Child trust fund - terrible growth?

[Deleted User]

I have a son who was lucky enough to have been born when the government was still giving out child trust funds.

We've just worked out that his average annual growth is 4.19%

I get that the markets took a dive due to covid, but they seem to be largely back up now, if I'm reading it right.

He still has a good few years before his 18th birthday. Should we be getting his money shifted across to a junior stocks and shares ISA? 

george4064

Average annual growth of 4.19% being good or bad depends on what investments are held within the CTF.

Im no specialist on CTFs and Junior ISAs, but since CTFs are closed and JISAs still going sounds like a good idea to transfer it.

dunstonh

We've just worked out that his average annual growth is 4.19%

Which could be good or could be bad depending on the level of investment risk you selected when setting this up.   I believe the default option with many of these was medium risk (or sometimes a bit lower)

I get that the markets took a dive due to covid, but they seem to be largely back up now, if I'm reading it right.

What makes you think that it is invested fully in the markets?   Which markets are you referring to?

Should we be getting his money shifted across to a junior stocks and shares ISA? 

The tax wrapper makes no difference to the returns.  It is where it is invested that matters.   You haven't mentioned where it is invested.

Alexland

Beardybaldy said:

We've just worked out that his average annual growth is 4.19%

4.19% is good for what was probably a fairly bland and neglected investment. We have seen some parents who have reported a much lower return barely more than went into the accounts.

Beardybaldy said:

He still has a good few years before his 18th birthday. Should we be getting his money shifted across to a junior stocks and shares ISA? 

S&S investment is only suitable for time periods of more than 5 years preferably much longer so if the money is likely to be spent at 18 ( eg university, car, etc) then it is probably time to move it to a Cash JISA with risk-free rates of up to 2.5% still available. However if the money is likely to be invested for much longer (eg house deposit, wedding, etc) then he could leave it invested for longer however there are probably better products.

[Deleted User]

@dunstonh, to be honest at the time it was setup, we just left the government to get on with it. Rather shamefully, it's taken me over a decade to take finances seriously enough to start digging into these matters.

I have no idea at this time where the CTF provider invested the money, other than 'stocks and shares' (this is what we learned when phoning them having used the government website to track it down).

Now I'm taking finance very seriously, I feel like we should know what's going on, and with that in mind I'm tempted to move it to somewhere more visible, like a JISA. Before I do that though, I want to be sure I've thought it through and made the right decision. If 4.19% is pretty good, I'd leave it there. If it's terrible, I'll move it.

As to risk levels, for my own money, I'm happy to go with Vanguard's LifeStrategy 80. For my kids, I see no reason not to go for a similar or higher risk level for them, given that they'll probably blow it on a crap car or something anyway, but just maybe, maybe, they might reinvest it when they turn 18 and save for something important like a deposit for a house or something. 

xylophone

Consider transfer of CTF to a cash JISA with Coventry and in due course transfer the cash JISA to Fidelity JISA and invest in Vanguard as required?

dunstonh

@dunstonh, to be honest at the time it was setup, we just left the government to get on with it. Rather shamefully, it's taken me over a decade to take finances seriously enough to start digging into these matters.

The Government didnt actually do any of the decision making.  There were a handful of providers and they had different investment options that you could select.   

I have no idea at this time where the CTF provider invested the money, other than 'stocks and shares' (this is what we learned when phoning them having used the government website to track it down).

So, next thing to do is find out how it is invested (and not a generic "in stocks and shares" as that is meaningless) and what alternative funds exist.

Now I'm taking finance very seriously, I feel like we should know what's going on, and with that in mind I'm tempted to move it to somewhere more visible, like a JISA. Before I do that though, I want to be sure I've thought it through and made the right decision. If 4.19% is pretty good, I'd leave it there. If it's terrible, I'll move it.

It is good and right that you are taking an interest.    But before you consider moving out on one contract into another, you should find out what you are moving out of as you could be taking it out of something better to put it in something worse.    It may be that after finding out the information that you are with a provider with just one fund that is multi-asset 40%ish equities.  Or it could be that you are with a provider with a dozen or so funds that include global equity trackers or higher equity mix multi-asset funds and you can switch between the funds.

Some old plans are rubbish.  Some old plans are absolute gems.  So, always find out what you have first in case its a gem.

maxsteam

Don't grumble. You might get 1% or so in a savings account.

Albermarle

We have had posters on here with their fund performing a lot less than 4.19% a year . Usually it turns out the CTF provider was a 'Friendly Society ' . They promote themselves as family friendly , been established 150 years etc but the investments are poor and expensive.

[Deleted User]

Thanks all. I've read and taken on board everything. I think the takeaway for me is twofold. Firstly, the rate of return is not in itself terrible, given that no effort was made (by me) to scrutinise it at the beginning. And secondly, well kind of the same thing really, I need to take finances much more seriously not just on my own behalf, but also for my kids.

I have a second kid that doesn't have a CTF, as he was born after the scheme was closed. So with this in mind, I think he'll be getting a junior ISA, and it kind of makes sense to have both kids accounts in the same place, so it's easier to manage. 

MX5huggy

The Government didnt actually do any of the decision making.  There were a handful of providers and they had different investment options that you could select.  

If you did nothing, as I did then the money was auto invested in a fund selected by the government (or whatever agency ran ran CTF). The choice was too complicated/ paralysis of choice. £250 was not going to be a huge winner I knew I did not want cash so just waited for the government to choose somewhere for the money to go.