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Investment options for your Junior ISA: Where to start

Cherry Reynard
Written By:
Cherry Reynard
Posted:
Updated:
10/12/2014

For many parents, the idea of a nest egg is that it is something very safe, that grows a little every year and provides their children with a helpful start in life.

While no-one is suggesting that parents should put their children’s savings on the 3.30 at Cheltenham, there are reasons why it is worth taking a little more risk.

– You have a long time. If you start investing when your children are young, you might have as much as twenty years for that money to grow. This allows you to ride out market cycles and volatility, meaning you can take more risk.

– Inflation can deliver some nasty surprises. If you invest over a long period of time, you need to protect against inflation, otherwise it will erode the real value of your savings. This means not holding everything in cash.

With that in mind, how should parents approach investment selection for their children?

If you are willing to leave cash behind, you have a number of options:

– A mixed asset fund – these combine fixed income and stock market investments to create a balanced portfolio, usually with a small income attached. They can be found in the IMA Mixed Investment sectors (see here for the Mixed Investment 20-60% shares sector).

– A multi-manager fund – for these funds, an expert selects the best funds and builds a portfolio. Investors instantly gain access to 20-30 funds. They can choose a fund to be as high or low risk as they want. The most popular groups are F&C Investments and Jupiter.

For those willing to take a little more risk:

– An equity income fund. These are funds that invest in companies that pay out a dividend to their investors. These will often be top quality blue chips and tend to be lower risk than other types of company. These funds can be found in the UK Equity income sector or in the Global Equity Income sector.

And for those going all out for long term growth:

– Emerging markets – these are funds investing in developing countries. These countries tend to experience higher growth rates than more established countries such as the US or UK, but they will also be higher risk and experience more volatility.

– Smaller companies – there are funds that specialise in UK smaller companies, global smaller companies, or the smaller companies of individual markets, such as Japan and Europe. For each, the premise is the same – smaller companies tend to grow faster and deliver higher share price appreciation than larger companies. However, they are also riskier and may experience greater volatility.

In picking the right fund, there is plenty of guidance. Many of the platforms, such as Hargreaves Lansdown will offer a ‘buy list’ where they list their recommended funds. Some groups, such as Nutmeg, offer a portfolio service, which is designed to be a ‘one-stop’ shop to a diversified portfolio.

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