Child Trust Fund -stakeholder

We have held and paid into a Child Trust Fund with the Children's Mutual which is part of Foresters since my daughter was born in 2008 paying in around £1200 per annum. However this year the value has slumped in value showing just a £200 increase in value despite the investment of £1200

Online reviews of this provider are bad to say the least so I am looking for advice as to whether I should invest for her elsewhere, pull the money out into a child ISA or stick it out for the long term accepting that investments can go down as well as up.

The current value is £12763



  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Name Dropper First Post First Anniversary Post of the Month
    "investments can go down as well as up" is one of the most repeated phrases in the financial services industry. If you decide to invest your money rather than just save it in a deposit account for a rainy day, you will get periods of ups and downs but overall over 18 years you would expect a better result than leaving it in cash. Cash is great to have, for rainy day spending. When the rainy day is 18 years away (or now, 10 years away) it makes more sense to invest.

    Yet it seems when people buy an investment they just nod along to that warning and then are surprised when their investment goes down as well as up.

    You have been fortunate that the market direction has generally been 'up' for most of the time you've been invested, so it seems like a shock when one year, it isn't, but that is entirely normal. Also, when you had just £1200 or £2400 or £3600 invested, if the investment went down 10 or 20% in a year it would be dwarfed by that year's new contribution of £1200 so your overall balance has still gone up. But now if you have £12500 invested, and it goes down by 10% it could entirely wipe out your new contributions for that particular year. Negative periods are much more visible once you have a decent amount invested. In this case, it has gone down by less than 10% but you are still disappointed and describing it as a 'slump' and thinking of jacking it in.

    In global stock markets, 10% should probably be seen as a minor blip and pretty inconsequential - you can't make an omelette without breaking eggs. 20% might be a 'slump' and 40% is a crash. If it crashes next week or next year or in five years it still has plenty of time to recover before 2028. Going back in history and looking at a 'total return' (capital value plus dividends) chart of the FTSE or other world indices, you can see it is not plain sailing but people generally use stock-market-related investments to grow their wealth over time. That is how the vast majority of us get to retire.

    If you pull it out into a child cash ISA you can kiss goodbye to the potential stockmarket linked returns which you had originally planned to use to going to grow your child's money until they were 18 (accepting that investments can go down as well as up). We don't really know what will happen to the stockmarket over the next decade but the logic you initially used to select an investment CTF rather than a cash CTF is probably still sound.

    If instead you pull it out into a child S&S ISA, you will still be investing and still needing to accept that investments can go down as well as up, and you will need to decide exactly what investment you want to hold with what provider and why.

    Generalising, as CTFs no longer exist for new-borns, the S&S CTF product range from providers is not as wide or as competitively priced as Child S&S ISAs. Your CTF is a basic product with government mandated 'stakeholder' terms - which you don't need, such as the ability to pay in only £10 chunks at a time if that's all you can afford. And there is a cost to that: management fees of 1.5% a year which seems OK when it's only £15 on £1000 invested, but it's closer to £200 a year on the amount you have. Generally 'stakeholder' terms are only good for people with small amounts of money to invest and are seen as a bit outdated by most of the investment profession.

    So, my vote would be to move it to a child S&S ISA with lower fees, invested in a portfolio fund which invests mostly in shares from around the world. There are funds of all different levels of risk. Most providers have some sort of annual platform fee (fixed or percentage based) plus the percentage based costs charged within the fund itself, but you can get it to comfortably under the 1.5% total.

    But if you are generally nervous about investments and a 10 or 20% drop would freak you out, you will not find any suitable investment and should move to a cash ISA for a low but dependable rate of return. Child ISAs often give better rates than adult ISAs as people's child ISAs are pretty small compared to how much per year an adult can put in an ISA, so they offer rates which are higher than inflation in an attempt to win your business.
  • xylophone
    xylophone Posts: 44,607 Forumite
    Name Dropper First Anniversary First Post
    The CTF can be transferred to the more flexible JISA - it is possible to hold both a cash and a stocks and shares JISA.

    Other posters have commented favourably on Charles Stanley.
  • czechmate_2
    czechmate_2 Posts: 11 Forumite
    Thanks for the comprehensive and thoughtful reply.
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