What makes investment companies a good Christmas present?

Are you still playing with your Cabbage Patch Kids dolls or battling with your Rubik’s cube? Do you know where your Buzz Lightyear toys are gathering dust or what’s happened to those Teenage Mutant Ninja Turtles? If you’re like most adults, the answer is no. While these Christmas best-sellers of the eighties and nineties were much appreciated when they were received, they haven’t exactly stood the test of time.

By contrast, there’s a good chance you know exactly where your savings are stored – and that you keep a close eye on them. Money might not be the most imaginative Christmas present – or the most exciting gift to unwrap – but at least the little ones will still appreciate it when they’re older, assuming you invest it wisely that is.

Step forward the humble investment company savings scheme, now accepting lump sum gifts of as little as £50 depending on the fund. Data just published by the AIC shows just how valuable these plans can be: a £100 lump sum invested every year for 18 years between 1996 and 2014 would today be worth £5,087. Even a single £100 investment made 18 years ago would be worth £484 by now.

That money could make all the difference to a young adult – as a contribution towards the cost of higher education, say, or a down-payment on their first car, or even the starting point for a deposit on a property.

The key, however, to the best cash gifts at Christmas is to ensure the money is protected from the ravages of inflation. A crisp £10 note (assuming it isn’t simply spent) will actually lose value in real terms if deposited in almost all of the bank and building society savings accounts on offer today.

Stock market investment represents your best opportunity of giving a financial gift that grows in value – in that sense, it’s a way to soup up your festive purchasing power. The old clichés about the stock market are true: while equities can rise and fall in value very dramatically over short-term time periods, over longer terms, they tend to produce better returns than other asset classes. And if you’re investing for relatively young children who won’t be cashing in the money until their adult years, you can afford to take a long-term view.

What you do need though is a diversified portfolio of holdings, which is why it makes sense to buy a collective fund rather than trying to pick a single share. The risk of investments in individual equities is higher than the risk of buying a broad portfolio.

Investment companies are well suited to these needs – they provide diversification, long-term stock market exposure and professional management, as well as facilities set up specifically for investing on children’s behalf.

Finally, don’t forget to get the kids involved and interested in the investment. Children are fascinated by money and an investment company’s regular updates can be a great way to get them to buy into the culture of saving from an early age. Succeed in that and you’ll have given them a gift to last a lifetime.