You need first to decide where to get the Junior ISA (which is the wrapper) and then decide what to put in it – cash, stocks and shares, funds etc.
We’re a bit suss on Cash Junior ISAs – if you’re saving for a baby then we think the stock market is likely to do better over the long-term. However there are good rates available for cash Junior ISAs – currently Nationwide and Coventry are offering 3.25% but these do change so please check online for current deals.
Many parents choose an investment platform for their stocks and Shares Junior ISA. Have a look at which ones we suggest here: Hargreaves is not the cheapest but they offer decent value and they are big and solid. Cheaper, but still good options, are AJ Bell, Charles Stanley Direct or Fidelity.
These platforms all offer a wide choice of investment options to put in a Junior ISA, too wide for many novices. That said, there are plenty of tools to help you find the right option: recommended fund lists and so on. In general, people tend to be over-cautious with their children’s money. You may have 15+ years to invest. That gives you a long time to ride out the ups and downs of a stock market. I know that people don’t like the thought that the capital value could drop, but over the long-term, the stock market generally outperforms cash.
For those new to investment, multi-manager funds might be an option. These are like ready-meals versus choosing the ingredients and making the meal. For less confident investors, it takes some of the pain away from choosing individual stocks or funds. Many of the platforms have their own versions – see here from Hargreaves Lansdown, AJ Bell and Charles Stanley Direct.
A cheaper option would be the Vanguard LifeStrategy 100% option, available through the Hargreaves platform. This is a passive fund and costs 0.24% instead of the HL Multi-Manager 1.46%. Passive funds are where computers just pick the world’s biggest stocks in proportion to their size. And if oil is out of favour, well you still have the oil shares. And if retail is going gang-busters, well you don’t get any more than the proportionate weighting. You are buying the average.
Active managers cost more because they employ expensive people to make a bet on which stocks will do better – if they love M&S, they can buy twice as much of it. If they hate Easy Jet they can sell it all. Passive guys can’t do this. They have to hold what we call the ‘index weighting’ – if HSBC is 5% of the main basket of shares, the FTSE 100, they have to hold 5% in HSBC shares.
Finally, in terms of paying into your Junior ISA, it is worth setting up a direct debit every month. That way, you drip feed into these and run less risk of investing when the market is at its highest, through simple bad luck and bad timing.