​In my December 2019 blog post ‘How can I save and invest for my children?’, I proposed the following savings strategy for university, I said:
 
“If you can save £20,000 in a tax-free account like a stocks and shares ISA by the time your child is 5 years old, then you can stop putting money aside and this money will have a reasonable chance of growing to £60,000 by the time your child is 18 years old.” Even if you don’t add a penny to that pot.” Some projections are set out in that post.
 
Part 2 of my investment strategy was to start investing £100/month into a junior SIPP when your child turns 5 (that is, once you’ve invested £20k into their stocks and shares ISA) so they don’t receive too much money all at the age of 18.
 
In this post, I take you through why it’s so hard to get investing, what made me start and how my university strategy is working out so far.
 
It’s extremely hard to start investing in the stock market…
 
…not just because it’s risky but because we first generation investors simply don’t know where to even start.
 
The average person doesn’t listen to financial podcasts or read the financial press and they have little interest in starting, they’d rather someone they can trust lay out a ‘set and forget’ path to not-too-risky investing for them.
 
And, I’ll be the first to admit that, even with an Economics degree and an accounting qualification, if you’ve not actually experienced being a stock market investor, understanding things like compound interest and why they might help you one day be able to retire can feel insurmountable.
 
How I got started with stock market investing
 
It wasn’t until my second job, two years into my career, in 2007 that I qualified for a pension. I was at my desk filling in the opt-out form and chatting to my colleague, Karen, as I did, when she stopped me from opting out.
 
I explained to her that we Africans don’t invest in pensions, there’s no sense in it, the only path to a safe retirement – so I thought at the time – was property and that’s where I planned to focus my retirement savings.
 
She said, “just do it until the match”. This was a phrase I’d never heard before but I now hear all the time, particularly in American podcasts. If you’re in a defined contribution pension scheme – which is what most of us have nowadays – your employer will usually contribute more money into your pension ‘pot’ if you also make some pension contributions. So, I took Karen’s advice, and opted to contribute 3% so that my employer, HSBC at the time, would boost their contribution by 3%.
 
The money was invested in a passive global equity tracker. I understood that to mean I was 100% invested in equities (no bonds) and passive meant the fees were low. HSBC paid all fees on pension savings so it was cheaper for them to invest in passive funds.  Although I didn’t know it at the time, passive investing tends to outperform ‘active investing’ anyway so this was perfect for me. 'Active investing' is the type of investing where a 'clever fund manager' chooses how your money is invested.
 
Five years later when I left my HSBC job for a stint in the world of self-employment, total contributions were worth £29,885 of which I had only contributed £5,870 from my salary. There wasn’t much in the way of capital gains but I hadn’t lost anything. To be fair, I still wasn’t convinced by pensions and didn’t consider this pot of money a big deal.
 
We’ll leave this story for now, this first pension pot takes on some significance later in the story but this was my first foray into stock market investing.
 
Why I ‘consciously’ decided to started regularly investing in the stock market
 
My trigger for wanting to invest in something that wasn’t property-related or my next holiday was having a baby, yes, a year and a bit into self-employment – having never wanted them before – something possessed me to think babies were a good idea. And, despite having PCOS, I ‘caught’ right away...no time for mind-changing.
 
I was 31 when the baby arrived but, honestly, I felt like a kid having a kid. It was a massive gear shift from three decades of taking care of just myself to having to care and plan for another life, I was forced to start being much more proactive about our future – not just retirement now, but university, school fees, maybe even helping our children get onto the property ladder.
 
The Halifax was offering a 3% cash ISA at a time when bank interest rates were sub 1%. It sounded brilliant.
 
I’m the family CFO. My husband is a typical medical doctor, he doesn’t care at all about managing money so he just lets me get on with it. The plan was to save £4,000 a year (this was a little less than the junior ISA limit at that time) for five years then to let the saved £20,000 grow until it was time for university.
 
In practice, we saved £250/month into the Halifax ISA as this amount felt more achievable then at some point before the tax year I’d scramble £1,000 together to make a £4,000 contribution for the financial year. I was two years into self-employment at the time so some months income were much better than others.
 
After a year of what felt like really hard work to save this £4,000 the interest was a whopping £133. I thought, “Is that it? There has to be a way to get better returns than this?” Despite this, I continued saving into the Cash ISA for almost another year before I got truly fed up with the low returns.
 
Some googling led me to a Hargreaves Lansdown stocks and shares Junior ISA. I transferred just shy of £8,000 to them a little before my son’s 2nd birthday and started saving into a portfolio of three ‘ready-made’ funds. These were selected for me by HL according to my stated risk tolerance.
 
By now, I was six months away from having a second baby…our dear daughter had a Hargreaves Lansdown stocks and shares Junior ISA within a week of birth.
 
Now I was the ‘wealth manager’ of almost £10,000 in assets under management I started getting interested in what I was actually invested in. I compared my chosen funds to others and realised their returns were relatively poor and fees relatively high because they were actively managed funds.
 
I swapped out into Fundsmith and a Lindsell Train equity fund, two actively managed funds that were getting great returns at the time. They continued enjoying above-market returns even with their high-ish fees until COVID
 
Back to my first pension pot
 
Five years of self-employment later, I hadn’t paid anything into pensions and my HSBC pension pot had double in value £30k was now c.£60k– it was at this moment that the penny dropped and I realised I’d be a fool if I didn’t start actively investing in a pension again.
 
It was also at this time that I decided to do an accounting qualification to increase my value in the job market and learned that money goes into a pension before income tax is applied – I couldn’t believe that I didn’t already know this. Why didn’t anyone think to tell me?!
 
Anyhow, it’s been 12 years since I left that job and that £30k pension pot has almost quadrupled to just shy of £120k – that’s an average annual growth rate of almost 12%. It hasn’t all been growth, mind you, when covid hit in March 2020 the value of the pension tanked but it soon recovered. Emotionally, I wasn’t bothered by the fall in value, I was actually excited by it and said to my husband at the time that if we’d had the money, I would have invested all I could to capitalise on the cheaper prices.
 
So I could see both the lows and the highs of our various assets, I started keeping track in 2019, this is what’s happened with my first pension:

​As they say, what gets measured gets improved and overall, I have found this to be true. Seeing our debts on paper makes me want to reduce them as I increase the asset values.
 
So, what’s happening to the university ‘pots’?
 
Our son turned 10 in December so his £20k has been growing without additional contributions since his 5th birthday, and it has more than doubled to £42k.
 
Our daughter is 7.5 years old and she’s also seen decent growth but not quite as much as our son – a real testament to how ‘time in the market’ acts to help funds grow.
 
Now, having see the growth in the ISA value my husband and I both feel like these will look much more like deposits on a first home than university funds. We’ll see what happens but at least we now have the option.
 
As for the junior SIPP, we saved £100/month into our son’s junior SIPP for a year when he turned 5 but when he turned 6 the money was needed for a refurb so we stopped for a year…we did faithfully start again on his 7th birthday at the same time as we started saving into his sister’s junior SIPP.
 
Interestingly, despite this, the extra £1,200 which was invested early gave our son so much of a boost that the difference started to look unfair, We’ve therefore increased our daughter's contributions to the maximum allowed of £240/month until her SIPP catches up in value.
 
This is how the junior ISA and SIPPs have performed:

Overall, we’re glad that we can’t touch the children’s money because if we could, we would have cleared all these accounts for our refurb. Investing a little continuously also turned out to be a great way for us to learn about investing and to apply those lessons to our own ISAs.
 
The key lesson from our experience investing for children is that we set the threshold low enough that it’s never felt like a burden but it’s added up to a huge amount over time. Assuming the S&P500 maintains its long-term average growth rate of 10% (2% lower than the return enjoyed so far), each child is looking at £90k by the time they are 18 years old and about £120k on their 21st birthday…that’s not an amount to sniffed at especially considering this started out as just £20k.
 
There are two key aspects of UK investment philosophy that I think hinder its growth compared to the US::

• Our cultural reluctance to discuss personal finances: In the UK, we are often too awkward or embarrassed about openly discussing our financial situations. This contrasts sharply with American culture, where individuals readily share the details of their finances on YouTube or through podcasts – predominantly using their real names and real numbers. Listening to such open conversations allows us to learn from others' experiences. Overcoming this discomfort could encourage more Britons to invest outside pensions. I’m not immune to British conservatism either, however, I do have friends I trust enough to discuss finances with and I learn a lot from those interactions.
• Conservative British views on investment returns: UK discussions around investment returns tend to be overly cautious and pessimistic, with professionals often citing 4–6% returns at most. In contrast, US podcasters and YouTubers frequently highlight double-digit returns, making investing seem more enticing. Moreover, focusing on nominal returns rather than real returns might resonate better with the average person, making the concept of investing more accessible and appealing. Highlighting that the value gets eroded by inflation defeats the objective of just encouraging people to invest.

 
Although the average Briton has a long way to go to match the investment enthusiasm of the average American, the rise of charismatic British personal finance YouTubers suggests the gap could begin to narrow over the next decade. Here's to hoping!

See my home page for helpful resources.

Hi Heather

My name’s Grace. I’m looking into saving money for my little one so that it can be invested in the same way as government-backed child trust funds. My older one has a child trust fund but I don’t know how to go about opening something similar for my younger child. As I understand it, banks don't offer government-backed child trust funds anymore.

Hi Grace,
 
Thank you for this message.
 
In podcast episode number two, I talked about how you can save and invest for children in today’s world. All that information is still relevant so please have look at that post for ideas on the best saving strategy.
 
A Child Trust Fund (CTF) is a long-term tax-free savings account for children.
 
You cannot apply for a new Child Trust Fund because the scheme is now closed. The alternative available for today’s parents is the Junior Individual Savings Account or junior ISA.
 
What is a junior ISA?
 
A junior ISA like its adult equivalent is a tax-advantaged account that can be used for saving or for investing in the stock market. Once you place money into a junior ISA it cannot be withdrawn until your child is 18 and it legally belongs to your child so you would not have control over how that money is used.
 
This is not necessarily a bad thing but it’s something you will need to consider when you’re making a decision. I know a few people that don’t want to use junior ISAs because they don’t want their children having cash that they as parents can’t fully control. Personally, I think that I would still be able to guide my children about the wise thing to do with the money and if they didn’t want my advice that would still be useful information for me to know.
 
My approach is that because you won’t have full control over the money you might want to limit how much you put into the junior ISA so that your child doesn’t have too much money available at the age of 18.
 
 
The junior cash ISA
 
Saving into a junior cash ISA is like saving into any bank account, it earns a very poor interest rate and is therefore not a great idea at a time when interest rates are so low.
 
A junior stocks and shares ISA
 
The alternative option is a junior stocks and shares ISA.
 
The value of the stock market falls and rises but when money is invested over a long period of time it tends to rise. For example if you are investing for a 10-year period or more you can have a reasonable degree of confidence that your investment pot will produce a good return – certainly a better rate than current savings rates.
 
In podcast episode 2 you will see that my strategy is to invest £4k/year from birth to age 5 and then stop once I have put £20,000 into each child’s ISA.
 
Once I reach that I stop and just watch the money rise and fall. My son’s £20k investment now has a value of £26,000 and he isn’t 6 years old yet. If the stock market enjoys a 10% return on average over the next 14 years he will have just over £100,000 in his stock account from that £20,000 that I invested – that is the miracle of compounding, something Einstein called the 6th wonder of the world.
 
Even if the pot only grows at half that rate, that is at 5%, he’ll still have £50,000 – that’s a princely pot of cash that could be used for university or a deposit on his first home.
 
How to set a Junior ISA up
 
If you want to open a junior stocks and shares ISA there are many brokers you can use. To start off with, I would suggest you look into

• Hargreaves Lansdown or
• Fidelity

 
I have provided you with links to pages that will give you  more information on the junior ISA.
 
Personally I use Hargreaves Lansdown for my children. The fee for using the platform is 0.45% per year versus 0.35% at Fidelity.
 
HL have a user-friendly app and have made setting up direct debits so that investing for my kids is easy.
 
The key difference between HL and Fidelity besides the platform fee is that Fidelity also create investment products and may therefore have an incentive to push some of their own products to you. HL aren’t completely innocent though, they earn more if you invest in actively managed funds so they have an incentive to recommend actively managed funds to you.
 
The best strategy is to know what you want to invest in. As a new investor you might want to keep things simple and put the money in low-cost diversified index funds. These are funds that are invested in many companies so you won’t be putting all your eggs in one basket.
 
Here are example of funds that my children are invested in:

• FundSmith Equity, Class I – Accumulation
• Lindsell Train Global Equity, Class D – Income
• L&G Global Tech Index, Class I – Accumulation
• L&G International Index Trust, Class C – Accumulation

 
I have given you a link to each fund’s page so that you can read more about what the funds are invested in and what the fees look like.
 
I hope this helps you kick start investing for your children. Junior ISAs do not have the government boost that the Child Trust Fund did but they are a very similar product and have much more flexibility attached to them because you can invest in a wide range of products.
 
Even if you start of with a small amount, it will give you some confidence and you will begin to learn how the stock market works. Investing for our children is the path that got us investing for ourselves too.
 
Good luck and keep in touch.

Heather
​p.s. subscribe to my podcast and ask me any money question, HERE - do it now!