An affordable way to build a nest egg for a child

Jul 30th
2015

One of the highest priorities for many parents is to provide a child with a good financial start in life. A common misconception when investing for a Child’s future, however, is you need a considerable sum of money to start with. On the contrary, one of the best ways to save is through a regular savings plan where parents and grandparents drip-feed money into investments on a monthly basis. There are several reasons why starting such a savings plan could provide a great and an affordable way to build a nest egg for a child.

Affordable investing

One of the key benefits for parents investing monthly for their child is affordability. Understandably, many parents will not always have access to considerable amounts of money when they first start a family. Regular savings plans offer an affordable route into building a decent-sized investment portfolio. Parents and grandparents can invest from as little as £10 per month with the Children’s ISA into a Junior ISA, which over time, could accumulate into a large pot of money for a child.

Compound returns

It is important to remember when investing for a child that they have tie on their side, which allows them to ride out the peaks and troughs of the stock market. Most importantly, time allows for compound returns to take effect.

Assuming a growth rate of 5% a year, the table below shows how much a relatively small monthly invest could be worth. Even small amounts tucked away regularly can grow into a substantial nest egg.

Time Period £50 Per month £100 per month £300 per month
5 years £3, 400.30 £6, 800.61 £20, 401.82
10 years £7, 764.11 £15, 528.23 £46, 584.68
17 years £16, 026.23 £32, 052.45 £96, 157.36

Pound cost averaging

Investors can also benefit from something called pound cost averaging with a regular savings plan. What this means is that they are buying into the market at different times and therefore benefiting from both lower and higher prices. Investments will fall in value as well as rise, but with regular savings, falling markets allow investors to buy more of the investment at lower prices, so if the market eventually regains the lost ground they will count for much more. And, if the market rises, investors can profit from the increasing value of investments already made. It can be an excellent way to smooth out the ups and downs in the market.

Remember when investing, investments can fall as well as rise in value so you could get back less than you invest.

Tax-efficient monthly investing

Junior ISAs have become a popular way for family and friends to build up tax-efficient savings and investments to help with the cost of University, a deposit for a house, a first car or simply give a child a great start in life.

A Junior ISA offers a tax-efficient savings account for children; there is no further income tax to pay and no capital gains tax.

The Children’s ISA offer a range of Junior ISAs options to meet your investment approach and risk adversity. For more information on the different Junior ISAs offered and the funds invested with visit our website www.thechildrensisa.com

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