Teenager with lump sum to invest

mumof3_2

Just a bit of background to my query - when my son was born I started saving £25/month into Invesco Perpetual's High Income Fund on the advice of a financial adviser. With my limited financial knowledge, the fund always seemed to be rated highly so I opened similar accounts when my daughters were born. Feeling particularly flush one year, I doubled his investment to £50/month from his 12th birthday and have followed suit with the girls. Apart from this, the accounts have remained untouched, with the plan being to stop paying in on their 18th birthdays (so I can put something away for me).

Next month my son turns 18 and his fund is worth about £17,500, not life changing, but a decent sum for someone his age. He is happy to be guided by me as to what he should do with it and agrees that it should be tied up for at least 10 years to possibly use towards a deposit on a property. How he ties it up is where I get stuck and would appreciate some advice. I will happily research individual funds for him, but I have no idea where to start.

In your, knowledgeable opinions, what sort of fund(s) should he be looking at? Is he better spreading it around a bit to spread the risk and, if so, how do you decide the split? As he is prepared to tie it up for a moderate length of time, I think he can take a moderate risk with it rather than playing completely safe, but I don't want to risk him losing it all. Would he be better investing the whole lump sum at once or drip feeding from his regular savings account? As a non tax payer, is there any benefit to investing through an ISA?

Or, having read this and realised how ignorant I am, do you think we would we be better biting the bullet and paying a financial adviser to do the hard graft for us? I'm happy to do this if my son is likely to get better returns in the future, I'm just too tight to do it automatically without at least exploring the possibility of doing it ourselves.

TIA

[Deleted User]

Hi,

you don't need to take it out of IPHIF, just stop making the monthly payments.

Linton

In random order

1) One reason to use an ISA is the easily avoided possibility that he could exceed the capital gains tax allowance if he invests in a mid or high risk fund. Another is that he wont need to keep tax records. Perhaps the main reason is that having the investment in an ISA doesnt cost anything so he might as well.
2) £17500 is probably much to small to interest an IFA except as a favour. An economic fee could look very expensive as a %.
3) 10 years is on the short term side for serious investing. However a reasonably cautious broadly based fund could be appropriate.
4) Does he understand that investments can fall at times? Or will he blame Dad for throwing away his money?
5) If you want to see cautious funds look on Trustnet perhaps at the 20%-60% Mixed Investment sector. Or perhaps better, get him to look at it.
6) The general view here is that if you have a lump sum drip feeding is not the best approach. Put it all in at once so you get the maximum time in the market. Of course there could be a fall but that could happen at any time over the 10 years. And on the other hand by drip feeding you could miss out on a rise.

mumof3_2

[Deleted User] wrote:

Hi,

you don't need to take it out of IPHIF, just stop making the monthly payments.

That is definitely something I was considering as I'm happy with the return on it, I just wanted to make sure we weren't missing other opportunities.

mumof3_2

Linton wrote: »

In random order

1) One reason to use an ISA is the easily avoided possibility that he could exceed the capital gains tax allowance if he invests in a mid or high risk fund. Another is that he wont need to keep tax records. Perhaps the main reason is that having the investment in an ISA doesnt cost anything so he might as well.
2) £17500 is probably much to small to interest an IFA except as a favour. An economic fee could look very expensive as a %.
3) 10 years is on the short term side for serious investing. However a reasonably cautious broadly based fund could be appropriate.
4) Does he understand that investments can fall at times? Or will he blame Dad for throwing away his money?
5) If you want to see cautious funds look on Trustnet perhaps at the 20%-60% Mixed Investment sector. Or perhaps better, get him to look at it.
6) The general view here is that if you have a lump sum drip feeding is not the best approach. Put it all in at once so you get the maximum time in the market. Of course there could be a fall but that could happen at any time over the 10 years. And on the other hand by drip feeding you could miss out on a rise.

1) Conversely, are there any disadvantages to using an ISA?
2) Fair play, I've never been in a position to invest anything myself, other than these 3 accounts for my children, so have no experience.
3) He is not looking on it as a serious investment, merely the best place to 'store' it until he needs it. It could be much longer than 10 years, but I hope he'll be moving out by the time he's 28!!
4) We have discussed that possibility, he understands it as much as any 18 year old. I'm more than happy for him to blame dad, I'm his mum!! :rotfl:
5) & 6) Thank you

[Deleted User]

Hi,

Linton wrote: »

6) The general view here is that if you have a lump sum drip feeding is not the best approach. Put it all in at once so you get the maximum time in the market. Of course there could be a fall but that could happen at any time over the 10 years. And on the other hand by drip feeding you could miss out on a rise.

it's been an 18 year drip feed for the op so far, and no doubt she has experienced many up and downs, though the final figure looks good.

Thing is, market is at a record high just now, so maybe not the best time to lump sum, but then again, when is?

mumof3_2

[Deleted User] wrote:

Hi,


Thing is, market is at a record high just now, so maybe not the best time to lump sum, but then again, when is?

I've been told by IP that I can't simply change the name on the fund, my son would have to open a new one in his name. Would he be better only reinvesting a much smaller sum, then dripping feeding the balance back in? In which case where to put the balance in the mean time? An ordinary savings account?

Linton

mumof3 wrote: »

1) Conversely, are there any disadvantages to using an ISA?
2) Fair play, I've never been in a position to invest anything myself, other than these 3 accounts for my children, so have no experience.
3) He is not looking on it as a serious investment, merely the best place to 'store' it until he needs it. It could be much longer than 10 years, but I hope he'll be moving out by the time he's 28!!
4) We have discussed that possibility, he understands it as much as any 18 year old. I'm more than happy for him to blame dad, I'm his mum!! :rotfl:
5) & 6) Thank you

1) No disadvantage with using an ISA if you can.
3) The trouble with long term "storage" in a standard bank account is that it could well lose significant value because of inflation over the longer term. So you have to run a bit just to stand still.

[Deleted User]

Hi,

mumof3 wrote: »

I've been told by IP that I can't simply change the name on the fund, my son would have to open a new one in his name. Would he be better only reinvesting a much smaller sum, then dripping feeding the balance back in? In which case where to put the balance in the mean time? An ordinary savings account?

so the fund is in your own name rather than you paying in over the years 'for the benefit of son', that could then be transferred into his name at a certain date?

Were you getting accumulation units or income units, I suspect accumulation units considering your intentions.

My thinking is that if you/he cashes in now and buys back there won't be as many units, because he will be buying at today's price, and as dividends are ??? pence per unit, return will be reduced.

(Hope that makes sense, I know what I'm trying to say.)

mumof3_2

Linton wrote: »

3) The trouble with long term "storage" in a standard bank account is that it could well lose significant value because of inflation over the longer term. So you have to run a bit just to stand still.

Thank you. Hence my original question, it may not be much in the overall scheme of things, but if the money is not going to be needed for a period of time, it might as well work as hard for him as possible.

My other concern with keeping it in a savings accounts is that it will be a bit too easy to access...

You have certainly given me something to think about and look into.

Flugelhorn

is he going into higher education? if so might just need the money now