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Investing For Children - MyBump2Baby

Presented by Guy Myles. Capital at Risk.

The big picture
When you have children, it's natural to think about investing for their future. In this video, I'll cover practical topics like tax-efficient ways to invest, as well as how to balance spending on immediate needs versus long-term investments.

The detail
The first step is to clarify your objective—whether it’s for university, a first home, or even retirement. This will determine how long you want to invest for and could influence the level of risk you are willing and able to take.

Long-term investments reduce the impact of short-term market volatility. This means that grandparents might take more risk with their grandchildren’s funds than with their own, for example.

In terms of how long you need to invest money to achieve your objectives, you should consider the benefits of compounding. If we assume an estimated return of 4% after inflation and costs, this has the potential to grow significantly over time. Over 20 years, an investment could more than double, and over 50 years, it could grow over seven times. Of course, these are estimated returns, which cannot be guaranteed.

For tax-free investing, Junior ISAs are ideal. With a £9,000 annual limit, they allow tax-free growth and income. You can also merge older Child Trust Funds into Junior ISAs. For retirement savings, up to £3,600 can be invested yearly into a child’s pension, including a 20% government contribution.

The benefits of investing for children go beyond the finances. Investing can also teach valuable life lessons like patience and understanding global economics. Engaging children in conversations about their investments helps them learn about profit, business, and the global economy.

Lastly, I recommend a framework for deciding how much to invest for your children. After meeting your basic expenditure, divide your budget between having fun, activities that build on personal development, such as hobbies, and then long-term investing.

This is where proper financial planning can help to ensure that you don’t overspend now or sacrifice too much for the future.

Finally, always remember, with any investment, your Capital is at risk.