Not just a present for Christmas

Saving for children with investment companies

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With Christmas around the corner, children are eagerly waiting to start opening advent calendars and counting down the days to see what might be under the tree for them. But parents and grandparents wanting to give a gift that lasts a bit longer might like to consider making an investment for their child. A gift like this could grow into a nest egg and make a big difference towards education costs or a deposit for a first property.

If a parent, grandparent or guardian had invested a one-off £1,000 in the average investment company for a child 18 years ago, it would now be worth an impressive £6,089 (a 509% return), or annualised return of 9.9%. If they preferred to make monthly contributions instead, for example £50 a month, their total investment of £10,800 over 18 years would now be worth £28,810. That could help towards a deposit on a first home or a considerable chunk of further education costs.

The top performing investment company sector over the last 18 years is Biotechnology & Healthcare, with a total return of £9,103 for every £1,000 invested. This is followed by Private Equity (£9,073), Asia Pacific Smaller Companies (£8,933), European Smaller Companies (£7,889) and Global (£7,729).

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “After two disrupted Christmases due to Covid, this year we’re all looking forward to being together with family and loved ones. But with the cost of living crisis and now a recession, the financial demands on young people are becoming ever greater. Our annual student debt research found that two-fifths of students not planning to go to university identified debt worries as one of the reasons, so parents and grandparents might want to consider investing to give their child a head start.

“Investment companies benefit from the long-term growth potential of the stock market. They offer a way to spread investment risk through a diversified portfolio of investments. Over long periods, investment companies have delivered strong performance. A £50 monthly investment in the average investment company over the past 18 years would now be nearly £29,000, enough to make a big contribution to a young person’s financial future. Saving within a Junior ISA will ensure that any income and capital gains are tax-free even after your child turns 18.”

Monthly investing in investment companies

  £50 monthly investment over the past 10 years £50 monthly investment over the past 18 years
Sum invested £6,000 £10,800
Average investment company return £9,724 £28,810

Lump sum investment in investment companies

  £1,000 lump sum
investment 10 years ago
£1,000 lump sum
investment 18 years ago
Sum invested £1,000 £1,000
Average investment company return £2,880 £6,089

Source: theaic.co.uk & Morningstar. Average investment company return is weighted by market capitalisation and excludes VCTs.

For more information on saving for children with investment companies, visit the dedicated page ‘Saving for your children’s future?’ on theaic.co.uk which has six tips on saving for children, as well as a video, guide and jargon buster.

 

-ENDS-

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Notes to editors

  1. Performance for the average investment company is the % share price total return for the weighted average investment company (excluding VCTs). Ten-year performance is from 26/11/2012 to 25/11/2022. Eighteen-year performance is from 01/11/2004 to 25/11/2022. Source: www.theaic.co.uk & Morningstar.
  2. Performance for the investment company sectors is the % share price total return for the peer group weighted averages. Eighteen-year performance is from 01/11/2004 to 25/11/2022. Source: www.theaic.co.uk & Morningstar.
  3. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s vision is for closed-ended investment companies to be considered by every investor. The AIC has 353 members and the industry has total assets of approximately £263 billion.
  4. For more information about the AIC and investment companies, visit the AIC’s website.
  5. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance.  The value of investment company shares, and the income from them, can fall as well as rise.  You may not get back the full amount invested and, in some cases, nothing at all.
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