With Christmas around the corner, young children will be eagerly opening advent calendars and getting excited about what presents Santa might bring.
Parents and grandparents wanting to give a gift that lasts a bit longer may like to consider making an investment for their child.
While it won’t look pretty under the tree, it could grow into a nest-egg and make a big difference towards education costs or a deposit for a first property.
Figures from the Association of Investment Companies (AIC) highlight the potential.
Watch it grow
If a parent, grandparent or guardian had invested a one-off £1,000 in the average investment company for a child 18 years ago, it would now be worth an impressive £7,740 (a 674% return), or annualised return of 12%.
If they preferred to make monthly contributions instead, for example £50 a month, their total investment of £10,800 over 18 years would now be worth £36,878.
That could help with a deposit on a first home or a considerable chunk of further education costs.
These gains would be even more impressive if parents or grandparents had backed sectors investing in smaller companies.
The top-performing business investment sector over the past 18 years is European smaller companies, with a total return of 1,050%.
This is followed by UK smaller companies (938%), biotechnology and healthcare (927%), global smaller companies (902%) and Asia Pacific smaller companies (889%).
The global sector, popular with parents saving for children, is the sixth-best performing sector, with a total return of £9,824 on £1,000 invested (882%) over 18 years.
AIC communications director Annabel Brodie-Smith said: “This Christmas we’re all hoping we can be together with family and loved ones after the disruption of last year.
“But with the financial demands on young people becoming ever greater, parents and grandparents might want to consider investing for the long term to give their child a head start for the future.”
Ms Brodie-Smith added: “Investment companies benefit from the long-term growth potential of the stock market.
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“They offer a way to spread investment risk and back the best opportunities in the UK and around the world.
“Over long periods, investment companies have delivered strong performance.
“A £50 monthly investment in the average investment company over the past 18 years, £10,800 invested in total, would now be worth £36,878, enough to make a big contribution to a young person’s financial future.
“Saving within a Junior Isa (individual savings account) will ensure any income and capital gains are tax-free even after your child turns 18.”
Saving for your children’s future? Here are six tips from the AIC to get you started…
- You can save for your child through a Junior Isa, children’s savings scheme or child’s pension. For more information, watch AIC’s video or download a guide on the association’s website.
- Keeping savings in cash is low-risk, but putting money into investment companies could help your money grow more over time.
- Investment companies give you access to the long-term growth potential of the stock market, spreading your risk and offering professional fund management.
- If you’re confident making your own financial decisions, you can invest in investment companies through a platform. This allows you to invest in a broad range of investment companies. Many platforms offer Junior Isas.
- You could also invest through a management group’s in-house wrapper scheme, which gives you access to all the investment companies managed by that group.
- If you need help making your decision, consult a financial adviser.
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