Easy Guide for Kid’s Stocks & Shares Junior ISA Investment in UK.

Easy Guide for Kid’s Stocks & Shares Junior ISA Investment in UK.

What is a Junior ISA account?

This article is strictly for UK readers only as the Junior ISA accounts are only applied to UK residents under 18. Junior ISA is basically a tax free savings for your kids, maximum contribution of £4,128 (2017-18) a year,  from the day they are born (after 3rd Jan 2011) till when they reach 18. After that it gets converted to adult ISA. 

No, you cannot withdraw the money at all until they turn 18. This account is to highly encourage parents to save money for their children and shelter cash to be tax efficient. Any extra income or profits earn are not subject to capital gains and no further tax to pay. i.e If you invest in £10,000 in Amazon today and if it grows ten times in 18 years later you will make £100,000 tax free on a Junior Stocks and Shares Isa. If this was a normal stocks and shares account you would be subjected to 40% tax.

Why Junior ISA account?

Junior ISA is a tax efficient way to save for your child’s future. In all honesty, Parents are mostly the culprit for spoiling kids by over-buying of toys and unnecessary spending. There are two types of Junior ISA (CASH Junior ISA and Stock&Shares Junior ISA). Cash ISA is like a savings account and earn interest rates which can vary against the Bank of England Rates. The Stocks & Shares ISA are riskier as you potentially could lose more than initially invested.

By saving £50 a month for a child’s junior ISA from the day they are born till 18 you will reaps these rewards.

Case Study 1 – Cash ISA of 3.5% growth and reinvestment @ £50 per month.

  • Average 3.5% growth for 18 years
  • £50 a month
  • Total £10,800 for 18 years
  • Final Figure after 18 years = £14,699.81
  • More than 40% increase

Case Study 2 – Stocks and Shares ISA of 7.5% growth and reinvestment @ £50 per month.

  • Average 7.5% growth for 18 years (This is the average FTSE 100 index for the last 30 years)
  • £50 a month
  • Total £10,800 for 18 years
  • Final Figure after 18 years = £21,406.43
  • More than 200% increase

Case Study 3 – Stocks and Shares ISA of 7.5% growth and reinvestment @ max allowance.

  • Average 7.5% growth for 18 years (This is the average FTSE 100 index for the last 30 years)
  • £4100 a year (assuming no change in max allowance)
  • Total £73,800 for 18 years
  • Final Figure after 18 years = £146,277.29
  • More than 200% increase

Personally I favour the Stocks & Shares ISA more than the Cash ISA. I understand the risk involved in investing in stocks and shares. The growth prospects of a Stocks & Shares Junior ISA is greater. 18 years is a very long time for an investment, providing you invest in good quality company, your money would stand the test of time.

When to open and contribute Junior ISA account?

The earlier you open a Junior ISA, the quicker the money can be invested to beat inflation. The first week of April  always signals the end of an ISA year and also the Start of another new ISA year. So technically you can invest both allowance (£4,128+£4,260) in the same 1st week of April. 

Where to open and contribute Junior ISA account?

I personally recommend two brokers as I used them personally. Please note that I do not earn any affiliation or any commission for these recommendations

FAQ: I want to invest but I am really nervous...What do i do?

If that is the case, I would recommend you sign up with Vanguard UK. The phone help line is easy and the online website is really easy to use. The reason why I say this is because Vanguard is a very well establish and household American company whom have recently arrived 2 years ago. They are know for EASY and LOW-Cost funds. You can easily diversify by buying US S&P500, UK FTSE100 and Asia Emerging Market. Top up with a 4th Bond for some safety net. Buying low cost index is a lot less volatile compared to individual stocks, because it makes up of 50-150 of the best companies in the continent or region. Remember Long Term investment views.

FAQ: I am more adventurous so should I go straight into Stocks?

I would advise No. Make sure u establish a big pot of index in a major exchange first like the S&P500 or the FTSE100. When shares drop you will most likely get emotionally stress and start selling the shares at loss. When I first started it was during a huge market correction and I bought individual stocks first. So check your situation before you get too adventurous. Besides, it takes time to build the momentum for your stocks to reinvest its dividends and give it time to grow. It took be about 20 months before my first 2 shares investment started to grow and gain momentum. 

10 tips on how to be successful in Stocks & Shares Junior ISA Investment

  • Monthly contribution which you can afford. Please try to commit at least £50 as minimum.
  • If smaller monthly contribution. Perhaps allow accumulation for 4 months before committing to an investment.
  • Encourage Grandparents and Family to contribute instead of expensive gifts on Birthday's and Christmas.
  • Always Buy Index and low cost funds for first £10,000.
  • You can get sector specific index/funds like Technology or Biotech or Oil companies.
  • Buy Stocks or Shares if you are investing a lump sum of at least £1,200 in a single transaction.
  • Invest in good quality companies only.
  • Remember to diversify to various industry and also continent. I.E China, India, UK, EU, US etc.
  • Please involve kids and educate them after 6 on stocks and shares.
  • ALWAYS DO YOUR RESEARCH. Do not follow anyone else's advise but your own.

Final Words

We hope you find this information useful. Personally have committed and invested full time for my kids and hopefully grow some wealth before they turn 18. Many people I know have negative thoughts about 18 year old young adult with large sum of money to manage. I believe in education and experience sharing from a young age with them to understand the value of money. Teaching kids about savings for investment is key lessons which they need to comprehend, why not do it practically.

From,

Dr Alex Koh
Founder and CEO of MooMooCoo.com
Family Finance Made Simple

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