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Investing fro my daughter
New Novice
Posted: 24 September 2017 17:24:15(UTC)
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My daughter just turned 16. I am thinking to put some for her in an ISA. I am not sure if this should a cash ISA for the annual allowance of £4128 as a junior ISA only or put this as well as £15872 in stock and share ISA as she is entitled to the adult allowance.
Where do you advise to put the £15872 in? and how do you distribute it? and how many holdings? Any suggestions?

I will of course look into these and make my final decision. This is money saved towards her university fees. My younger son has a trust fund and I contribute monthly to this.

Sorry if I sound vague, but I am a Novice and I would like to make some bold but risky decision for my family.

Many thanks


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Chris Howland
Posted: 25 September 2017 12:27:43(UTC)
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You pose an interesting conundrum...

When does your daughter intend to start at university? In two years (when 18) or after a gap year? When will she actually need the money? Timescale (and appetite for risk) are key parts of setting your investment objectives.

That said...

Cash returns are poor at present, and with an interest rate rise (admittedly a small one) in prospect, I question the value of fixed term accounts (although I do hold them myself).

Presumably you don't want to take too much risk with capital (you are investing for your daughters near term future benefit after all), and that would suggest that investing in equity based Investment Trusts might not be wise either.

Personally, and assuming that you don't want too much risk to capital, I'd lean towards fixed interest IT (HDIV, IPE, NCYF or CMHY) which offer decent returns at a lower risk level.

There are also 'left field' choices such as Ratesetter (peer to peer lending) to consider, where rates of return can be as good as fixed interest and capital is ostensibly not at risk to the same degree. Whilst not protected by the FSCS guarantee, they do have an in-house protection scheme, and so far (according to Ratesetter) no lender has lost money.

Despite all the above, the first thing I would do would be clarify your investment goals - they will help you to make the right decisions on behalf of your daughter.

Chris
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New Novice on 25/09/2017(UTC)
Keith Cobby
Posted: 25 September 2017 13:17:14(UTC)
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Hi, your younger son has a trust fund. Is this a Child Trust Fund and is it a cash or stock/shares account?

Your daughter is under 18 and therefore not yet entitled to the adult allowance of £20,000.
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New Novice on 25/09/2017(UTC)
P L
Posted: 25 September 2017 13:20:30(UTC)
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First point you need to be aware of is if she is under 18 then she cannot hold any stocks and shares ISA (and also an Innovative Finance ISA or Lifetime ISA) in her own name. You would therefore have to use a Junior ISA to hold funds/shares. These are held in trust until she turns 18, at which point the JISA can then be converted into an Adult ISA.

Anyone over 16 and under 18 can only hold an Adult Cash ISA in their own name.

This is in addition to a Junior ISA, the JISA doesn't count towards their own ISA allowance of 20K.
In essence it is a loop hole that allows people ages between 16 - 18 to have a higher ISA allowance than everybody else.

If you plan to hold cash then you are likely to find better cash rates outside an ISA wrapper ...

HOWEVER bear in mind interest earned on childrens savings gifted by a parent (outside of a tax free wrapper such as a JISA) are taxed at the parents marginal rate if they receive more than £100 of interest (£200 if both parents gift). This is then set against your personal allowance and personal savings allowance as if the interest was yours.

A better approach would be to get a granparent (or anybody else for that matter) to gift the cash to them, if holding savings outside of a tax free wrapper, as the £100 interest rule does not applied in that case.







2 users thanked P L for this post.
New Novice on 25/09/2017(UTC), David 111 on 01/10/2017(UTC)
P L
Posted: 25 September 2017 14:27:50(UTC)
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Another thing that is worth point out given you have mentioned university fees.

Please please please please go to the money saving expert website and read the explaination given by Martin Lewis before you even think about paying her fees for her.

The so call Student Loan (or debt that journalists and political commentators like to call it) is no such thing. It's really a tax (by another name).

Unless she is going to be a female Mark Zuckerberg or Richard Bandson or Bill Gates, in which case the so called loan is cancelled well before 30 years have passed, whatever you pay off (unless you plan to fund her entirely yourself and she goes on to be a high earner) will most likely have no material impact.

The terrifying interest rate the media keeps bringing up is irrelevant for most people. It's the starting threshold that really matters ie the trigger point to start paying the extra tax.
The key thing to focus on is the repayment rate (9%) or as it should be called the special higher education tax which can last for up to 30 years.

In effect the replayment threshold (21K), interest rate (RPI+3%), repayment period (30 years) and loan balance all work together in a complex way to define how many years anybody will pay the 9% tax for (and hence the total tax take from each student). Depending on your earnings it could be nothing at all or millions.

Looking at it another way you have 3 basic choices

1. Pay your eductation tax bill up front and then pay no extra (9%) tax for the next 30 years.
2. Pay the extra tax for (up to) 30 years and give the government a little extra for no good reason
3. Pay just the extra tax for (up to) 30 years.

If you are Mark, Rick or Bill then option 1 is for you, you save yourself a mint over 30 years.
Pick Option 2 if you turn into Mark, Rick or Bill and you've still lots of years of extra tax paying left ahead of you.
If you are anybody else chances are it is option 3 and ask your parents to put the money they were scared into paying to the student loan company into a decent investment so you have a chance of putting a deposit down on a house.

The only impact the loan repayments have is on debt affordability calculations, ie how big can the mortgage be given your net income.

And just to labour the point

Earn 31K for 30 years and you will pay £900 / yr whether the interest rate is 6.1% or 6 million % and whether you loan balance is 70K or 7 trillion. All a huge interest rate means is Mark pays a mountain of tax as he'll be paying for 30 years the same as everybody else (if he had for some reason not opted out of the tax when his earning rocketed).

The system is rubbish but not because of the so called debt or interest rates, it's rubbish because it allows people to take mickey mouse degrees and then pay nothing for them, study for a degree and then never use it (ie all those Medics that drop out because it was mummy and daddy's dream) and the ultra wealthy as it allows them to opt out of the tax entirely.

In other words the Government has asked the question - would you for the trivial sum of X thousand pounds, paid upfront, like the chance of not paying 30 years of extra tax.










5 users thanked P L for this post.
Jim S on 25/09/2017(UTC), Tim D on 25/09/2017(UTC), New Novice on 25/09/2017(UTC), Mickey on 26/09/2017(UTC), David 111 on 01/10/2017(UTC)
King Lodos
Posted: 25 September 2017 14:30:26(UTC)
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If it's for university, it's going to be a 2-3 year investment, and I imagine it's unlikely she'll be incurring any tax.

So if you want to at least guarantee you'll have the money you've got now, it's going to be 2-3 year fixed rate savings bonds – which might just about keep up with inflation, at rates between 1.7-2.2%. (UK's inflation figure this year appears high because of the drop in Sterling – I imagine it's well below 2% by most measures.)

You could take 10% of the sum and put it into RateSetter .. It's perfectly possibly stocks will be up another 40% by then, but the risk of holding stocks is the also realistic possibility they'll be down 60% when you need the money .. You could put another 10% in Vanguard Lifestrategy80, but it adds some uncertainty .. I think for the long-term (not university) it's very wise to get everyone set up with a Stock & Shares ISA that they pay a small amount into regularly.

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New Novice on 25/09/2017(UTC)
Mr Helpful
Posted: 25 September 2017 14:37:38(UTC)
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New Novice;51361 wrote:
My daughter just turned 16. I am thinking to put some for her in an ISA. I am not sure if this should a cash ISA for the annual allowance of £4128 as a junior ISA only or put this as well as £15872 in stock and share ISA as she is entitled to the adult allowance.


The usual recommendation,
if the monies are definitely required unimpaired within five years,
then Stocks are not the place to be.
Too volatile to be certain of a positive outcome within that time period.
Even Bonds can be volatile.
Which just leaves Cash.
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Tim D on 25/09/2017(UTC), Captain Slugwash on 25/09/2017(UTC), New Novice on 25/09/2017(UTC)
King Lodos
Posted: 25 September 2017 15:13:50(UTC)
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That's why I'd be thinking fixed-rate bonds .. 2-3 year bonds held to maturity, and you can forget about capital fluctuations
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New Novice on 25/09/2017(UTC)
TJL
Posted: 25 September 2017 18:33:28(UTC)
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P L
Thank you for your comments regarding student loans, although I am confused by your last paragraph and can't quite decide which side of the fence you are on.
I have re-read the Moneysupermarket information - much food for thought.
I have sometimes wondered whether this issue would justify its own thread, but it doesn't come up that often, so perhaps not.
Regards
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New Novice on 26/09/2017(UTC)
Jay Mi
Posted: 25 September 2017 18:51:48(UTC)
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About student loans.

The interest, went down when the base rate was reduced in the last year or two. I got my statement through last week and saw they have sneaked the interest rate back up at some point. It's gone up from 0.9% to 1.25%.
The base rate hasn't gone up...
Tim D
Posted: 25 September 2017 19:56:26(UTC)
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Jay Mi;51402 wrote:
About student loans.

The interest, went down when the base rate was reduced in the last year or two. I got my statement through last week and saw they have sneaked the interest rate back up at some point. It's gone up from 0.9% to 1.25%.
The base rate hasn't gone up...


My understanding:

For "plan 2" loans (post-2012), the rate is a sliding scale (depending on earnings) from RPI to RPI+3%. BoE's base rate isn't a factor.

For "plan 1" loans (which I'm guessing you're on) it's the minimum of RPI vs BoE+1%. Although I'd have thought the window of opportunity for being charged less than 1.25% on a plan1 loan was pretty small: RPI was less than that for some months of 2015 but not sure how often the student loan rates are updated.

But what I really want to know is what'll happen when the penny drops that much of the (currently) ~£100 billion (projected £200 billion in 6 years!) in outstanding student debt is never going to be repaid (and with the interest rate tied to RPI, there's no prospect of inflating it away like my parents' generation's mortgages did). Of course the obvious solution is to palm such toxic waste off on the unsuspecting (c.f "subprime"), and indeed back in February there was some news about £12bn of the older loans being "securitized" and flogged off to private investors. Not heard anything about it since though. Be interesting to see how the market/credit agencies etc value it. (Hmmm I see the USA are ahead of us as usual, with SLABS - Student Loan Asset-Backed Securities - being a thing there).
New Novice
Posted: 25 September 2017 20:35:33(UTC)
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To all
I am truly grateful for all your comments. This was my first post and I never thought it generated so much discussion.
It surely gave me food for thought and once again, I am really grateful to all those who replied and contributed.

With every best wish
2 users thanked New Novice for this post.
Chris Howland on 26/09/2017(UTC), Mickey on 26/09/2017(UTC)
Jay Mi
Posted: 25 September 2017 20:51:23(UTC)
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Tim D;51403 wrote:


For "plan 1" loans (which I'm guessing you're on) it's the minimum of RPI vs BoE+1%. Although I'd have thought the window of opportunity for being charged less than 1.25% on a plan1 loan was pretty small: RPI was less than that for some months of 2015 but not sure how often the student loan rates are updated.


Must be that one. £3500 a year for four years plus the maintenance grant. I wasn’t expecting the 0.9% to go up. I didn’t expect it to go down either when they cut the base rate, but they did.

I’ve never looked at how they work out the interest. I just know each week it comes out my payslip. It depresses me.

I’m surprised I’ve not seen an investment trust, move into the area of buying student loan debt. Unless theres is one I don’t know about.

Gone a bit off topic from the original poster...
John Roycroft
Posted: 01 October 2017 09:19:48(UTC)
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Re the discussion on university fees, my son is in the middle of GCSEs. Our situation is unusual in that we live in Bahrain. If he were to get home status, I believe he would qualify for a loan of 17k pa. I expect we would have to top this up by 8k to cover the 9k tuition fees and living costs. After 3 years that's 51k debt of course. The Open University has fees of 5800 pa depending on the course. If he stayed at home for the 3 years and took an OU course, we could cover all his costs and his debt would be zero. No it wouldn't be as much fun as being at uni but he could go away to do a Masters if that's what he chooses. This option wouldn't work for everyone: a practical course like medicine requires being at a brick and mortar institution. The course could not be completed via distance learning. In addition, a student who requires significant guidance or motivation from tutors would find this difficult. Undergraduate degrees have now become the equivalent of A levels in that 'everyone has one.' I am not sure that it warrants debts of 51k.



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Guest on 01/10/2017(UTC), Tim D on 01/10/2017(UTC), King Lodos on 01/10/2017(UTC)
David 111
Posted: 01 October 2017 11:28:33(UTC)
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John - I have two degrees from a Russell Group university and one from the Open University. The quality of the Open University course was far superior to the others. Doing an OU degree does require considerable willpower though and is likely to take longer.
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John Roycroft on 01/10/2017(UTC)
John Roycroft
Posted: 01 October 2017 11:43:31(UTC)
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Thank you David 111. Jack is only 16 but - at the moment - very self-disciplined and highly motivated. We have very little involvement in his studies but he is achieving A grades across the curriculum. He is particularly interested in Economics which would be fairly straightforward as a distance learning degree. He has doubts about university because of the debts - 51k gbp seems insane when much cheaper alternatives are available. As expats we live in a very international community. Jack could spend time in different locations with friends of ours whilst continuing with his studies - the internet provides huge geographical flexibility. We shall see..
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