Junior ISA - is it worth the risk?

[tudorqueenie]

Hi all,

I have a 2 year old daughter and we would like to start saving for her future. I am aware of junior stocks and shares ISAs but I’m also aware that it comes with some risk. Can I ask for some real life examples please - what are your experiences and thoughts on the topic? Say I wanted to save £100 per month for the next 16 years or so. Is this something that most people do? I have had a few people ask me. If I was very unlucky, how much could I lose? Is there a better way of doing this? Many thanks in advance, I really appreciate it!!

In short, yes. 16 years is a good extended period so mitigates the risk. Also by drip feeding each month it spreads the risk

Stock markets go up and down, but over the long term trend upwards. Don't panic when things go down, just leave well alone.

I'd suggest choosing a low cost global tracker fund, set up a direct debit for £100 per month then sit back for the next 16 years

If you want to beat the APR you’d get in a savings account, I’d advise a tracker fund, which invests in the top companies in the stock market, so you’ll get 16 years of ‘typical’ stock market returns, which are historically better than bank account APRs. I wouldn’t advise investing in any ‘cautious’ funds, as those tend to invest in things like bonds, which can perform worse than bank APRs—if you’re inclined to go that way, you’re better off putting your cash in the higher paying kids’ saver accounts (Halifax Monthly Saver 5.5%, HSBC My Savings 5%, NationWide Flex One 5%).

yes, it's a good way to save. If you put that money into a high interest savings account instead, it will definitely be worth less at the end of 16 years because of inflation. If you invest regularly into a well diversified global index fund in a S&S ISA, it will be very likely have grown by more than inflation.

Eldest child has had £1k intested each year. She's 15 now and her pot is worth over £31k

Following

I have Stocks & Shares Junior ISAs for both of my children, invested mostly in index-tracking accumulation shares funds with about £30 per month each going in.

Stockmarket returns are volatile, and in an individual year can easily go down 20% or up 20%. But over a period of 10 years or more there are more ups than downs, and they will generally outperform cash by some distance. But you have to be prepared for the fact that once or twice in that 16 year period you might get a year of minus 20%.

The other point to consider is that by putting it in your children's name it can only be accessed by them at 18 years old so you lose control of it. So you are locking your money in and means if you fell on hard times you can't withdraw it. I've also read some awful threads on here over the years of panicked parents whose teenagers are blowing their ISA savings on drugs or holidays. So we decided to only put a small amount in our children's ISA, other money that we have mentally earmarked for their future is invested in our names so we keep control and can give them money when specific life events occur like driving lessons, university, wedding.

That only works if you aren't saving more than your maximum of £20K per year into ISAs in your own name though. I also believe that savings in a child's name are discounted for Universal Credit purposes, while as obviously it isn't when it's in your name. So depends on your wider financial planning and circumstances.

I agree with @Wellthatwashardwork . I'm aiming to have maybe a few thousand to help with buying a car or something when my children are 18, not no more than that. The rest will be invested in mine and my husband's names and we will gift them money when they need it.

Investing for decades at a time in broad funds such as the S&P500 or Global trackers is considered good financial sense. You will lose some years but overall, you will more than likely outperform high street savings rates. It's best to set it and forget it. You only really lose if you cash out.

There are always horror stories about kids blowing their ISAs at age 18. The other side of the coin is that in case of death, divorce, bankruptcy... the money can't be taken away. Not pleasant to think about, but...

Good point by @Wellthatwashardwork and others. Also, in a junior ISA you can’t get at it if necessary. Junior ISAs don’t exist when ours were little so we used a standard investment fund in a ‘bare trust’. Which was quite useful as we overspent on an extension so could dip into it 😮

we did return the funds a few years later. So we are not completely bad people!

And when the young ones received the money on turning 18 they were sensible and reinvested in Lifetime ISAs. Gave them an early lesson in saving and investing.