48K to invest for children

davidreed113

Two of my neices have inherited £24,000 each. As a trustee I need to place the money where I can get the best return. They are aged 7 and 10. The money is to be theirs when they reach 18. Can you help?

Rafter

Loads of options.

A lot depends on your attitude to risk.

Do you want to invest in riskier but often higher return stock market linked investments or just stick with high interest savings accounts?

Tax shouldn't be an issue since any income is likely to be below their personal allowances until they are 18.

If it were my decision I'd go for a balance of different investments:

Half in stock market tracker funds with low charges.
The balance in savings accounts.

Another thing you might want to consider is premium bonds for some of it? The average prize fund isn't the best return you can get, but your capital is safe and you have the possibility of winning a really large prize.

Hope that helps.

Just be very careful of special 'child savings funds' you are likely to find the charges much much higher than 'normal' investment funds.

R.

deemy2004

As mentioned riskiest are the stock funds but with the most potential.

Safest are the index linked Gov Stock, which will beat inflation with a couple of % on top per year.

Rafter

Robert, it is all about risk and return!

Most pension funds, particularly if you are not near retirement are invested in stocks and shares because the long term returns are better. Just behind that is property (although in the last 10 years property has had the best return). Savings accounts and National savings come at the bottom of the pile.

I tried to suggest some balance, particularly as David wants to invest over 8-11 years.

I wouldn't say this was gambling. It is taking a risk with some of the money yes, but in the hope of making a bigger return on investment.

If the return on the stock market is 6% over 10 years and the interest rate on savings is 4% the £24,000 will grow to £34k in the savings account but £41k in the stock market - quite a difference.

Of course there is a risk that the stock market will fall over 10 years, but it has never happened over that length of time in history.

It is a fact of the financial markets that riskier investments have a higher return over time than less risky ones. That has to hold true otherwise nobody would ever invest in companies and everyone would have their savings in the bank.

R.

dunstonh

When investing in equities, you wouldnt invest into one fund anyway (unless you are foolish). You would spread it over a range of funds with a range of risk areas to suit your views.

When investing it isnt a case of no risk or risk. There is a sliding scale of risk and it is a case of building a portfolio of funds which average out into your risk rating or only picking funds which are in that risk rating. For example, on a scale of 1 to 10, (1 no risk, 10 high risk), you can find products in risk rating 4 and 5 which have some risk but also have capital safeguards. Even at 6/10 you can have some capital safeguards.

Indeed, you can invest in risk 10 and take the high risk but still get your original capital back on death or the value, whichever is higher. Now that product wouldnt be suitable in this case but it shows that risk isnt as clear cut as some like to make out.

Robert_Sterling_3

I am not sure what exactly "Clear Cut" means in respect of risk..

What sort of risk was associated with "Equitable Life" for example before it went pearshaped?

What sort of risk was associated with Endowment Mortgages from Building Societies, "our mutual friends" as Charles Dickens might have called them, before things went a bit pear shaped?

What sort of risk was associated with Pension Schemes before things went pear shaped?

What sort of risk was associated with Tulipomania before things went pear shaped?

What sort of risk do stockbrokers take when they get a % of every transaction ... None?

If Independent Financial Advisers are Independent and charge no fees where do they get their money from?


I think Independent, in this case, has a special meaning.  i.e.  Not dependent on a single company as a source of income but able to fix you up with a choice of suppliers?

dunstonh

What sort of risk was associated with "Equitable Life" for example before it went pearshaped?

If in unit linked funds, you could still be with Equitable life now and be suffering none of the problems that the with profits funds are. Indeed, you could be doing very nicely.

What sort of risk was associated with Endowment Mortgages from Building Societies, "our mutual friends" as Charles Dickens might have called them, before things went a bit pear shaped?

It isnt product that has failed. It was the target growth rate assumed on them at the start that was "adventurous" and the marketing of them that was wrong coupled with a complete change in the way the UK economy performs. The old traditional boom, bust economy made endowments look very good.

What sort of risk was associated with Pension Schemes before things went pear shaped?

Whats gone pear shaped? Ok, you have a large number of final salary pension schemes closing because of the the tax the Govt has taken from them coupled with companies not paying into them as much as they should have done as they thought the stockmarket would always be good. However, that doesnt cover the majority of people.

What sort of risk was associated with Tulipomania before things went pear shaped?

17th century issues are not really relevant today.

What sort of risk do stockbrokers take when they get a % of every transaction ... None?

And what does that have to do with anything? It's your money, you are taking the risk. They are providing the service which is what you are paying for.

If Independent Financial Advisers are Independent and charge no fees where do they get their money from?

From the providers who all pay very similar amounts. It's your choice to pay fees or commission. Not the IFA.

I think Independent, in this case, has a special meaning. i.e. Not dependent on a single company as a source of income but able to fix you up with a choice of suppliers?

If something is not dependent, it makes it independent.

Although if you look at the dictionary meaning, you couldnt really call IFAs independent as you have to be "free from external control and constraint" and "not controlled by a party or interest group". Being regulated by the FSA with all it's rules technically scuppers that.

deepingfox

davidreed113 wrote:

Two of my neices have inherited £24,000 each. As a trustee I need to place the money where I can get the best return. They are aged 7 and 10. The money is to be theirs when they reach 18. Can you help?

Hi there,

I have the same issue as an executor with money to look after for 3 children until they are 18.

Did you get an idea of where to open a bank account?

Some of the replies seemed to go off at a tangent and not remember that the trustee has to ensure the children (in your case) get at least £48K!!

David

dunstonh

The replies are not off tangent. A deposit account cannot be placed in trust (at least not in the normal sense) so is not suitable for this type of arrangement.

In addition, the trustees have a duty to ensure they do the best with the money and placing it on deposit for upto 18 years could be considered inappropriate and leave the trustees open to claims of mismanagement and potential court action in the future.

A low volatility spread of funds in a low cost investment bond would still meet a low risk attitude to risk and if capital security is required, then an appropriate with profits fund could be used.

The trustees do not have to ensure the children get at least 48k. They have to ensure they manage that 48k in the best interests of the children and not their own personal views.

deepingfox

My situation is 3 children (my nephew and two nieces) 8 to 11 yrs, with £1K each left to them by my father in his will.

For this small sum what do you beleive the best suggestion would be (if not child based savings account)?

dunstonh wrote:

The replies are not off tangent. A deposit account cannot be placed in trust (at least not in the normal sense) so is not suitable for this type of arrangement.

In addition, the trustees have a duty to ensure they do the best with the money and placing it on deposit for upto 18 years could be considered inappropriate and leave the trustees open to claims of mismanagement and potential court action in the future.

A low volatility spread of funds in a low cost investment bond would still meet a low risk attitude to risk and if capital security is required, then an appropriate with profits fund could be used.

The trustees do not have to ensure the children get at least 48k. They have to ensure they manage that 48k in the best interests of the children and not their own personal views.