Your kids have probablylost or broken halftheir Christmas toys by nowandgot bored of the rest. So why not start 2016 by giving them something with far greaterlongevity?
Investing for your children is a far better use of your money than buyingyet more gadgets and gizmos. The New Year is the perfect time to get started asthoughts turn to the future. One thing is certain your childrens prospectswill be a lot brighter if you startinvesting on their behalfas earlyas you can.
Junior school
Many families set up savings accounts for their children to get them into the habit of setting a little pocket money aside. Thats fine, but it isnt enough. Given todays dismal savings rates, cashwill never amount to much. Over the longer run, the stock market should be far more rewarding.
Setting up atax-efficient Junior Isa is the ideal way to invest in stocks and shares. Families and friends can contribute up to 4,080 in the current tax year, with all the dividend income and capital gains free of tax. The child gets a new allowance next year as well.
Kids are alright
People who think investing is too risky for children havethings the wrong way round. Children arethe ideal investors because they have one big advantage over adults time is on their side. Time is the investors most reliable friend, becauseit allows themto look beyondshort-term share price swings and cash-in onlong-term outperformance.
While stock markets can be volatile in the short run, they should deliver far better returns than cash over 18 years or longer, which makes children the ultimate comeback kids.In fact, you can turn market volatility to their advantage. If you commit toa regular monthly contribution you actually benefit when share prices fall, as you pick up more stock for the same payment. That contribution is worth more when markets recover.
Be young, be happy, invest Foolishly
You can invest in stocks and shares through an actively-managed fund, index tracker or portfolio of individual stocks and shares. A handful of fund managers have set up their own Junior Isa portfolios, notably investment companies such as Aberdeen, Alliance Trust, Baillie Gifford, F&C, JP Morgan and Witan. You can invest from as little as 25 a month, or lump sums from 250.
The downside is that manyonly offer a limited range of funds. You may prefer to set up your own portfolio viaan investment platform, which should leave you free to invest in any fund or stock you like. You cant touch the money yourself, butyou can manage it on your childrens behalf until they turn 16, when they can take it over if they wish. At 18, the child is free to withdraw their money or convert it into an adult Isa and retain all its tax advantages.
A Junior Isais a great way to coverthe costsof early adult life, such as tuition fees, a property deposit or buying a car.Yourchildren mayalso have learned the joys of investing, a skill that will benefit them for a lifetime.
One day your children will thank you for being a far-sighted investor.
This FREE Motley Fool report 10 Steps To Making A Million In The Market sets out how investing in stocks and shares over the long-term can make your whole familyrich.
You might be surprised to discover how ordinary people can become astonishingly wealthy by investing in stocks and shares.
This no-obligation report shows you how to do it, step-by-step. To find out more, click here now.