We all know Christmas is an expensive time of the year - according to predictions by APACS, the UK payments association, UK consumer spending on cards, cash and cheques will reach £53.0 billion this December alone! What makes it even more galling is when your pricey present has to compete with everything else Father Christmas and his helpers have left under the tree. So, if you'd rather put your money to better, longer-term use and give it the potential for some financial sparkle what gifts can you pull from the sack? Many people opt for those that invest in the stockmarket. True, the investment will go up or down in value and there is a risk of getting back less than you invested, but given the number of years the investment will be held there is the opportunity of riding out short-term volatility and generating decent returns over the longer term.
Child Trust Funds (CTF):
If the child was born on or after 1 September 2002 you could consider adding to their Child Trust Fund (CTF). The proceeds grow tax free and the child can't access the money until they are 18. If you need to choose a CTF then F&C's tracker fund is a good choice for stockmarket exposure.
Pensions:
Not the most exciting Christmas present you could offer and unlikely to be favoured by little Jonny over any other present, but things may be different when they are older. Given the favourable tax treatment (children can benefit from income tax rebates even if they pay no income tax) and the considerable effect of compounding over the years (pension money is not accessible until they turn 55), don't you wish a nice relative had given you a pension when you were young? Stakeholder pensions are cheap & cheerful - have a look at Scottish Widows for a simple plan with a good range of funds.
Investment Funds:
There are number of funds which are marketed as being suitable for investing on behalf of a child. Some may offer a free toy or membership of a club, but don't get sucked in by the hype. Often the only difference to any other fund is that the minimum investments are lower, thereby making them more suitable for a one-off Christmas present rather than a large commitment. However, these stem back to older times when regular savings schemes where less available, or more expensive. These days fund supermarkets offer a huge range of funds with low minimum investments and consistent charging. So you're better off choosing between all funds, not just those with a childrens theme. With so many to choose from which way do you turn? Here are some ideas:
- International funds:
Who knows which economies and which sectors will dominate over years to come so why not invest in an international fund? Bestinvest rates Artemis Global Growth.
- Worried about following the Christmas star?
This year's star manager could be next year's dog. Do you really want the hassle of following the manager's performance on a regular basis and swapping funds as a result? Instead, Multimanager funds can do this for you. Here the fund's money is invested in lots of other funds. The manager of the multimanager fund then monitors the performance of these other managers, swapping & changing them as appropriate. Multimanager funds are a little more expensive since you have two layers of costs to pay for, but it can take the strain out of managing the money yourself. Bestinvest rates Jupiter's Merlin Worldwide Growth .
- Kings of Orient:
Despite some concerns about current valuations, we believe the long-term potential of Asian economies is significant. These markets tend to be very volatile and their dependence on the US should it continue to fall on hard times will be testing. However, if you're happy to accept higher risks in the hope of higher returns, especially if you expect the investment to be held for many years while the child grows up, an Asian fund may be attractive. Bestinvest rates First State Asia Pacific Leaders.
Each of the above funds invests some of its money outside the UK. We feel this is important to gain a good spread of investment and increase the chance of having a toe in the best economies of the future. However, be mindful of the risk of foreign currency movements against the pound which can erode any value in the underlying funds.
Gold:
-Funds: One of the gifts presented by the three Kings and still popular today. Gold had been bouncing around all-time highs and has long been seen as a default currency, especially in times of uncertainty and fears of inflation. There are a number of investment vehicles which provide either direct or indirect exposure to gold and other precious metals. Be aware though the price of many of these will move around with the stockmarket and not necessarily follow the price of gold itself. Bestinvest rates Merrill Lynch Gold & General .
-Sovereigns: If you like your presents to be tangible and wrapped under the tree, but also like the idea of the gold funds mentioned above, why not consider 'pure' gold. According to The Royal Mint, the first sovereign was struck in 1489 on the orders of Henry VII. Sovereigns are still being made and a thriving collectors market exists. The Royal Mint offers a Baby Bullion Sovereign Set which comes in a presentation box.
How about ERNIE wise for a Christmas Special?
If you think pensions and CTFs hark more of humbug than hallelujah, why not consider Premium Bonds . Available in amounts of £100 or more and guaranteed by the government, each £1 bond enters the holder to a monthly prize draw. Bonds can be bought on behalf of under-16s by parents and grand-parents. There are two top prizes of £1 million pounds each and thousands of smaller prizes, all tax free. Premium Bonds do not earn any interest, so you'll need to win some prizes if you want to keep ahead of inflation. They do however bring excitement given the chance of a big win. (ERNIE is the name of the computer that randomly selects winning bond numbers.)
*Always be aware the favourable tax treatments described in this article may change in the future.