Investment for niece

VT82

I asked my sister what to get my niece for her 1st birthday. She said she will be getting enough toys and presents, and I should get her something typically 'me', i.e. some kind of investment. She suggested premium bonds.

I've never held my own premium bonds, and have only ever held savings rather than investments. It feels like the best thing I could get for her, seeing as the investment will have 20 odd years to run, would be some kind of investment.

I would want to stick in, say, £100 now, and then £50 on each birthday and Christmas. I know that Junior ISAs and Premium Bonds can only be opened and adminstered by a parent, guardian or grandparent. I would also like to avoid J-ISAs for the 'guaranteed access by the child at 18' aspect.

Can anyone recommend a low cost long term equity investment I could make use of that would accept these small amounts? (wrapper, provider, fund, whatever I'd need to know) It would be particularly helpful if it was a 'lifestyle' type one that would de-risk for the last 5 or so years, although I guess I could sort that out myself if I had control of it.

Thanks in advance.

bowlhead99

Good choice to avoid premium bonds over a long timescale - the returns they will pay on average (if you aren't unlucky with prizes) is near cash, rather than near equity. With £100 you would expect to win exactly once in twenty years, with a 96+% chance that it would be only £25.

Granted, you'll be upping the size of the pot with annual small contributions (if you can even buy in denominations as low as £50) but basically the return of 1.5% (presuming you play long enough to win the jackpot - every 446 million months at current payout levels...) is just like cash and so not suitable for a long term goal.

Meanwhile equities over 20 years (historically) would hopefully be more like 5-7% annualised, or at least inflation plus something. So good call on going for a shares-based investment.

You have two issues :
1) It's pretty inefficient to make equity investments when your average contribution is £100 a year (effectively, 8 pounds a month). Nobody in the market is really offering plans of that small size (or one off contribtions of as low as £50)

2) And if you don't want it owned by the child because of access at 18 (JISA is zero tax, or "bare trust" is basically owned beneficially in their name so profits will be covered by their own annual allowances and they can withdraw it at 18) you will get taxed as if it were your own. If you're only a basic rate taxpayer there's no further tax to pay on dividends, and any capital gains tax on these low amounts would easily fit within your annual allowance, so this may be a non-issue for you.

To be honest, I'm not sure what sort of person would be willing to put away 100 a year (inflation adjusted?) and then NOT give them the 1800 quid when they turn 18. How badly do you expect them to have been parented that they would be unable to handle such a sum - which today would buy them driving lessons and an old banger (but no car insurance), or 35 quid a week of uni spending money for a year?

You mention you have no investments of your own so you have plenty of spare 'stocks and shares isa' allowance, although as mentioned above, an ISA wrapper is probably only relevant if you're high rate taxpayer yourself.

What I would do, if I absolutely couldn't put more away for the child than 100 a year, is just invest for myself knowing a portion of the pot is going to go to the child. So say if you put £80 a month into a plan, say 10% of it is for the child. Show your sister/brother the statement every year or so, and tell them to knock a zero off the total and that's what you've set aside so far for their child for an awesome 18th or 21st present. The rest is yours as part of your long term financial plans.

If that amount per month is still too high, you can find investment trust plans with no annual administration fee that accept one-off contributions of £250, in which case you could do that once a year and say 40% is the child's, same principal as above. Yes it locks up £150 of your own cash, but I presume that's not a bad thing for your own long term financial goals and you are probably smart enough having been on here long enough, to be able to find £150 from somewhere once a year to put away for your own future.

Linked below a couple of Aberdeen Asset Management investment trust plans. Aberdeen has a range of funds to pick from - for a 20 year view I would say just get a global one, or if looking at UK funds, a 'smaller companies' one might be give more growth than the average FTSE tracker, or if you fancy something more exotic you could even pick something that invests in smaller Asian companies.

This plan could be designated for the child and has a minimum lump sum of £150 (a bit more than you were hoping to spend)
http://www.invtrusts.co.uk/aam.nsf/InvestmentTrusts/investchildren

The grown-up version has a minimum lump sum of £250 or ongoing contributions of £100pm
http://www.invtrusts.co.uk/aam.nsf/InvestmentTrusts/investshareplan

They also have an ISA version if you needed a tax wrapper for yourself but their minimum lump sums are higher so if you didn't really want to put anything in for yourself, it would be prohibitive.

Obviously other choices are available - until recently F&C were a good equivalent choice but they now have an annual admin fee which would be painful at your small investment levels. A bunch of the fund supermarket places allow monthly subscriptions at reasonable levels (still quite a lot more than £8pm) but they have such a bewildering array of options for a newbie, thus my suggestion of going direct to Aberdeen and picking from their more limited list which have served [hundreds of?] thousands of people well over the years.

jackyann

Also worth pointing out that the JISA remains tax free as long as you don't withdraw money.
So, depending on the new adult's financial position, were she to leave it in place, she will carry on getting tax-free interest, which might be useful further down the line - say when she needs a house deposit?

However, I would add - again, depending on the family's general financial situation - that having that money available for a future special occasion might be very valuable. Someone I know was able to use savings to finance an educational trip abroad, which helped him academically, so set him up for life.

VT82

Thanks for the advice so far.

Bowlhead, you're totally right about the Junior ISA thing. I hadn't really thought about it like that. I just discounted it because when I was talking to my sister about her long term savings plan for her daughter, which will end up being considerably greater than mine I'm sure, she baulked at that particular facet of it. But when the sum is smaller as you point out, it shouldn't be a problem.

I don't like the idea of earmarking some of my own S&S allowance for this purpose. I expect to use this myself once I know where I stand in terms of getting rid of my excess cash getting on the next rung of the housing ladder. And I also expect to have my own kids, so would want anything I give to my niece to be ring-fenced, which would be much easier in her own account.

I'd also want flexibility; this isn't supposed to be a regular savings plan, it's supposed to be a present, that can work as an ongoing 'go-to' present. Some years I'll want to give her material presents instead of (some of the) savings. My niece is also the first grandchild (and great-grandchild!), so everyone is wanting to help out with savings etc., but if I have triplets myself, my priorities might change lol.

With this in mind, would there be JISA's that would accept the smaller amounts we're talking about? If not, I'll definitely look into your suggestions.

Thanks again.

atush

The aberdeen LS sounds good for this and next year. In 2/3 years time you could whack in another 100 etc. I have their Asian Smaller companies trust, and it has done spectacularly well even in these last 5 turbulent years.

Another option, is looking at the range of trusts at invesco perpetual. They have contributions as low as 20 per month. Not sure abt their LS requirements. If you contributed one year, that would be 3 years or so of contributions and you could take a 'holiday' and restart later or add LSs.

xylophone

http://www.sit.co.uk/products/investing_for_children/features/questions_and_answers/

Explanation of difference between designation and bare trust here - £25 a month is only £300 a year - might suit?

bowlhead99

I think there are some Jisas that allow quite small contributions but still not as small or as infrequent as you want. As a random example, Legal and General is a 30 quid pm direct debit, most are same or higher. Family Investments do a tenner a month but only as a direct debit commitment and if you wanted to start it off with a one off lump you would need £500.

Bottom line, on a hundred quid investment they are only taking management fees of a pound or so a year, and when you consider the admin of creating the account in the first place, ID verification, HMRC reporting and compliance, ongoing statements and customer service, it can't possibly be anything other than a loss leader for the fund management groups at that price.

Another thing to consider is that like adults, children can only be contributing to one S&S isa in a particular tax year. So if you set one up just for your private, paltry contributions (no insult intended), you scupper the opportunity for the parent and grandparents and any other aunties and uncles etc.

Personally, for economies of scale, I would keep it your own assets and just do something yourself as part of your own planning (and it's hardly a hardship to set aside £50-100 of your own annual £11k allowance for the child, or pay the tax if any on the small income it generates outside an ISA wrapper). You should be thinking about having some sort of investments plan yourself, even if very small - and even as a prospective house buyer- as your own kids may thank you when it buys a family holiday 16 years from now.

And remember that your own kids, should they happen, will come with plenty of Jisa allowance of their own if needed for their own goals.

VT82

I wouldn't stop other people contributing to the JISA just because I'd set it up. I think my sis would be happy enough with me having done the research to set it up, and got the ball rolling with a deposit.

At the moment, I think she is using the Halifax kids regular saver for all of the savings she is given for her daughter. The first of these must be maturing soon.

So, new plan, as my 1st birthday present to my niece, I do the research, and make the initial deposit on a S&S JISA. I convince my sis to use money from the matured reg saver to drip-feed £25 pm into the JISA so that a provider will see it as worthwhile. The 'convincing' should be easily done bearing in mind that it's universally agreed that equity investments are the best choice over this time frame. Yes, she'll have access to it at 18, but it's only £300 per year of what would have been saved for her outside of the JISA wrapper, so that shouldn't be too much of an issue. And it'll all be tax free at 18 as jackyann points out.

I can then top it up for Christmases and birthdays in the future. My sister can also top it up with other people's birthday/Christmas money, or money from maturing reg savers, if she so chooses.

With that in mind, does anyone have a recommendation for S&S JISA provider that will allow £25 p.m. deposits? (i.e. the complete opposite of my initial request!)

Thanks!

VT82

Micro update:

She's very happy with this plan, and would like the JISA to be the one that will allow the lowest monthly investment (to maximise flexibility). Also, the first of the Halifax reg savers has matured (I'm a bit late with this birthday present!), so there's no worry about getting the opening balance to say £250 even if I was only going to put £100 in for her birthday.

I'm guessing there's no MSE guide on this because it's a S&S investment, so realy open to the best JISA provder you can recommend with these parameters.

Thanks.

Ark_Welder

Baillie Gifford operate a children's savings scheme, but not a JISA. No annual charges or purchase costs (except stamp duty), £25pm minimum and £100 lump sum minimum.

http://www.bailliegifford.com/individual-investor/how-to-invest/investing-for-children.aspx

A smaller range of trusts than some other houses, but some reasonable generalists.

xylophone

https://www.gov.uk/junior-individual-savings-accounts/overview

The JISA can be split between cash and stocks and shares if required.

And with regard to the Halifax, if the "registered contact" (child's parent normally) has an ISA with them, the 6% is available on the JISA.
http://www.halifax.co.uk/isas/ Scroll down to "children's cash isa".