My two children aged three and 11 are inheriting £20,000 each from my mother’s estate, and I’d like to invest the money for them until they are 18, when they can choose to continue investing or withdraw the funds.
Where should I invest to produce high but secure returns?
Your options depend on how this money has been left to your children and what you want to achieve.
If the money has been left in a trust arrangement, your options will depend on the type of trust that is used, although broadly you will have to keep the money in the trust until your children are old enough to access it themselves.
You should be able to make investment choices within the trust assuming you are a trustee.
You say that you want to “produce high but secure returns”. This is understandable but not so easy. Your options are more likely to be “low but secure” returns, such as holding the money in cash savings accounts, or “high but uncertain” returns, or somewhere in the middle.
If you are investing for a reasonable period, say 10 years or more, you should achieve a better return by investing in shares rather than in cash.
Patrick Connolly, a certified financial planner at Chase de Vere, suggests Rathbone Global Opportunities, M&G Global Dividend and Vanguard FTSE Developed World as three potential investment funds to choose.
This could work for your younger child but you might need to be more cautious with your older child’s investments, which may only be held for seven years. Either way, as you are investing for your children you won’t want to lose money.
You can reduce risks by investing in other asset classes such as fixed interest and property alongside shares. You could invest in multi-asset funds. Mr Connolly suggests Schroder Multi Manager Diversity, Investec Cautious Managed and Vanguard Life Strategy 60pc Equity. “You could also reduce the risks of market timing by investing the money in instalments rather than all at once.”
If the money is outside a trust you have more choice of investment wrappers. Junior Isas combine tax efficiency, simplicity, a wide choice of investment options and an annual contribution limit of £4,128 for the 2017-18 tax year.
This is a good option but the annual investment limit means you’ll need to invest the money in Junior Isas over a number of years. At age 18, your children can access their money if they want or leave it invested.
You could hold the money in investment funds outside a Junior Isa. This can be in a “bare trust” for the children’s benefit. Or they can be designated to the children without a trust being used. Here, you might have to demonstrate that the money belongs to the children.
Pension savings for children benefit from initial tax relief of 20pc on contributions up to £2,880 net (£3,600 gross) each year, and you are safe in the knowledge that the children will not be able to squander the money at an early age.
Unfortunately, they won’t be able to access any of their pension savings until they reach age 58 (or later) so this would not work in your case.
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