Fund picks for your child’s pension
If you’ve decided to start a pension for your child, deciding where to invest is the next step.
One thing you have on your side is time. Remember, pension money is currently tied up until the age 55, meaning your child won’t be able to spend their savings the minute they hit adulthood.
With a long investment horizon, there’s very little point taking a cautious approach to investing your child’s pension money. There’s plenty of time to ride out the market ups and downs.
Jason Hollands from advice firm Tilney Bestinvest suggests focusing on equities and taking a global approach – so investing in both developed and emerging markets funds.
For a “one stop shop” approach, he likes the Scottish Mortgage Investment Trust, which invests in growth stocks from the US to China and also has a “very competitive cost structure”, with annual charges of 0.48%.
Hollands also likes FundSmith Equity fund, run by city veteran Terry Smith, which takes a concentrated approach and focuses on quality growth stocks. It is a developed market fund, so Hollands suggest dovetailing it with a separate holding in an emerging markets fund, such as Fidelity Emerging Markets.
Mark Dampier, head of research at Hargreaves Lansdown, says fund picks for kids are not really any different than for adults except for the investment time period, which could span 60 years.
He says: “Bear in mind that you won’t have the same active manager over 60 years. So you need to decide how much you will monitor and change the investment.
“The easy thing might be to buy Vanguard FTSE All World ETF with a total expense ratio (TER) of 0.25%. This will give the pension fund an instant global spread that includes emerging markets.”
For an actively managed fund, Dampier also recommends Scottish Mortgage Investment Trust. “It invests in the growth companies that are leading new investment like Amazon, [and] might be a good way, as the kids grow older, to engage them with the investment.”
He also suggests small companies funds over this time period, such as Standard Life Global Smaller Companies fund.
“My advice would be to keep it simple and easy. Over such a time period short-term volatility won’t matter, it’s more important just to make the investment,” he says.
For adventurous parents, Darius McDermott of Chelsea Financial Services suggests M&G Global Emerging Markets or Stewart Investors Asia Pacific Leaders.
For the slightly less adventurous but still “not for the faint-hearted”, his pick is Baillie Gifford Global Discovery.
And for something a little closer to home, he likes AXA Framlington UK Select Opportunities and Franklin UK Mid Cap.