If Your Child Is Too Old For Child Fund Vouchers Here's How To Save For Their Future
February 2006
According to figures released by the Children's Mutual there are about 6.5 million families whose children do not qualify for the free £250 via Child Trust Vouchers (CTFs). CTFs are only available for children born after 31 August 2002. So how can parents and families build a nice nest egg for their children if they didn't qualify for a CTF? This article looks at what's available.
The Children's Mutual Youngster Bond Extra
- The main selling point with this fund is that up to £25 a month can be paid in tax-free
- However the charges for investing in the funds are high, it can cost for example up to 5% just to 'buy into' a fund, a so called front-end load charge
- Also, £25 a month is £300 a year which is not a lot of money these days but it is better than nothing
- There are also penalties for not paying in regularly and the bond remains pretty inflexible
- NEVER forget that flexibility is one of the most important factors when dealing with money or investments especially over the longer term. It's therefore not a good idea to lock you money up for long periods of time without the chance to reorganise if necessary
- Still, for those wanting to give their children a nice financial boost when they leave school at least consider what the Children's Mutual has to offer
A Better Way To Invest
- Remember that any investment gains earned up to £8,500 in a tax-year are free from capital gains tax
- And everyone including children have this £8,500 to use up every year
- Why not therefore invest on their behalf because unless you're going to be putting thousands into their accounts every year there's a good chance that all the profits will be tax-free
- Also, by managing the investments yourself you'll be able to have complete flexibility, for example in good financial times you can deposit more in their accounts and less if money becomes tighter
Consider Emerging Stockmarket
Patience combined with a long term outlook (10+ years) are real virtues when it comes to investing. And by investing on behalf of children parents can normally afford to take a long term view.
Emerging stockmarkets such as China, Brazil or India look to have great long term prospects. Sure, the stockmarkets will be volatile but one tactic to iron out the volatility is to be a regular investor such as £25 or £50 deposited in a fund every month.
You can either invest in investment funds on the stockmarket or perhaps use Exchange traded Funds (ETFs) which are shares that track an underlying index. For example, perhaps you like the prospects of both the Chinese and Indian stockmarkets over the next 10-15 years, regularly drip feeding money into those markets should pay big dividends over 10+ years.
What About Savings Accounts
- Savings accounts are the safest investments around but are they the best vehicles for long term investing?
- We don't think so because history has proved that stockmarkets outperform cash over the long term
- If we were going to invest on behalf of a child we'd most probably keep the cash amount less than 25% of the total fund and most probably around 10% - Read the article mentioned in the Summary for further information on this topic
Summary
As we have mentioned before any child under 10 has time on their hands when it comes to generating financial performance, so use it wisely. One way is to create a balanced funds with all sorts of investments (bonds, cash, UK stocks, emerging stockmarkets etc) combined with depositing money at regular intervals.
But within all of this comes the important point of investment charges, how much they are and when they're levied. So make sure you do some research into this critical area because it could mean that a fund with tiny charges outperforms one with large charges by over 50% within a period of 10+ years.
Finally, if you need to educate yourself on investing in the markets for the long term you must read this article entitled 'Investing In The Right Sectors Is 9X More important Than Picking a Fund Manager'. Not only is it a real eye opener but it is a blue print for long term investing.
Good luck in organising a financial future for your child or children!
See Also
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