges of 0.54%.

dunstonh

I didnt realise about the 6% being standard for tax-free investments

NON tax free is 6%. Tax free is 7%. Non personalised examples tend to use the non tax free rate.

I didnt realise about the 6% being standard for tax-free investments but according to the fact sheet for the f&c investment trust the average annual return over 5 years is 5.74%.

the last 5 years have included one of the biggest stockmarket crashes for generations (although at a similar level as the tech stocks, you would have to go back much further in time to find a similar one). 5 years is not enough to judge investments. You are not getting a complete economic cycle in there. So, over 5 years the F&C Investment Trust returned 30.13% yet between 16/05/2008 and 06/03/2009 it lost 40.08%. Between 06/03/09 and 23/02/11 it returned 75.27%. This is why you cant look shot term. At worst you have to look medium term or long term. The 10 year period included two major market crashes and returned 49.16%. That was an unusual period where 15 years probably gives you a complete two cycles and 146.52% was returned by the fund.

The tracker I was thinking of was a HSBC 250 one which i think has charges of 0.54%.

With the HSBC 250 fund. with it being higher risk, the fund tends to be better in growth periods and worse in negative periods. A balanced index average has a volatility score of 9.89. The F&C investment trust is 13.9 but the HSBC 250 ETF is 20.82