Guest Blogpost by Jasmine Birtles
You want to save for your children’s future don’t you? You want them to have at least some cash in the bank to help them pay off their student loan / put a deposit on a house / get a start on some sort of retirement savings?
Of course you want to do the best you can for them with the very limited resources you have. So why are you putting their savings into something that, in real terms, will actually lose money over time? If you are saving for your child’s future in Cash ISAs, Cash CTFs or even children’s savings bonds you are, in effect, losing money over the long-term. Basically, by being scared, and cautious you are losing.
If you were being bold and adventurous, your children’s money would be safer.
It’s all because of the returns you get on your money over time.
When you put money away for your children, particularly when they are very young, you have years for their money to grow. Over those years, on average, you are only going to get about 4% interest if you put the money into ‘Cash’ products (i.e. savings accounts or Cash ISAs). If you put it into stock market investments, however, you are going to get at least 6% on average, probably closer 9%, over that time.
Now, certainly, in the short-term the stock market goes up and down at an alarming rate. It’s no good for short-term savings (anything less than five years). But over time, as you keep your money in there for five, ten, fifteen years or more (and that is how long your children’s savings should be there) those ups and downs are smoothed out and, on average, you make good money.
This is why I have never put any money in a Cash ISA for myself. My ISA investments are for the long-term. I see them as part of my retirement fund. I know that Cash products are only useful for short-term savings but for the long-term investing it has to be the stock market. That’s why I use up my entire ISA allowance in stocks and shares Isas.
You need to know what kind of stock market investment to put it in, though. A lot of the stock market ‘packages’ sold by the banks are frankly rubbish (those funds with posh-sounding names that they try to sell you). They do badly and add insult to injury by slapping on high annual charges for messing around with your money.
Personally I put my money in what are called ‘index-tracking funds’. They’re cheap, they’re run by computers and they work. They’re also easy to invest in as you can see in this article about investing in index-trackers.
All they do is ‘track’ a stock market index (such as the FTSE 100 or the FTSE All Share). They go up and down with the stock market but over time, on average, they tend to go up. They’re easy to invest in (just phone them up or do it online) and you don’t need a broker to do it.
Certainly, as you come to a couple of years before your child gets their money it’s a good idea to move it from the stock market to more stable cash accounts – i.e. you should ‘lifestyle’ their investments. That means you lock in the gains you’ve made and you don’t lose out if the market crashes just before they need their money. Long-term, though, it’s the stock market that will really make your money grow. Keep this in mind when the Junior Isas come out and don’t let me see you opting for safe, money-losing cash versions!
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