The Lemon Fool

I have a baby due in a month or so. As such I wish to set up some kind of HYP or long term investments. So that when the little money sucker gets older, we'll have some cash to one side.

On that point I am thinking of setting aside £4k to start the pot off. However, I am torn on this. Would it be better to

1) invest in a few core shares
2) stick it into an IT with a nice dividend
3) put it into a fund which accumulates like the Vanguard 100

I really am not sure here as each has a downside. The stocks mean I won't really be able to build a diverse portfolio as the amount would get eaten by fees if too small. The IT will charge a high(er) fee than a nonmanged fund, but has a good dividend and strong history; for example, CTY. And the Vanguard option simply mirrors the market so has a low fee, but it's about as dumb as they come.

Thoughts please!!

I think it all depends on whether or not you will be able to add cash to the portfolio over time.

If you can, they you could start to build an HYP, perhaps buying 4 different shares with the £4k, then adding to them over time. The Halifax Sharebuilder allows you to buy relatively small packets of shares at minimal cost, and if you were able to put away £100 a month, you could add an extra share each year, for example.

If not, then I would go down the IT route, but perhaps by going for a dividend paying share like CTY and a more growth oriented share like FRCL or WTAN alongside it.

I have an aversion to funds in general, but they do have their place. Whatever you do, think of it as a long-term investment. Children always make demands on your resources, be it school excursions, clothes, university, getting married, etc. If you can build the portfolio into something larger, the dividends will start to get sizeable. If you do it inside an ISA, then it is out of the taxman's reach.

TJH

minerjoe wrote:I have a baby due in a month or so.

Congratulations!

minerjoe wrote:... I am thinking of setting aside £4k to start the pot off...

tjh290633 wrote: If you do it inside an ISA, then it is out of the taxman's reach.

You can open a Junior ISA in the child's on name, no need to use your own....
https://www.gov.uk/junior-individual-savings-accounts
...the £4k starter suggests that you may be thinking along those lines.

minerjoe wrote:
On that point I am thinking of setting aside £4k to start the pot off. However, I am torn on this. Would it be better to

1) invest in a few core shares
2) stick it into an IT with a nice dividend
3) put it into a fund which accumulates like the Vanguard 100

£2K into FRCL (Foreign and Colonial Investment Trust) and £2k into Vanguard 100 Lifestyle.

Cheers,

Itsallaguess

I fund the grandchildrens CTF accounts now converted to AJ Bell YouInvest junior ISA and decided from the start to buy them HYP shares in the hope it will teach them a little about long term HY investments, now after 8 and 10 years both accounts are doing well and we have great fun deciding on new stock to add each year also the monthly £1.50 trading days allows us to reinvest the dividend cash a few times a year

Congrats miner!! I wish my parents had had your vision and foresight. In your shoes I would buy a core holding certainly, then gradually build the HYP up over time.A great idea and I wish you well with it. Keep us informed of the littleun's progress. (the HYP, and/or the child. )

Ian.

Personally I would stick it all in Scottish Mortgage.

I'd start off with one of the well known generalist ITs. Something like FRCL, CTY, PLI do be sure footed and cope with the many changes which may happen in the world without the need for your intervention. As the pot grows, then maybe you could expand the range a little.

Arb.

Thanks for the input. On the ISA itself, it will be in my wife's name, not the child's. This is so we can access it when we want, but also so when he gets to 18 he doesn't have access to a big pot of cash and do something silly (as we all may have done at 18!).

This will be a tough choice, once I've taken the plunge it'll be much easier and I'll be able to stick to a strategy

That's fair enough, minerjoe. I have savings plans in bare trusts, as designated accounts for each of my grandchildren, which they will get access to when they are 18. The first will be next year, and she will be able to do as she wishes with it. It may be help pay for university, to help with her first property, to spend in a gap year, to buy a car, the choice is hers but I hope that she will take her grandfather's advice.

TJH

minerjoe wrote:Thoughts please!!

Hi minerjoe

I write from experience of starting 5-share HYPs (inside SIPP wrappers) for the juniors about 7 years ago. 5-shares because funds were small and I wanted to started small and reinvest dividends into new holdings as time progressed. Unfortunately one of those shares (my own 5 highest yielding at the time) was Carillion, and the portfolios are worth much less today.

Given the intended timescale of these investments - 40+ years - I've decided "fire and forget" is a MUCH simpler approach for the juniors (and me) than HYP, so these funds have since been reallocated to City of London IT (CTY), although I'm currently thinking about moving that onto accumulation (rather than dividend paying) shares of some cheap tracker fund, since the income is not needed now.

On Junior ISAs, I've commented elsewhere on what I like to term "frivolity risk", and will requote myself below.

Good Luck - whatever you choose, you've had the foresight to start now, and time is on your side.

M


viewtopic.php?p=97783#p97783

moorfield wrote:

didds wrote:didds which is why didds jnr (adult now just) won;t be getting the dosh yet cos it will just6 get frittered away. Didds Jntr can fritter at away when ay uni ;-0

I share your thinking there didds, which incidentally is why I am not putting our hard earned and gifted into Junior ISAs. That's not being tight, it's just mitigating what I like to term "frivolity risk".

Instead of SIPP, would suggest to fill up your Mr+Mrs ISA allowances first, into some fund allocated for Didds Jr's benefit. We're using City of London IT, reinvesting dividends, and the longer term plan is to match the juniors' future loan/fee repayments with dividends/sales cashflows from that (on the understanding that - flunk your degree, and your debts are your own ... )

We've just had our first grandchild, and I've opened a junior ISA for him with Vanguard, all invested in the Vanguard LifeStrategy 100 fund. Maybe de-risk to other Lifestrategy flavours as he approaches 18.

MP

On that note worth coming back to say

I put 2k into City of London Investment Trust (CTY) and 2k into Vanguard 100 lifestyle Acc

Hopefully over the next few years I will continue to top this up. It is however in my wife's name, just to avoid sticky fingers when he gets older!!

On that point I am thinking of setting aside £4k to start the pot off.

work out how much it will cost you to reinvest dividends , it's not really worth buying individual shares unless you have a portfolio value of 100K or more,the transaction costs as a percentage of the portfolio is just too high. So go for some kind of fund that accumulates dividends.

colin wrote:

On that point I am thinking of setting aside £4k to start the pot off.

work out how much it will cost you to reinvest dividends , it's not really worth buying individual shares unless you have a portfolio value of 100K or more,the transaction costs as a percentage of the portfolio is just too high. So go for some kind of fund that accumulates dividends.

If you are adding to your pot from time to time, then just add the accumulated dividends to the sum available to buy new shares. If you are in a platform which charges a percentage to reinvest dividends, then you can choose that route, otherwise let them build up until you have enough to make an economic purchase.

Funds suffer from the level of ongoing charges, or from initial charges if applied.

TJH

Funds suffer from the level of ongoing charges, or from initial charges if applied

True but when the charge can be as low as .06% per year then that's £12 a year on a £20,000 portfolio, the same amount in individual shares might produce £600 of income if you are going to add more money every year yes that can be hoovered up and added to another share but you have got to think about how you intend to manage such a portfolio , it may well transpire that for you individual shares are just not worth the bother.

colin wrote:

Funds suffer from the level of ongoing charges, or from initial charges if applied

True but when the charge can be as low as .06% per year then that's £12 a year on a £20,000 portfolio, the same amount in individual shares might produce £600 of income if you are going to add more money every year yes that can be hoovered up and added to another share but you have got to think about how you intend to manage such a portfolio , it may well transpire that for you individual shares are just not worth the bother.

Investing in individual shares can be cheaper still when you reach a critical level, with annual charges of £40 or even zero.

The apparent charge excludes some significant expenditure.

TJH

Hello TJH
how many shares should be held in the portfolio and how much would it cost to buy those shares?
How do you suggest the portfolio is managed? as simple buy and hold or some element of active management? What should be done as shares rise or fall in value? and how would dividends best be reinvested ? How should money be withdrawn , by selling a portion of each share so the portfolio balance remains the same or would it be better to use some other method? How might one choose suitable shares for such a portfolio and would they remain suitable as the child grows up? Any opinion you might have would be greatly appreciated I am sure.
Thanks

colin wrote:Hello TJH
how many shares should be held in the portfolio and how much would it cost to buy those shares?
How do you suggest the portfolio is managed? as simple buy and hold or some element of active management? What should be done as shares rise or fall in value? and how would dividends best be reinvested ? How should money be withdrawn , by selling a portion of each share so the portfolio balance remains the same or would it be better to use some other method? How might one choose suitable shares for such a portfolio and would they remain suitable as the child grows up? Any opinion you might have would be greatly appreciated I am sure.
Thanks

That's a matter of personal choice. With £20,000 to invest 15 shares would be feasible, but 10 if you felt that more would be too many. Back when PEPs were introduced, you could only invest £2,400 in the first year. I chose 3 shares and a fund.

Strategy is again personal choice. You might plan to add £20,000 each year, in which case maybe 4 in the first year and 4 in subsequent years. Once the total has got to 20, say, then start building up underweight holdings, or adding to those with the better dividend record. In general, ignore fluctuations in share price, but if a share goes on a runaway rise, trimming back at some stage may be advisable. Back in 1997, when I had 18 holdings, Lloyds-TSB and Zeneca both shot up above 10% of the total, so I decided that 10% was a sensible limit and trimmed them back. Later, when I had over 20 holdings, I worked on twice the median holding value and now, with 30-plus holdings, I work on 1.5 times the median. The value of holdings does affect what you do, of course. Say you started at £5,000 per share, one rises to £12,000 so you decide to trim back. You could trim by £5,000 and buy an extra holding, or spread it around lower valued holdings.

If a share ceases paying dividends, with little prospect of resumption, then dumping them may be a good move.Not always, as the market can be perverse. Myobjective is dividend income, so if a share rises so much that the yield falls significantly below about half that of the market, then it may be time to wave it goodbye and reinvest the procees in a new share with a yiled 3 or 4 times higher. At the moment I have Pearson and Tesco, both of which have yields below 2%. I also have Indivior, which does not pay dividends, and which is my first likely candidate for the chop. I'm in no hurry, as the share price has kept on rising.

If you look in the Financial Software forum, you should find links to spreadsheets which help select candidates for adding to a portfolio and which may need topping up.

For a child you are looking at Total Return, of course. As long as that is satisfactory, there is little need to do much, other than adding to the portfolio in whichever way you choose.

TJH