I have two (mostly) lovely little boys. I’ve chosen to set them up with a stocks and shares Junior ISA. In this article I’ll explain why I made that choice and what type of shares I’m investing in for them.
Investing for children: how does it work?
The government announced that for the 2020/21 tax year, the amount you could invest for children into a Junior ISA was increasing from £4,368 to a whopping £9,000.
Much like the adult version, the money grows tax-free — there’s no income tax or capital gains tax on any profit.
Only parents (or guardians) can open a Junior ISA, but anyone is able to pay into them. You can open a Junior ISA for any child under the age of 18.
There are two types of Junior ISA. Cash or Stocks and Shares. You can hold a maximum of one of each type at any one time.
Two points to note though. First, the money is locked away until the child is 18. If you think you might need it sooner, maybe another form of investment may be better suited. Second, when your child turns 18, control of the account legally passes to them.
What am I buying for the Junior ISA?
The best cash Junior ISA rate that I could find currently offers 3.25%. That’s not too bad at all especially considering adults are lucky to get 1%.
But with a near 20-year investing horizon ahead to even out any bumps in the market, I’ve opened a Stocks and Shares Junior ISA for my children instead.
With such a long investment time period ahead I’m focusing on UK growth shares for my investments. And I think the recent stock market crash has served up some great long-term opportunities.
I’m confident that FTSE 100 healthcare company Smith & Nephew can continue to grow and I think the recent crash in the Boohoo share price has opened up a good buy-and-hold opportunity.
More people are investing in their retirements and taking an interest in their own personal finances. I think listed investment platforms AJ Bell and Hargreaves Lansdown have a lot of growth ahead of them.
The last long-term trend I am investing in for my children is technology. In my opinion, AIM-listed robotics specialist Blue Prism has a huge market opportunity to grow into. And with more companies relying on data analytics and big data to inform their decisions, FTSE 100 credit rating company Experian looks expensive but could be far bigger in 20 years’ time.
Hopefully this gives you some food for thought for your own Junior ISA investments. And it should help your kids to grow up seeing the stock market as a way to build long-term wealth. You can find plenty more ideas at The Motley Fool.