This is the last part of my mini-series of blogs covering a range of investments that could be used to save a sum of money for a child’s future.  Having explored six types of investment I intend to sum up the ‘pros & cons’ of each and make a couple of recommendations that you might wish to consider next time you plan to put in place a similar strategy.  

Cash
For: 
– Simple investment to understand, maintain and effect plus plenty of choice
– Gross interest payable until a minimum age of 16
– Low Risk – Government will guarantee investments up to a total of £85,000
Against:
– With inflation running high real value of cash is being eroded
– You need to hunt around to find best paying rate of interest
– You may need to move money regularly to maintain a high rate of interest due to the adoption of short-term bonuses by many providers
– Low yield = low growth.  You will not generate high levels of returns by being invested in cash

Premium Bonds
For:
– Easily accessible cash, no redemption penalties
– Chance of a big win
– Low risk
Against:
– No real return unless you ‘win’
– Even if you have your fair share of wins, yield is normally no greater than 1.5%
– No control over growth and potential gains

Open Ended Investment Companies (OEIC)/Unit Trusts
For:
– Wider variety of funds available to cover most attitudes to risk
– No limit on contributions
– Income and accumulation units available
Against:
– Must review charges, many have an initial charge of up to 5% and annual management charges can range between 1-2%.  Charges have a real effect on growth (reduction in yield).

Child Trust Funds
For & against:
– As with OEICs/Unit Trusts, must watch charges and accept that once investment is made you as the parent contributer have no control how the child uses the money at age 18.

Directly Held Shares
For:
– Endless choice of shares available
– Potential for dividend income
Against:
– Potentially high risk
– Dealing costs
– Time consuming to monitor

My recommendation

So… from the above which investment offers the most flexibility and is most likely to achieve your investment aims on behalf of your child/ren?  For me the OEIC/Unit Trust offers the best choice and flexibility.  Proposito Financial Planning now has access to several WRAP platforms that allow a parent to hold an investment designated for their children alongside their own investments.  The General Investment Account, or GIA as we refer to it, can be used to accumulate funds either as lump sums or regular monthly contributions and be invested in the same ‘Passive Funds’ that we now recommend to the majority of our clients.  You as the parent have control of the funds which can be re-registered to your child at the age you chose or drip fed to them depending on their requirements.

Our selection of passive funds are ‘blended’ from the best of breed funds currently offered by the reputed market leaders Vanguard, Dimensional and iShares.  We have selected funds that track specific sections of the global market so that portfolios can be tailored to match any risk profile i.e predominately fixed interest securities for low risk investors, to all equities and property for high risk investors.  

Our range of passive portfolios have very low charges – the TER’s range from 0.49% to 0.32%. This enables you retain as much of your portfolio as possible.

Should you wish to find out more about which wrapper would be most suitable to enable you to save for your child’s future please contact us on 0845 345 3536 or email info@proposito.co.uk