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Investment advice for 16 year old

L

law

pfm Member
Many years ago, after leaving university and starting work, I managed to build up some savings and kept it in the bank, together with amounts which my parents / relatives had kindly given to me as I progressed through childhood.

Fast forward a few years, I married and we had children. My savings no longer grew but I would put money into my childrens' savings accounts whenever I could.

About 10 years ago, I had an initial meeting with a financial adviser who went through a checklist of all the things that I should have had in place - health insurance, critical illness insurance, school fee insurance, etc., before I ought to even start about thinking of investing in one of their funds.

I couldn't afford any of the insurances and still haven't taken anything out. Fortunately, I have been able to work and have been able to cover our family expenses. Meanwhile, my savings have gradually decreased year on year, and I am looking forward to when I receive my final bill for school fees, in 2027 I think.

Recently, I met another financial adviser, a much younger man than me. We were chatting - he was married and had one/two young children, already owned his property, had an investment property and was already putting money aside for his youngsters' school fees.

I missed the boat, but I'd like to put my children on the right track.

My only investments for them have been the government childrens trust fund - the one where you were given a voucher to put in as an initial investment.

Now, I know that in the long term, the stock market is where everyone is supposed to put their money, but when I look at the annual statements, they dipped for several years and have only showed a gain in the last year or two.

With the Childrens Trust Fund, it seems that there is no control. As I understand it, when the child turns 18, it will be cashed in automatically. If that happens to be on a day when the fund is low, that's your problem.

My question is that my 16 year old son now has accumulated savings of around £10,000 and is unlikely to need to use it for several years. Rather than leaving it in the bank as I did, what should he do to start setting himself up to be in good financial health when his responsibilities start to mount up (marriage, family, house, etc.).

I'd be most grateful for helpful (and simple to understand) advice...
 
Sounds like you should be talking to the young financial advisor that you already know. Un-professional advise from an internet forum is not the place for serious stuff like this, I would suggest.

Here you will get everything from leaving it in Government bonds (safe?) to 'just buy some Bitcoins and wait 10 years then retire already if you are lucky'

You may think he is 16 and not needing cash anytime soon, but there are things like cars and student expenses looming soon.
 
£10,000 is a fantastic starting point for someone of that age. I'd suggest this is a marathon, not a sprint & one of the best things a parent can do in financial terms for a child is help them to buy their own property, so I'd suggest working towards that (quite a few permutations, timescales etc to discuss with your adviser).
 
Being the child of Great Depression parents, a short list of points come to mind.

1) Don't put money into your children's savings accounts. Instead, instil a work ethic into your children; encourage them to spend none school/social hours working a part-time job; teach them about opening a savings account of their own, perhaps even introducing them to your own financial planner, and encourage them invest in a growth oriented portfolio that isn't locked into government sponsored insurance scams - even if it starts out with an initial buy in of only 100 quid.
2) Stop believing in the myth that it is your responsibility to pay for your children's higher education in its entirety. It should be 'their choice to go, their choice to work toward that goal'. Again help instil a work ethic.
3) Be and remain involved in your children's hopes and dreams for the future. Encourage them to pursue their goals via doing well in school, part-time work, etc. because they want it.
4) Keep in mind that the money you push into children trust funds, school fee insurance scams, etc. could be put to better use paying off the mortgage on an appreciating asset that will pass to your children when you prematurely pop you cogs from worrying so much. Full ownership of that asset gives you borrowing leverage should unforeseen large expenses arise.
5) It is never too late to start investing in yourself, with your children down as co-owners (not just as beneficiaries) of your equally spit investments (i.e. 3 kids, 3 investment accounts, each one of which has a child as co-owner). All will instantly pass to them tax free outside of your estate when you pop your cogs early, again from worrying so much.
 
In truth the single best thing a 16 yr old could do with £10,000 is to buy a pension. Would almost certainly have the best long term outcome - but not many people can think ahead more than 50 yrs and lock up the money. But he would end up with a fantastic pension fund if he did it.

Buying a house might seem good but it is ridiculously illiquid, does not spread risk (1st principle of investment) and requires looking after to make the best of it.

Another left field idea would be to pick up some "30 yrs left on the lease" freeholds. That used be the good advice of what to give a godson upon his birth, that or a barrel of port.
 
dweezil said:
If he's 16 and has already saved £10k he should be advising us!
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:)

No, I've just been putting away all the small amounts of cash from Christmas / birthday presents which have come from family members.

It all adds up. He doesn't even know that he has it, but now that he's 16 I've had the letters from the bank / building society to tell me that he can look after himself now.
 
Craig B said:
Being the child of Great Depression parents, a short list of points come to mind.

1) Don't put money into your children's savings accounts. Instead, instil a work ethic into your children; encourage them to spend none school/social hours working a part-time job; teach them about opening a savings account of their own, perhaps even introducing them to your own financial planner, and encourage them invest in a growth oriented portfolio that isn't locked into government sponsored insurance scams - even if it starts out with an initial buy in of only 100 quid.
2) Stop believing in the myth that it is your responsibility to pay for your children's higher education in its entirety. It should be 'their choice to go, their choice to work toward that goal'. Again help instil a work ethic.
3) Be and remain involved in your children's hopes and dreams for the future. Encourage them to pursue their goals via doing well in school, part-time work, etc. because they want it.
4) Keep in mind that the money you push into children trust funds, school fee insurance scams, etc. could be put to better use paying off the mortgage on an appreciating asset that will pass to your children when you prematurely pop you cogs from worrying so much. Full ownership of that asset gives you borrowing leverage should unforeseen large expenses arise.
5) It is never too late to start investing in yourself, with your children down as co-owners (not just as beneficiaries) of your equally spit investments (i.e. 3 kids, 3 investment accounts, each one of which has a child as co-owner). All will instantly pass to them tax free outside of your estate when you pop your cogs early, again from worrying so much.
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I hadn't thought of things from these angles.

Most appreciative of all the comments and thoughts coming through.
 
Provided this is for the long term say 5 years or more then this £10K should be invested in the market where if carefully selected the returns will beat inflation. I did this for my youngest when she was in private school. As she obtained a scholarship I put the amount I saved on fees into a couple of investment funds where its still sits even today after graduating from Uni. Its enough to give her a decent deposit on a flat/house once she is settled in a job.

Put it into an ISA as this will ensure its less likely to be touched and use a funds supermarket. Although not the cheapest H&L offer a simple service and a large range of funds to choose from. Look at the reputation of the fund managers and how they have performed over time.

Leaving money in the bank is a fools game as the interest never beats inflation and it effectively loses value over time. Useful for initially saving up for something or as emergency funds but useless as an investment.

Cheers,

DV
 
If the Dukes taught me anything, pork bellies and frozen concentrated orange juice are where the smart money is invested.

Joe
 
JensenHealey said:
Sounds like you should be talking to the young financial advisor that you already know. Un-professional advise from an internet forum is not the place for serious stuff like this, I would suggest.
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That is poor advice. Any 16-year-old with £10,000 would do well to ignore that.

My advice?

Saturday. 3.30 at Newmarket. Sea Biscuit. Thank me on Sunday. ;)
 
JensenHealey said:
Another left field idea would be to pick up some "30 yrs left on the lease" freeholds.
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How does that work? There are freeholds and leaseholds, so how d'you get a freehold with a lease, except where the freehold has been bought by previously leasehold tenants
 
Mike Reed said:
How does that work? There are freeholds and leaseholds, so how d'you get a freehold with a lease, except where the freehold has been bought by previously leasehold tenants
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Plus presumably he only means it in the sense that you can screw over the poor leaseholders and charge them a fortune. Nice advice.
 
Depends upon how he's going to fund tertiary education in 2 or 3 years; by student loan or fund some of it himself by taking a regular amount from a building society (ISA ?) savings account, which can be topped up at will by holiday earnings etc.

If the intention is longer term, think of a specific length of years to a significant age or expectation. In this case, D.V.'s managed fund of a share portfolio (in an ISA wrapper) is not a bad idea, but share investments of any kind should be held for at least 5 to 10 years and the FTSE is teetering a bit at highs at the mo', with Brexit the elephant in the room. Property? Later on, maybe a property to live in where his uni. is ( possibly a student house/flat which will bring in sustainable income from fellow students).

In conclusion, I'd suggest remaining fairly liquid until he is 18 and crossing the academic Rubicon (hopefully). At least savings rates are on the up; just !
 
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At that age I’d have thought a property investment would be a millstone, a load of hassle and a sitting target (particularly if McDonnell ever gets anywhere near No 11). Who knows where in the world, let alone the UK, he may end up living or working? Has to be tax efficient equity based investments for the long haul, although I think you have to be 18 to have a S&S ISA (cash is 16). I’d also be tempted to buy some gold coins. No maintenance costs, liquid and may be handy if things go properly belly up at some point in his lifetime.
 
Mike Reed said:
How does that work? There are freeholds and leaseholds, so how d'you get a freehold with a lease, except where the freehold has been bought by previously leasehold tenants
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Freeholds (where there is a lease) are tradable. You can buy them at auction. So you pick up a Freehold that has a few years left to go on the lease. Now there exist some provisions to ask (and pay for!) an extension to the lease.

When the lease expires, there is the option to grant a new lease (of whatever length), or you can sell the building freehold and empty. The system is basis of many great estates - Duke of Westminster with most of Mayfair. In Birmingham you have the big Quaker estates on a similar basis - Calthorp, Cadbury for example.

My own house is on a 500 year lease (from 1785, so a long way to go still) at £18 a year. The freehold was seperately held and had been bought (along with others) at auction. I was able to track down the freeholder and was able to make a silly offer to buy it. The lease still exists (partly cos there is a another property on a sub-lease) and I own both lease, freehold and can claim ground rent from the sub lease too - all of £9 a year!.
 
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