Capital protection & growth - child education savings

El_Selb

A relative of mine is looking to save for the uni education of her young daughters, and I'll also be in the same situation shortly. She is looking for a (near) risk free investment with some growth too - at lease above that of an ISA. What products are best suited to this? Would some type of long dated bond or VLS fund work? Thanks

Linton

How old are the daughters? The longer the investment period the return rate is likely to be higher.
What do you mean by near risk free? You are worried about losing all your money  or you cannot accept that in some years there may be a negative return? The former is easy to avoid, the only way of guaranteeing the latter is to use cash savings in which case your returns may not match inflation.

El_Selb

Daughters are 2 & 7. Essentially the worry is after 11 years (for the elder, presuming she was going to uni at 18) doesn't match the very low returns of an ISA. We know this cannot be guaranteed, but what's the next best up from that in terms of taking on a bit more risk for a bit more reward? I wondered if there are any specialist products for this kind of thing or would you just look at say VLS20 or something?

Linton

11 years should be sufficient to take rather more risk than a savings account.  Individual years may be worse but overall the total return should be much better.  There are investment products that try to maintain a steady-ish positive return every year, but unfortunately they have not always been very successful in doing so.

You could use VLS20 or a similar risk level product from a range of other providers.  That would not be unduly risky nor unduly cautious.

In your position I might consider a somewhat more sophisticated approach.  For the first say 3 years you could put all your savings into a much higher risk (possibility of a partial loss in 3 years) but hopefully much higher return fund in the longer term, possibly equivalent to VLS100 or other general global fund.  Subsequent annual contributions could be made to the best long term fixed rate savings accounts you can find so that after 11 years most of your contributions will be in savings accounts but you should be making worthwhile additional returns from your riskier investments.

El_Selb

Your more sophisticated approach does make complete sense Linton. I guess of there was a product doing a similar thing it would charge you for the privelege, and it actually isn't a complex thing to do manage yourself. Presumably you could open an ISA in your child's name to do this also?

xylophone

 Presumably you could open an ISA in your child's name to do this also?

Both children can have a Junior ISA.  Be aware though that only the child is entitled to access the account at age 18 (and may control it at age 16).

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

https://moneytothemasses.com/quick-savings/parents/best-junior-stocks-and-shares-isa This also shows cash JISA rates.

https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-junior-isa From Vanguard.

Linton

El_Selb said:

Your more sophisticated approach does make complete sense Linton. I guess of there was a product doing a similar thing it would charge you for the privelege, and it actually isn't a complex thing to do manage yourself. Presumably you could open an ISA in your child's name to do this also?

If you go that way you do need to be prepared to keep your nerve through quite possibly high volatility especially as the world recovers from Covid-19.  There are two mitigations: Firstly as you are drip feeding, when prices fall significantly you will get more investment for your money and so benefit further in the recovery. And secondly you are looking at not withdrawing money for 11 years.  If things are so bad that the world hasnt recovered in 11 years perhaps there will be more pressing problems to worry about and in any case you will still have the 8 years of savings.

On child ISAs I have no idea but others will have.

El_Selb

My beautiful daughter arrived two weeks ago 🙃 and having some cash gifts feed through that I want to put away...
My parents would like to the money they gift over her lifetime to be separate from other family gifts. Am I correct thinking I cannot contribute to two different ISAs for her in the same tax year?

xylophone

The JISA can be divided between cash and stocks and shares.

The annual allowance is currently £9000.

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

https://moneytothemasses.com/quick-savings/parents/best-junior-stocks-and-shares-isa

El_Selb

I'm going to open a JISA from my Vanguard account which helpfully looks pretty easy. 
So that the contributions from my parents is ring-fenced from other accumulated savings, I plan to invest in 2 funds for her - FTSE All world index & VLS100 and lower the risk level over time. Guess I could pretty much leave them for 10 years except for topping up. Does this sound like a reasonable approach?

TempUsername56758

Tracker funds are the best low risk option. Read a book called "The Simple Path to Wealth Your road map to financial independence and a rich, free life - Jl Collins"