I'm opening a stocks and shares ISA for my son. Can I prevent him from losing the money I initially put in?

29 July 2021

Question by Hilary

I would like to open a stocks and shares ISA for my 17 year old son and allow him to choose which stocks and shares to buy but can I prevent him from losing all the money I would have set the ISA up with?

Answered by Boring Money

Hi Hilary, thank you for your question.

The short answer is no. An investment should be considered over a medium to long-term time frame and should not be entered into if the capital is required for other needs. I would therefore suggest that prior to making this investment, you consider what the money is going to be needed for in the future and whether you, or your son, can afford to see a loss in value and if you are concerned about the money falling in value it may be best to hold the funds in a cash ISA instead.

Investments are not appropriate for everyone, and it needs to be considered the level of risk you are willing to take when making these investments, what the objectives for the money is (i.e. house purchase, university fees, etc.), and the time horizon the investment is being made for.

Different asset classes carry different risks. The four main asset classes are Equities, Property, Fixed-Interest, and Cash. I have summarised each for you as follows:

  • Equities: this is another name for a share in a company, and these are considered to be the most volatile. You can choose to invest directly within a company, or through a fund managed by an investment manager. The value can go up and down, depending on the market conditions.

  • Property: when we talk about investing in property, this means commercial property. The biggest risk associated with this asset class is liquidity, as there is the risk that your money could be suspended for a period of time.

  • Fixed-Interest: the funds you invest in make a loan, either to a government (known as gilts) or a company (known as corporate bonds). The benefit of this type of asset should receive a fixed interest, which will be at a known rate, however, there is the risk that the government or company may default or cease paying interest which would mean losing some or all of the capital you have invested.

  • Cash: typically viewed as the lowest risk asset class, by retaining funds in cash the value should remain stable, and there is the potential to receive interest on your money. If the fund is being held within an account which carries charges, you may see the value of your funds deplete if the charges are greater than the interest being earned.

The key is diversification, and not putting all your eggs in one basket. There are many Multi-Asset funds available, whereby the fund managers will invest within a combination of asset classes to provide you with diversification and exposure to each asset class.

By necessity, this briefing can only provide a short overview and it is essential to seek professional financial advice before applying the contents of this article. This briefing does not constitute advice or a recommendation.

Answered by

Boring Money