Have you ever read an article about how much a portfolio could be worth if someone had started investing for you when you were born – and then wondered why nobody did think to start investing on you behalf during your childhood?
Whether they actually did or did not, the good news is that you could now decide to start investing on behalf of your child, grandchild or other young relative or family friend.
Before doing so, there are some things to think about.
Why invest – and with what objectives?
Even well-intentioned gestures can sometimes be received differently to how you hope.
That may be by a parent of a young child now. Or it may be by the child once they hit their twenties and declare their ideals before belatedly realising a large part of their wealth is in the BAE Systems and Babcock shares you bought for them.
Get agreement from the child’s parent(s) or legal guardian (if that is not you) before doing anything. It can also help everyone to set out some reasoning as to what you are trying to achieve and why.
Is it about capital accumulation, for example to help towards a future home purchase?
Or is it about passive income, whether for pocket money in childhood or living expenses in early adulthood?
Alternatively, could it be primarily just to try and engage the child in learning about business, financing, investing and personal finance?
Choose the best way to invest
There are different ways to start investing in the stock market on behalf of children.
An obvious place to start is to look into the pros and cons of a Junior ISA. Perhaps less well-known but also worth a look is a Junior SIPP. Opening a pension for a newborn baby is real forward planning!
For grandparents who are not also legal guardians, however, Junior ISAs and Junior SIPPs may not be an option directly. The rules state that they can only be opened by a parent or legal guardian.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Grandparents may still be able to provide the cash necessary to start investing through such platforms.
Or they can consider the potentially more convoluted (but more widely available) process of setting up share-dealing accounts as parts of a trust fund.
Build a suitable portfolio
Whatever the structure chosen and objectives set, there will come a time when you are ready to start investing.
The long timescale of childhood is well-suited to a long-term approach to investing.
One share I think is worth considering both for its long-term growth and income potential is FTSE 100 financial services firm Aviva (LSE: AV).
As adults know better than children, insurance is boring but one of life’s necessities. That means the market is vast and also resilient.
Aviva is the UK’s leading general insurer. It has burnished its scale through moves such as acquiring Direct Line.
That gives it economies of scale. It has well-known brands, an enormous customer base (millions of whom already buy more than one financial product from it) and proven expertise in underwriting.
There are risks, such as the occasional downward turn in insurance premiums. As the country’s leading insurer, that could hurt Aviva’s profitability more than most rivals.
But I like the company’s potential – and its 6.2% dividend yield. That is double the current FTSE 100 average.
Should you invest £5,000 in Aviva Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva Plc made the list?
Christopher Ruane does not hold any positions in the companies mentioned.
