My 5 grandchildren are aged between 21 months and 7 yrs and last year I decided to start a regular savings plan with Baillie Gifford and to put aside a regular monthly sum of £50 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.
The plan is therefore 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 15 to 20 years or so and over this timeframe 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 (But Note Changes to Come)
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 £8,000 over the past 10 years which equates to an average of over 23% per year. At this rate, an annual contribution of £1,000 over 15 years would grow to just over £60,000. However this period is not typical as it has the distortion of the financial crash of 2008/09. I am hoping for a return of nearer 10% per year. If it can deliver anything near this over the coming years my grandchildren will have a tidy sum in the region of £8,000 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 0.37%. 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.
Performance - End of Year 1
I started off with an initial lump sum of £200 and have 12x monthly contributions of £50 into Scottish Mortgage - total £800. The share price has ranged from £4.45 to £5.60p so some months have seen a relatively high price such as last Summer, which means less shares purchased. I have therefore accumulated a total of 159 shares at an average price of £5.00.
|Scottish Mortgage Share Price - Past Year|
I have also invested a one-off lump sum of £100 into Edinburgh Worldwide taking advantage of the dip in the share prices last December. So, an additional 60 shares purchased at £1.64 and currently £1.88.
The total contributions over the year have been £900 and the current value is £970 - a return of £70. So far, so good.
BG Drops Savings Scheme
I just heard yesterday that Baillie Gifford have decided to abandon the savings scheme and transfer all customers accounts to Hargreaves Lansdown. This will ultimately involve transaction fees on the monthly contributions for investment trusts (funds are free) as well as platform fees of 0.45%. However, I understand the free dealing/platform arrangement currently in place with BG will continue for 3 years after the transition. The advantage will be the investments will not be limited to the 9 BG trusts so I could look at the wider market and possibly something climate-friendly such as BGs Positive Change fund or WHEB Sustainability.
I am awaiting further details from BG. While I consider all the changes and implications, I will continue to drip feed my £50/month into the Scottish Mortgage trust with HL for the time being. The share price can be volatile but the drip feed is a good way to even out the swings.
Feel free to comment if you are currently saving for children or grandchildren and share your experience with others.