1. Set some objectives for the money in a Junior ISA. If it’s to cover the cost of future University fees, then work out the amount you need when the ISA matures and set a manageable regular investing amount. It may be worth being clear with your child from the outset the intention for the money held in the Junior ISA, as when they turn 18 they will have given access to their account.
2. Know your options. Children are allowed to have two Junior ISA accounts; one cash and one equity. The amounts you can place into each are flexible, but must not exceed the total allowance. This means if you wish to invest £1,800 in each, or the full £3,600 in equities you can.
3. Remember the main benefit of Junior ISAs is that they are tax efficient. There is no income tax to pay or capital gains tax when they mature. It may be worth considering transferring money from your child’s other accounts, particularly those paying little or no interest, into their Junior ISA. If your child already has a Child Trust Fund (CTF) account you will not be able to open a Junior ISA account, we hope this rule will soon change.
4. Remember that you are investing for the long-term, your child will not be able to access the money until they are 18, so this can provide the time frame to ride out the peaks and troughs of the stock market. If you are building your own portfolio then don’t rule out considering adding in some more aggressive sectors such as emerging markets or specialist funds, like Gold for example.
5. Be price savvy when buying your Junior ISA. If you choose an equity ISA, then there may be initial charges to pay on the funds you invest in and these will vary, depending on where you get your Junior ISA from. Buying your Junior ISA through a discount broker such as TQ Invest, these initial charges are reduced if not discounted completely. With a £3,600 Junior ISA this can mean a saving of £180.
6. Diversify your investments. Avoid choosing one specific fund for your ISA and aim to build a balanced portfolio, which will give your money exposure to a variety of asset classes. You can invest in a range of assets, from cash to bonds and shares within an equity Junior ISA.
7. If you are unsure as to which fund to choose for your Junior ISA, or you don’t have time to research the wide range of funds available, then consider a ready-made model portfolio for your Junior ISA. TQ Invest offers two such choices; a Junior ISA Portfolio and an Ethical Junior ISA Portfolio.
8. The Junior ISA does offer more flexibility than the adult ISA because you can switch from cash to equities, and equities to cash at any point. This means as your child draws closer to the age of 18 you can switch the funds in your Junior ISA into more cautious investments, or cash, if you wish.
9. Don’t exclude family members when investing for your child. Whilst only a parent or guardian can open a Junior ISA, anyone can contribute to the annual limit of £3,600 per year. Children can also contribute their own money into their account.
10. Use Junior ISAs as an opportunity to teach your children how to invest for the future. Learning the principles of financial planning to reach long-term goals is a valuable lesson, so use their Junior ISA as a chance to regularly talk about money.