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  • FIRST POST
    • MSE Guy
    • By MSE Guy 24th Feb 12, 10:13 AM
    • 1,628Posts
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    MSE Guy
    MSE News: Junior Isas: should parents choose cash or shares?
    • #1
    • 24th Feb 12, 10:13 AM
    MSE News: Junior Isas: should parents choose cash or shares? 24th Feb 12 at 10:13 AM
    This is the discussion thread for the following MSE News Story:

    "Parents can choose cash or gamble on the markets with an equity Isa. John Chapman, TQ Invest MD, explains the options ..."

Page 1
    • Pinner Ram
    • By Pinner Ram 24th Feb 12, 10:43 AM
    • 49 Posts
    • 42 Thanks
    Pinner Ram
    • #2
    • 24th Feb 12, 10:43 AM
    Of relevance to many people?
    • #2
    • 24th Feb 12, 10:43 AM
    Nothing against TQ Invest, but surely the most important step for all parents (if they are financially able to do so) is to maximise their own use of tax free shelters (ISA, SIPP, maybe VCT) in their own name before they take out a junior ISA for the kids?

    PR
  • jamesd
    • #3
    • 24th Feb 12, 12:13 PM
    • #3
    • 24th Feb 12, 12:13 PM
    Any chance of MSE not condemning investing up front by using a highly negatively emotionally loaded word like gambling in "to gamble on the markets"? If MSE does want to use a word with negative emotional loading "speculating" would be a somewhat better choice because:

    investing: the long term trend is profits with variation in capital values along the way for investors.
    gambling: the long and short term trend is losing for gamblers.
    speculating: results are mixed but it implies higher risk than necessarily involved in investing.

    If MSE doesn't want to use a word with negative emotional loading "investing" is an alternative.

    Anyone comparing investments with savings should note that investment returns are quoted after the costs have been deducted, just as savings account interest rates are. The difference is that the savings costs aren't disclosed and that you can manage the costs to some extent by choosing where you put the investment money.

    Be sure to use an appropriate view of risk for the child, not for yourself. You may be cautious but that's not an appropriate approach for a newborn with at least 18 years to go before they can get the money.

    One of the sad facts of finance is that poorer parents are more inclined to use cautious approaches that make them and their children worse off long term. Do try to avoid this if you can when making long term choices for what to do with the money of the children. With your day to day finances you may have no choice but to be cautious.

    Pinner Ram, it often will be best to use the allowances of the parents but the JISA has the possible advantage that it is owned by the child. This means that it is protected from bankruptcy of one or more parents. I haven't investigated its effect on means-tested benefits but assume that the child's name offers an advantage there as well. This isn't free because from the age of 16 he child can take control of the account if they wish, though not take money out until 18. Those ages may be contrary to the wishes of the parents for the money.
    • jimjames
    • By jimjames 24th Feb 12, 12:18 PM
    • 13,234 Posts
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    jimjames
    • #4
    • 24th Feb 12, 12:18 PM
    • #4
    • 24th Feb 12, 12:18 PM
    Maybe your own ISAs before Junior but I really can't see why you'd save into a SIPP rather than Junior ISA as they are totally different things.

    If you need funds to help kids at uni or buying first house/car then money put into a SIPP is not going to help at all.

    Back to the original question I think it should be S&S all the way but somehow doubt that many people will do that. All the headlines you see are about the risks of the stock market, none show how compounded returns over 18 years have done compared to cash as it isn't a news story.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • Pinner Ram
    • By Pinner Ram 24th Feb 12, 1:28 PM
    • 49 Posts
    • 42 Thanks
    Pinner Ram
    • #5
    • 24th Feb 12, 1:28 PM
    • #5
    • 24th Feb 12, 1:28 PM


    Pinner Ram, it often will be best to use the allowances of the parents but the JISA has the possible advantage that it is owned by the child. This means that it is protected from bankruptcy of one or more parents. I haven't investigated its effect on means-tested benefits but assume that the child's name offers an advantage there as well. This isn't free because from the age of 16 he child can take control of the account if they wish, though not take money out until 18. Those ages may be contrary to the wishes of the parents for the money.
    Originally posted by jamesd

    James - you are (I believe) factually correct but you make a lot of assumptions about my knowledge of the subject (your comments could have been phrased differently!).

    And, IMO, I feel it highly unlikely that bankruptcy and means testing will be relevant.

    PR
    • Pinner Ram
    • By Pinner Ram 24th Feb 12, 1:32 PM
    • 49 Posts
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    Pinner Ram
    • #6
    • 24th Feb 12, 1:32 PM
    • #6
    • 24th Feb 12, 1:32 PM
    a SIPP [and a] Junior ISA ...... are totally different things.
    Originally posted by jimjames

    I quite agree, they are different things.

    My point was that if a parent has spare cash they'd (usually) be better off "using their various tax shelters" (a SIPP is one of those I believe?) rather than investing in an ISA for a child.

    PR
    • dunstonh
    • By dunstonh 24th Feb 12, 1:40 PM
    • 98,597 Posts
    • 66,996 Thanks
    dunstonh
    • #7
    • 24th Feb 12, 1:40 PM
    • #7
    • 24th Feb 12, 1:40 PM
    ny chance of MSE not condemning investing up front by using a highly negatively emotionally loaded word like gambling in "to gamble on the markets"?
    Many would consider that the gamble is actually going with the cash option as inflation risk is likely to be more damaging than investment risk.

    Do you also notice how the options MSE gives are just two ends of the scale and nothing in between?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • jamesd
    • #8
    • 24th Feb 12, 2:12 PM
    • #8
    • 24th Feb 12, 2:12 PM
    MSE Guy, the link in the post is wrong. The question mark is missing from the link and needs to be present.

    Pinner Ram, I wasn't trying to cover your personal situation but some considerations that may apply to the broader audience of those considering their decision. Those will largely be new parents, mostly young and with some fair possibility of unemployment during the next eighteen years.

    Dunstonh, I think that John did a quite good job given his space constraints.
  • alan2012
    • #9
    • 24th Feb 12, 2:43 PM
    • #9
    • 24th Feb 12, 2:43 PM
    surely a low risk market investment held for the long term will produce a better return than the very poor current cash isa rates
    • Pinner Ram
    • By Pinner Ram 24th Feb 12, 3:42 PM
    • 49 Posts
    • 42 Thanks
    Pinner Ram

    Those will largely be new parents, mostly young and with some fair possibility of unemployment during the next eighteen years.
    Originally posted by jamesd
    More assumptions, and this cohort you describe will be unlikely to be able to use their own allowances never mind fund a junior isa!

    PR
    • jimjames
    • By jimjames 24th Feb 12, 8:18 PM
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    jimjames
    Dunstonh, I think that John did a quite good job given his space constraints.
    Originally posted by jamesd
    Its just a shame that the text linking to it is rather biased as you pointed out!
    Remember the saying: if it looks too good to be true it almost certainly is.
  • jamesd
    More assumptions, and this cohort you describe will be unlikely to be able to use their own allowances never mind fund a junior isa!
    Originally posted by Pinner Ram
    That's part of why the protection of the JISA may be useful for them, for it will protect their child's money from sadly routine life problems that the parents may have.

    We can know that almost all of those eligible for a JISA will be less than one year old because only a few older than that can be eligible for having one. And we also know that most parents will be relatively young and that there's something greater than a 50% chance that a parent of a new child will be not only a new parent but a first time parent because the replacement rate for population in the UK is less than 100%. So the majority of those eligible for JISAs are likely to be the children of relatively young and relatively new parents who are more likely than the population as a whole to experience unemployment, because of the way unemployment varies with age.

    In terms of total amount invested I agree with your apparent view that most JISA payments by value will be made by wealthier parents who will have lower risk of unemployment and other financial unpleasantness. For myself I might well go with the approach that you suggested, but it's less likely to be the right one for most of those eligible for a JISA.
    • grey_lady
    • By grey_lady 25th Feb 12, 9:40 PM
    • 1,019 Posts
    • 1,193 Thanks
    grey_lady
    "That's part of why the protection of the JISA may be useful for them, for it will protect their child's money from sadly routine life problems that the parents may have"

    Spot on, I have a junior isa for LO, we were fortunate enough to be given money by relatives when she was born and on her 1st birthday and I have paid this into a junior isa - come what may with our own finances, this is for LO's future and won't be touched by us, I also plan to add to it at regular intervals.

    Specifically I went for the H&L junior isa investing in the HSBC All share tracker fund, any thoughts on that?
    Snootchie Bootchies!
    • jimjames
    • By jimjames 26th Feb 12, 10:20 AM
    • 13,234 Posts
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    jimjames
    Fund choice is good but not on the HL platform as you'll be paying 2 per month fees. You might find it more cost effective to use a BlackRock tracker as that doesn't incur the platform charge.

    I've just moved all my trackers from HL to Cavendish as the plaform charges would be costing over 200 per year with HL.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • jamesd
    I generally dislike a very high concentration in UK investments so I'd prefer to look at a global fund with some UK exposure.

    For those who will not look at the investments and adjust once a year or so actively managed funds are unsuitable so index trackers are the way to go, else actively managed funds can be better.

    Index Trackers

    For the UK which tracker is best depends on how much money is invested. The BlackRock UK Equity tracker has a TER of 0.57% and no platform fee so it can be cheaper than the HSBC FTSE All Share tracker at 0.27% TER with 24 a year platform fee. Here's what the platform fee adds to the TER for various amounts invested:

    1,000: 2.4% total 2.67% BlackRock cheaper
    2,000: 1.2% total 1.47% BlackRock cheaper
    3,000: 0.6% total 0.87% BlackRock cheaper
    4,000: 0.3% total 0.57% break even amount
    5,000: 0.15% total 0.42% HSBC cheaper

    Since the annual limit is 3,600 it's likely that the BlackRock fund would currently be cheaper then the HSBC one.

    The Vanguard FTSE UK Equity Index fund has a TER of 0.25% also with a 24 platform fee. But it has an initial charge of 0.5% and it takes a long time for just the 0.02% difference in TER to recover that so the HSBC fund is a better choice if performance matches.

    That might be paired with Legal & General International Index Trust which covers the world except the UK (tracks FTSE World ex UK index). 0.9% TER and 12 platform fee so the L&G Global 100 Index might be preferred at 1.15% TER and no platform charge, though it's performed less well.

    For someone with a high tolerance for lots of ups and downs the BlackRock Emerging Markets tracker at 0.6% TER with no platform fee might be interesting. Given the 18 year time horizon for most children this is a fairly decent thing to be doing for the first few years, gradually becoming more cautious over time.

    Actively managed

    Something like the Jupiter Merlin Worldwide Portfolio for someone who doesn't want to be watching things a lot, perhaps checking once a year in case managers change. That does sector allocation and balancing that someone who won't spend much time looking won't do. This one covers UK as well as global developed and global emerging markets so it's a nice one stop shop for those who like active management.

    For just the UK the Invesco Perpetual Income fund is very popular.

    For someone with a high tolerance for lots of ups and downs Aberdeen Emerging Markets might be an interesting fund choice. There is no initial charge in spite of the description, I asked.
    • Pinner Ram
    • By Pinner Ram 29th Feb 12, 7:25 AM
    • 49 Posts
    • 42 Thanks
    Pinner Ram
    "this is for LO's future and won't be touched by us,
    Originally posted by grey_lady

    Just remember that when your little darling turns 18 she'll be legally able to splash it all on a week in Ibiza with her mates or the latest iPad!



    PR
    • lanstrom
    • By lanstrom 5th Mar 12, 12:52 PM
    • 188 Posts
    • 60 Thanks
    lanstrom
    Sorry, found out the answer to the question so I'll save your time in answering me.

    Thanks.
    Last edited by lanstrom; 05-03-2012 at 1:18 PM. Reason: Deleted original posting as I finally found the answer.
  • monoposto
    We all hope our children will be sensible at 18! But ...
    Just remember that when your little darling turns 18 she'll be legally able to splash it all on a week in Ibiza with her mates or the latest iPad!



    PR
    Originally posted by Pinner Ram
    Which is exactly why I have decided not to open a Junior ISA. I have a 10 month baby and would hope at 18 years they would be sensible enough with a large pot of money. Then I remember what I was like at 18 and would probably of blown most of it on useless stuff I didn't need. So we'll be using one of our ISA allowances to save for our child to ensure we have complete control.
  • Mk14:37
    monoposto, I have the same concern - but wouldn't you consider putting a small amount away in a JISA anyway, to see if the child can be responsible?

    By my calculations, if you can put 10 away every month and maintain a 6% pa rate, it would amount to over 3500 by the 18th birthday. What that might be worth in todays money, of course, is anyones guess
    • neet
    • By neet 6th Feb 14, 12:09 PM
    • 18 Posts
    • 0 Thanks
    neet
    Why a Jnr ISA? To use child's CGT allowance needs assets held by that child of 150k before ISA starts to shelter gains. If donor is not a parent - it takes 300k of gift to use childs IT allowance. If a parental gift it will save you 30 of ITax for each year you use the allowance (assuming you are higher rate tax payer - admittedly this will multiply and compound) - saving 10 after wrapper costs. Beware politicians bearing gifts! BTW Jamesd has a point Martin: crude descriptions of equity risk don't help - equity prices are volatile but for a long term diversified investor the risks lie with other asset classes like cash and bonds. MK1427 Like the idea of an ISA as a test of prudence. As bankrupcy protection? - try buying a sleeping bag. (resend - last one I think disappeared into the ether)
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