have £5000 to invest for child ..................(16 Posts)
hi, im a trustee for my godaughter and she was left £5k in a will
whats the best way to invest this for her to get maximum back
ideally she wont have it till she is at least 18 or even 21/25 - she is now 2.5yrs
interest rates are so crap so was wondering to invest in premium bonds
That's a good idea, you don't get interest on any investments but you will be in with a chance of winning cash prizes well you GD will not you personally.
That's what I thought
Interest is rubbish these days
Tho have told her mum if my gd wins a million that godmother blondes wants a share when she is 18
I'm nearly a month late responding to this - apologies. Hopefully the response wil be useful for someone else, even if it's too late for you.
As I read it, your goddaughter has been left £5k, and it needs to be invested for at least 15 years. You are a trustee of the money, so you have three aims: firstly to preserve capita, secondly to obtain a return on the money, and finally to show that you've made sound investment decisions.
Premium bonds are a very bad idea. There are a few reasons for this:
- while premium bonds may be bought for a child, they can't be bought by a non-relative,
- a single adult is responsible for managing the investment until age 16 - tricky if there are multiple trustees,
- The amount invested is too low to play the law of averages, and makes the investment a bit of a punt,
- Over 15 years, there's likely to be significant capital erosion due to the effects of inflation.
Cash investment accounts are similarly likely to produce a loss over the longer term as they aren't keeping up with inflation.
Given the timescale, I'd be looking at investing in equities. There isn't enough cash to buy a diverse portfolio of individual stocks, so you need some sort of mutual fund. This could be an index tracker, OEIC or investment trust. Witan and F&C both offer products that can be created as a trust; I'm sure there are others.
Remember that this is her money, not yours - you need to keep it entirely separate from your own money; don't be tempted to open an ISA in your name for her, for example.
evil what would you recommend if the timescale was shorter? Like 2-7 years?
evil can I ask a question too? I have heard Dave Ramsey talking about mutual funds but didn't realise they were a UK thing too. (Am not a finance person as you can tell!) Are they a good way for people to start investing? Could you recommend some reading? I've scoured the MSE site but am none the wiser. Thanks!
Mutual funds (such as OIECs and Investment Trusts) are investment vehicles that allow you to easily own a diverse range of shares and bonds. They are a good way to get started, but there are some things to be aware of:
- there will be charges involved, which will change depending on whether your fund is actively or passively managed (e.g. a tracker)
- Some will provide income, some won't
- Investment Trusts are allowed to borrow money, so will be a bit more 'geared', which allows better returns, or greater losses.
A really good place to start is this book:
It's a bit out of date/out of print, but it's well written, and addresses personal finance for women really well. You can also get a copy for a penny (leaving P&P aside), which is a big plus.
www.amazon.co.uk/Love-Is-Not-Enough-Womans/dp/0007235194/ref=pd_cp_b_0 might be more up-to-date, but I've not read it.
If the timescale were shorter (2-7 years), then it's a bit tricky. If it was my money, I'd still be investing in the stock market, or possibly corporate bonds with a similar duration if I was feeling cautious. However, for someone elses money, I'd probably go with a fixed term bond. Returns wouldn't be stellar though.
For a cautious choice it might be worth looking at a fixed term cash ISA. If you can lock it away for, say 3 years you can often get a reasonable rate, maybe 3%-ish, which is not great but should/may more or less keep up with inflation. You can find the current best deals in the financial pages - or go to a site such as moneysaving expert.
I suspect that the second of evilkitten's book suggestions will be good. The author is editor in chief of the weekly magazine Money Week which I find very clear and well written for non-experts such as myself.
I should just add that you do need to remember to reassess the situation when the fixed term expires, as they may then just transfer the money to a crap rate without warning you.
Be careful with ISAs - can only be used for personal money, not money held in trust like in the OPs situation.
How about a JISA? You would need to buy 2, one for 2013 -14 and, next April, one for 2014-15, as the maximum for this year is £3720 (you should check that figure!). They would be in her name, but a wise adult could decide when to hand over the paperwork!
You can get them in the same form as adult equity ISAs; personally I'd look at a tracker for its low charges.
Only problem is finding one! Cofunds do them, but I don't know who else.
The OPs goddaughter won't be eligible for a JISA.
Remember with all of this that this is the child's money held in trust; 'forgetting' to hand over paperwork etc. at 18 could leave the trustee open to legal action.
When you say you're having trouble finding one, are you referring to Adlt ISAs or trackers?
ISAs are ten a penny, as are trackers (depending on what you want to track). HSBC has a low charging FTSE one that might be of interest. Cofunds is a platform aimed at IFAs. Beware of platform charges in addition to fund charges.
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