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Junior ISAs - how to invest for your children

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Like many parents I want to help my kids to understand money. Where it comes from. How you manage it. And what the world of commerce looks like. I have two Junior stocks and shares ISAs for my children, who are aged 9 and 6. This year, I am going to let them help manage their investments.

This might sound nuts, but I am hoping that getting to talk about ”grown up” things like money will appeal to them. How businesses make money, what ideas new tech start-ups are coming up with and the benefits of investing in different countries around the world are all subjects I’m confident that they can grasp on some level — and hopefully, this will spark their interest further.

I have already picked funds for their Junior ISAs which have a very long-term focus. And they are risky. Investing for kids is so counter-intuitive — a baby has the greatest tolerance for risk out of any of us as they have 18 years to ride out the ups and downs of any Junior ISA. Over the past year, their Junior ISAs have not done as well as other investment portfolios I have myself, as theirs are heavily overweight in early-stage companies and emerging markets.

My kids are both in Neil Woodford’s Patient Capital Trust, which I see as a long-term Dragons’ Den type of play. It is in the red this year, but I’m not worried — we have at least 10 years up our sleeves. Across his whole portfolio, my son has a spicy 28 per cent allocation to the emerging Asia region, compared with my daughter’s 20 per cent. Her greater exposure to the UK and the US has benefited her in the past year.

As I have added money for them at different times, they are in different funds. In 2016, after fees, my son only made a return of 4.8 per cent compared to his sister’s 7.7 per cent. Cue Mum guilt. I’m sure he won’t be happy to learn this fact. So the thought struck me — could sibling rivalry be the answer to getting kids engaged in “boring” old finance?

As I run my own business, my children already have a very basic understanding of how businesses make money. They were also quite interested about Brexit and the election of Donald Trump (who my son really dislikes because “he is rude to ladies”).

Given market fundamentals, I have been explaining the populist line that US stock markets are in for a good 2017 (though the children may veto that on anti-Trump grounds).

I will also let my son decide whether to add the Lindsell Train Global Equity fund which my daughter holds to his portfolio (the absence of that hurt him in 2016) or to stick with his Jupiter Asia, Lindsell Train UK Equity and Stewart Investors Asia Pacific Leaders funds. Will emerging markets reward investors over the next 10 years? And will my children be able to resist the temptation to try and switch funds too often, or attempt to time markets?

He’s got his six-year-old sister to beat — frankly, I can’t see any bigger carrot. Maybe we should report back next year on how two primary school kids did against the industry’s asset allocation experts. Whatever happens, I hope that by teaching them the investment basics, they will want to keep investing in a fully-fledged stocks and shares ISA by the time their JISAs come of age on their 18th birthdays. And not disappear to a beach in Thailand.

 

This is an extract from a longer article which can be found on the Financial Times website.

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