Friday, 20 April 2018
Investing for the Grandchildren
Many parents and grandparents like the idea of saving for children/grandchildren. A couple of years back I earmarked an investment into the Vanguard Lifestrategy 80 fund for (then) three grandchildren.
However since then the number has grown to five and as I will soon become a pensioner, I have been considering siphoning off some of the state pension via a monthly drip-feed into a long term savings plan via one of the global investment trusts.
I have been doing a little research in recent months looking at the various options. The traditional options include Aberdeen who recently merged with Standard Life and offer a plan with a min. £30/month regular and £150 lump sum however, their flagship option of Murray International has not been performing so well in recent years and therefore I decided to pass. There is also F&C with a min. £25/month but £250 initial lump sum and then the annual charge of £30 and also dealing fees which would not work for me. I also looked at Baillie Gifford which runs my Scottish Mortgage holding.
The 5 grandchildren aged between 9 months and 6 yrs and I want to put aside a regular monthly amount with the option of adding the odd lump sum amount from time to time. I am fairly traditional 'old school' when it comes to money and remember what I was like at the age of 17 or 18 yrs and what I may well have done with a large sum of money at a young age. I therefore want some control over the account as I would like them to have the money a little later, maybe at the age of 21 yrs (earliest) rather than 16 or 18. This rules out a few options such as junior ISAs and bare trusts set up in the children's own name.
In the end I decided to open a children's savings plan with Baillie Gifford as I believe the Scottish Mortgage trust probably offers the best long term growth prospects combined with the lowest costs.
The plan is in my name with the grandchildren all named as designated beneficiaries. The plan offers a low cost way of saving via a range of investment trusts.
There are 4 global trusts :
and 3 trusts which focus on the Far East:
Baillie Gifford Japan
Baillie Gifford Shin Nippon
The plan will run for the next 20 years or so and over this time-frame I am obviously looking at global growth.
Although I am starting with the one investment trust, I do have the option to split my monthly contributions between two or more trusts. The minimum is £25 for each trust and there is the option for a lump sum addition into any trust - min £100.
The Trust Choice
To start off I have selected the Scottish Mortgage trust as this is the largest global trust with the lowest ongoing charges. I am obviously familiar with SMT as I hold it in my own SIPP and ISA.
The managers have a good reputation for consistent performance in areas which I believe will provide a good chance of out-performance over the coming years. It has turned £1,000 into £4,350 over the past 10 years which equates to an average of over 15% per year. At this rate, an annual contribution of £1,000 over 20 years would grow to just over £100,000. If it can deliver anything near this over the coming 15 to 20 years my grandchildren will have a tidy sum in the region of £20,000 each - fingers crossed.
For the best long-term returns, it is important to ensure the costs of the investment are low. This is one of the reasons the low cost index funds generally out perform the more expensive managed funds. The big advantage of the savings plan is there are no platform charges from Baillie Gifford and also no transaction charges for the purchase of shares which is important when a monthly drip-feed plan is operating.
Therefore the only charges will be the ongoing charges for the Scottish Mortgage trust of 0.44%. This puts it on a par with the likes of holding Vanguard Lifestrategy with ongoing charges of 0.22% combined with platform charges of 0.15% (Vanguard Investor) or 0.25% (AJ Bell Youinvest).
There is however a charge of £22 for each withdrawal but as I am not planning on this for many years it should not be a problem.
For anyone interested in exploring the investment options in more detail here is a link to their savings plan (pdf).
Feel free to comment if you are currently saving for children or grandchildren and share your experience with others.