Best long term investment for child?

Reaper

Smudger78 wrote: »

Investment vehicle - A unit trust savings plan has been suggested, benefits of pound cost averaging explained and I've also been advised to designate it in my childs name so we have full control of it.

Yes designated gives you full control as it means it remains your money for tax purposes. You are just saying you plan to hand it over in the future.

Tax - Advised unit trusts don't attract income tax

Not stictly true. Income gained by the fund is tax at 10% and is unavoidable. Non-taxpayers can not reclaim it, basic rate tax payers have nothing more to pay, higher rate tax payers have to pay extra. However some types of funds, such as those that invest in small companies, tend to pay little or no dividends and hope for growth in the share prices instead. Perhaps this is what he means?

and at levels we would be investing we would not atract capital gains as we wont reach annual capital gains exemption of £10,100.

The exemption is from when you bought to when you sold. So if you keep it for 10 years you can only use 1 year's exemption, not 10. So keep an eye on it - if the growth threatens to exceed the thresholds you might need to take action such as buying and selling to use up capital gains allowances.

Low Operating Costs/Fee's (Verbatim) - Better performing investment funds do tend to be the more expensive ones and would probably result in an annual charge of 1.75% approx. Also the difference between the offer and bid price of units does mean that there is an initial cost of about 5% of the investment.

I'm not sure there is much correlation between the size of the charges and performance. It has more to do with the greed of the fund managers. In theory popular funds attract more investment which means they get more from their % charges and could afford to lower them, but sadly giant funds are just as likely to have rip-off charges as small ones.

I went for an Investment Trust rather than Unit Trust because the charges tend to be lower, not least because they do not spend money advertising their funds and do not pay advisors any commission.

CTF's - Previous Govt introduced CTF's as low cost alternativ but as providers are limited in their charges veyr few of better performing funds have made themselves available. Advice is to use the CTF to invest theGovt contribution but use a better performing fund for any additional contributions.

I guess it depends whether you find a fund you want to invest in from what was on offer. I did.

Fund Choice - To keep risk at an acceptable level target UK funds only so we dont need to worry about currency fluctuations. Particularly recommends Special Situations and Recorvery funds.

Both are higher risk as they try to spot out of favour opportunities. Not saying higher risk is a bad thing, particularly over the long term, but goes a bit against the low risk currency angle. Actually in my view investing in a single debt ridden country is higher risk than apreading an investment worldwide so I wouldn't really even call that low risk.

i did mention some of the options and products we have disussed on here but haven't got any specific comments back in this respect.

Probably because my suggestion would not pay the IFA any commission unless you are on a fees basis!

Any thoughts you all have on the above would be appreciated!

Those are just my thoughts. There are not really right and wrong, just differing opinions on what will work out best.

If you are making regular contributions over a long period of time then he is right that pound-cost averaging means current market turmoil is pretty irrelevent.

atush

I hold investment trust savings plans in f&C, Witan, and Invesco perpetual. One (the Witan one) is in a discretionary trust for my 3 boys. One of whom is now 20 and i still control the plans.

I think overall, I like F&C best due to the number of different trusts you can choose (although invesco has a fair few as well) from the old time general trust, to Grpahite private enterprise to Chinese Special Situations. But I am happy with all 3 really. One of the best things I ever did was starting these up (and incresing them) when I had a bit of spare cash each month after pay rises etc. You don't really notice it coming out right after payday and even 50 quid a month (one of mine started with 20 per month) can really add up quickly over time esp with dividends reinvested, and pound cost averaging.

They aren't in isa's but you can easily liquidate in stages so as to not pay capital gains tax.

Smudger78

Reaper wrote: »

Yes designated gives you full control as it means it remains your money for tax purposes. You are just saying you plan to hand it over in the future.
Not stictly true. Income gained by the fund is tax at 10% and is unavoidable. Non-taxpayers can not reclaim it, basic rate tax payers have nothing more to pay, higher rate tax payers have to pay extra. However some types of funds, such as those that invest in small companies, tend to pay little or no dividends and hope for growth in the share prices instead. Perhaps this is what he means?
The exemption is from when you bought to when you sold. So if you keep it for 10 years you can only use 1 year's exemption, not 10. So keep an eye on it - if the growth threatens to exceed the thresholds you might need to take action such as buying and selling to use up capital gains allowances.
I'm not sure there is much correlation between the size of the charges and performance. It has more to do with the greed of the fund managers. In theory popular funds attract more investment which means they get more from their % charges and could afford to lower them, but sadly giant funds are just as likely to have rip-off charges as small ones.

I went for an Investment Trust rather than Unit Trust because the charges tend to be lower, not least because they do not spend money advertising their funds and do not pay advisors any commission.
I guess it depends whether you find a fund you want to invest in from what was on offer. I did.
Both are higher risk as they try to spot out of favour opportunities. Not saying higher risk is a bad thing, particularly over the long term, but goes a bit against the low risk currency angle. Actually in my view investing in a single debt ridden country is higher risk than apreading an investment worldwide so I wouldn't really even call that low risk.
Probably because my suggestion would not pay the IFA any commission unless you are on a fees basis!

Those are just my thoughts. There are not really right and wrong, just differing opinions on what will work out best.

If you are making regular contributions over a long period of time then he is right that pound-cost averaging means current market turmoil is pretty irrelevent.

Ok thanks. Have to say all things considered I am still swaying towards the F&C Investment Trust option rather than a Unit Trust. The point you confirmed on Pound Cost Averaging and it's benefits - does this also apply to Investment Trusts (ie: do they benefit from PCA)?

Smudge

atush

did you read my post 23? If so , then yes. Any investment you add to monthly over time will have pound/cost averaging as an advantage.

Which is just a way of saying that if and whn the market falls (such as recently and in 2008/09 etc) then you buy more units/shares with your monthly investment than you do when the price is rising.

for instance say you invest 100 a month. and the share price is 2. So you go along buying 50 units/shares per month. But if the price drops to one, you may worry your shares have lst 50% of their value. But in the meantime you get 100 shares per month. And when, i an year or 2, whrn the price if up back to 2(or even 3 as happens) then you have more shares that shoot up in value than you would have had the price stayed at 2 the whole time.

Then you can add in the reinvesting of dividends (rather than getting them in cash) and then you have even more shares ;-)

Smudger78

atush wrote: »

did you read my post 23? If so , then yes. Any investment you add to monthly over time will have pound/cost averaging as an advantage.

Which is just a way of saying that if and whn the market falls (such as recently and in 2008/09 etc) then you buy more units/shares with your monthly investment than you do when the price is rising.

for instance say you invest 10 a month. and the share price is 2. So you go along buying 50 units/shares per month. But if the price drops to one, you may worry your shares have lst 50% of their value. But in the meantime you get 100 shares per month. And when, i an year or 2, whrn the price if up back to 2(or even 3 as happens) then you have more shares that shoot up in value than you would have had the price stayed at 2 the whole time.

Then you can add in the reinvesting of dividends (rather than getting them in cash) and then you have even more shares ;-)

Hi Atush,

Thanks for the advice and your previous post. After weeks of researching and a bit of dithering I've filled out the forms tonight and ironically having decided to get IFA have ended up going with what I was thinking of in the first place (ie: An investment trust with F&C). I'm splitting the investment across two trusts, one core trust which is supposed to be less risky (British Assets) and one which is a bit riskier but comes with higher potential rewards (Global Smaller Companies).

From the very beginning I was looking for something over a long period could make really good returns and was willing to live with some risk for this potential reward. In my mind this always meant some element of global investing so the IFA advice to stick with British Funds only just doesn't sit well with me. I understand that you are dealing with to some extent the unknown with foreign co's/markets however for me the point of using an investment trust is that the people who run it and manage your investment are experts in their field so you don't need to be.

Thanks everyone for your advice.

Smudge

atush

I also invest in F&C. I save into the general one, and into graphite private enterprise.

But the F&C main trust isn't just british assests. from their home page:

• Founded in 1868 – the first ever investment trust
• A diversified portfolio provides exposure to most of the world’s stock markets
• Invests in more than 540 companies in 31 countries

This might prove a better investment than the British assets trust as that is all your eggs in one basket (ie Britain). Given we live and work and own our house in Britain I feel we are very exposed to the british market anyway so like to diversify a bit with my investments. I really don't like to have all my eggs in one basket ;-)

terryw

Without a doubt, loving, caring and sensible parents.

jimjames

Smudger78 wrote: »

Ok thanks. Have to say all things considered I am still swaying towards the F&C Investment Trust option rather than a Unit Trust. The point you confirmed on Pound Cost Averaging and it's benefits - does this also apply to Investment Trusts (ie: do they benefit from PCA)?

Smudge

Any investment you buy monthly will benefit from PCA, it doesn't matter what that investment is as long as the price varies month by month.

There is also a variation that can be known as Active Pound Cost Averaging which means when the market dips as it has done recently that you increase your payments to get even more units or shares.

I've held IT shares since my eldest was born 11 years ago, there have been dips and troughs but overall both the F&C and Aberdeen plans have done very well especially considering how the main index has done in that time.