Investing our way out of lockdown
Today marks my 51st week of working from home. When I left the office with a few files and some...
Kids love Christmas: the pretty lights, the pantos, their own nativity or Christmas carol concert and, above all, the anticipation of Santa’s visit and the receiving of a stocking full of presents.
My own kids wrote and sent their letters to Father Christmas last weekend. My nine year old son kept it to seven things he really wanted. My five year old daughter listed pretty much everything in the Argos catalogue.
But if previous years are anything to go by, while one or two presents will stand the test of time, many sadly get discarded almost immediately. They just get so many toys – not just from Santa, but from friends and family too. They simply don’t know what to do with them all and sometimes can’t even remember who gave them what.
I saw some research from the US a couple of years ago, where 36 toddlers were put in a play room for half an hour, with either four toys, or 16 toys. The research showed that the children were far more creative when they had fewer toys to play with, and they also played with each toy for a lot longer.
So how to cut down on the amount of toys children receive at Christmas? (not entirely of course, that would be awful)
The popular alternative at the moment is about creating memories instead of giving toys – so perhaps paying for a day out doing something fun.
But another toy alternative is cash – or more specifically, investing money for children for their future entertainment, or for future memories.
I do this myself. For example, I put away £25 for each of my best friend’s children for each birthday and Christmas until they graduated from university. They got a nice little pot of money that they could then use or keep adding to themselves.
Over 21 years, just investing birthday and Christmas money, you could save a total of £1,050 for a child. If you get 3% per annum return on your money they could have a pot of money worth almost £1,400*.
If grandparents and the odd friend of the family does the same, it could soon build up, especially if added to existing monthly savings into a Junior ISA or a Junior SIPP.
I like the Junior ISA because children get to access the money at a time when they may need it – just before university or getting their first job. But if you can afford to do both, the long-term compound benefits of saving into a pension for your child could be so much more.
When it comes to choosing what to invest in, due to the long time horizons involved for babies or pre-schoolers, most people can afford to take a bit of risk. UK Smaller companies funds or Asian or emerging market equity funds tend to be popular for Junior ISAs: LF Tellworth UK Smaller Companies, Schroder Asian Income, or Magna Emerging Markets Dividend, for example.
If you have slightly older children, then maybe invest in a fund that will grab their imagination – then you can talk about it together without them rolling their eyes in boredom, and maybe even engage them more about finances.
AXA Framlington Global Technology fund is a good example for older children. It invests in the likes of Amazon and Apple** and exciting companies like that – companies that they will have heard of. Scottish Mortgage Investment Trust is another great example. It invests in things like Spotify, Netflix, Facebook and Ferrari***… what teenager wouldn’t be interested in that?
*Source: Nationwide online savings calculator, investing £50 annually for 21 years with an average annual return of 3%.
**Source: Fund fact sheet, 31 October 2019
***Source: Half-annual report, 30 September 2019