• Gifting investments this Christmas will clear clutter and leave your child richer
• The price of a Lego Harry Potter Chamber of Secrets playset each Christmas could generate £3,500 by their 18th Christmas
• The value of the Barbie Dream House in a Junior ISA could be £8,268 by the time they’re 18
• Even sacrificing a £30 LOL Doll each year will bring £800 after 18 Christmases
• Fund tips for Christmas gifting
Laura Suter, head of personal finance at AJ Bell, comments:
“Parents who forgo presents for the kids this Christmas and instead invest the money for them could generate almost £3,500 for the price of the latest Lego toy or more than £2,100 for the latest Micro Scooter Mini by the time they’re 18.
“Many parents already struggle to squeeze all their kids’ toys into the house as it is, so the thought of adding more to the pile may be worse than an unwelcome sprout on your Christmas dinner plate. But instead of adding to the pile of presents, parents could take the value of the latest must-have toy and invest the money in a Junior ISA instead.
“For the price of this year’s top toy: the Lego Harry Potter Chamber of Secrets playset, which is £130, parents could generate £3,467 if they invested that money every Christmas until their child turns 18, assuming a 4% annual return. The Paw Patrol Ultimate City Tower play set comes in at a cool £160, which if invested every year could generate £4,267 by the kid’s 18th birthday. Even putting away the value of a more modest present every year, like a £30 LOL Doll, would give you child a nice £800 present by the time they’re 18.
“And for parents going all out and planning to buy something like the Barbie Day to Night Dream House playset, for £310, could instead give their kids £8,268 by the time they are 18 – which is probably more attractive to an 18-year-old than a Barbie playset gathering dust.
“Some parents might feel like a scrooge for not giving their children a present to open, so instead they could just opt to buy a slightly smaller present and invest the difference. Or they could get grandparents involved and get them to gift money to be invested, rather than buying a new toy.
“The case is even more compelling for those with young children, who will probably take more interest in the box or wrapping than the actual gift. Even just putting £200 into an investment account for a child’s first three Christmases and then adding nothing after that would give them £1,169 by the time they get to adulthood.
“If you’d have taken the price of the Lego Hogwarts Castle that was released in 2001 costing £79.99 and invested it in the FTSE 100 it would be worth £229 today. Or if you had savvily predicted that Scottish Mortgage Investment Trust would have been the best performing global fund over the past 20 years and invested your £79.99 in that, you’d be handing your child a £2,300 Christmas present this year.
“The current Junior ISA limit is a whopping £9,000, and any parent fortunate enough to be able to put that amount away for their child each Christmas would be handing them a £240,000 present on their 18th birthday. However, for many parents that will be a pipe dream and even squirreling away a little money each festive season will be enough to help your kid out when they’re 18.
What about Premium bonds or cash?
“Some parents or grandparents might be wary of putting money in an investment account, and in fact 70% of all Junior ISA accounts are cash accounts, rather than stocks and shares. But while it might feel a bit more complicated or risky now, your child may well thank you for taking the move into investing.
“The top rate you can get on a cash Junior ISA at the moment is 2.5% with Loughborough Building Society, but that’s a variable rate and could well fall, leaving you with the hassle of switching or leaving your money earning minimal interest. If we assume you save £600 a year, or £50 a month, into the Junior ISA for 18 years you could turn that into £16,000 by investing it, if you earn 4% a year. If you instead opted for the best cash rate today, 2.5%, and that dropped to 0.5% after two years, you’d end up with £11,367 – £4,636 less.
“Premium bonds have always been a popular gift for children: they’re easy to gift and there’s the added gamble that you could make your child or grandchild a millionaire. But the effective prize fund on them has been slashed continually and is now just 1%. If you’re locking money away for up to 18 years it’s an ideal investing horizon and you can afford to ride out any market falls, and likely earn much higher returns.”
3 funds to gift this Christmas
Fidelity Index World – a low-cost passive fund that tracks the global stock market and so gives exposure to loads of companies around the world. A good option to ‘buy and forget’ and only costs 0.12% a year.
Liontrust Sustainable Future Global Growth – If you want a green investment for your child’s future, this fund has proven pedigree. It invests across the global stock market but focuses on companies that are driving sustainable growth. As it’s an active fund it has higher charges of 0.88% a year.
Scottish Mortgage Investment Trust – This £20bn FTSE 100 listed investment trust invests in a lot of ‘trends of the future’, such as electric vehicles or genomics, as well as a number of early-stage companies, that will hopefully have blossomed by the time your child has grown up. It also only charges 0.34% a year.