When it comes to investing for your children, getting the balance right is crucial.
“The best approach is to blend several funds into a portfolio that meets your objectives and your attitude to risk,” advises Charlie Musson, spokesman at AJ Bell, the investment platform.
“This doesn’t mean that if you are a cautious investor, all of your holdings need to be in cautious investments, as by combining lower risk investments with slightly higher risk investments it is possible to benefit from diversification that lowers the overall risk of the portfolio.”
Experts agree that the longer your investment horizon, the more short-term volatility you can stomach. In many cases, whether you are saving for up to 18-years in a Junior ISA, or over many decades in a pension for a child, that means focusing on equities. Parents and guardians would do best not to allocate to lower risk assets such as government bonds or cash until much later, when approaching a point when the money may be used and capital preservation becomes a priority.
Funds Suitable for a Junior ISA
As a guide, Musson suggests that those at the lower end of the risk scale, should consider equally weighting three different strategies, namely a corporate bond fund, an absolute return fund and an equity income fund.
He tips Royal London Short Duration Credit, which has a two-star performance rating from Morningstar, and Henderson UK Absolute Return and Artemis Income, both which have been awarded a Bronze rating by Morningstar analysts.
For those with a longer time scale, he says, you might consider some higher risk overseas equity funds such as: Schroder US Mid Cap and Jupiter India, which Morningstar analysts gave Silver and Bronze ratings respectively.
Go Global for Diversification
Jason Hollands, managing director at Tinley Investment Management advises investors to take a global approach, either through constructing portfolios of regional funds, or investment funds within an international brief.
He tips Scottish Mortgage Investment Trust (SMT), rated Gold by Morningstar analysts who describe it as a high-conviction choice for long-term global equity exposure.
“For a more diversified and team based approach, another option – and one I invest in for my two children – is the venerable Foreign & Colonial Investment Trust (FRCL), which has been around since 1868 and is built to last,” says Hollands.
Morningstar’s Manager Research team has awarded a Bronze rating for this fund and points out that the fund's objective is to grow capital and income, and in both respects it has delivered – paying dividend increases for the last 45 years with the expectation that this will continue.
“But whatever approach you choose,” says Musson, “it is important to review the investments you have made at least annually to check they are performing in line with your expectations and that your expectations or the market context have not changed.”
