'Junior' becomes a toddler, but are parents making the right choices?22 October 2014
72% of JISAs are being invested in cash at a time of negative real interest rates
This Saturday (1 November) marks an important birthday: it’s the third anniversary of the Junior ISA (JISA), the tax efficient children’s savings scheme introduced by the Government as a replacement to the Child Trust Fund.
JISAs offer parents and grandparents a route to accumulating funds for their children and grandchildren that could be used for a variety of purposes as they start out their adult lives, including helping with the escalating cost of a university degree, the purchase of a car or as a deposit on a property. The assets held in the JISA can only be accessed once the child is 18-years old. JISAs work by allowing parents, grandparents or guardians to save cash, or invest in stocks, shares or funds with the returns protected from further Income Tax and free of Capital Gains Tax. Since July this year the annual JISA allowance has been hiked to £4,000 - up from £3,720 in the tax year 2012/13.
According to recent statistics revealed by the HMRC, the number of JISA accounts opened rose 46% in 2013/14, compared with the previous tax year. This brings the total number of accounts opened to around 800,000. However, the statistics also show that almost three quarters (72%) of the JISA accounts opened in 2013/14 were invested in cash.*
Jason Hollands, Managing Director at Tilney Bestinvest, said: “It’s disappointing to see that such a high proportion of Junior ISAs have been invested in cash at a time of record low interest rates. Over the long term, the real value will be steadily depleted by the impact of inflation.”
“In contrast, these last three-years have seen extraordinarily strong returns on developed world stock markets, with the UK’s FTSE All Share Index delivering a total return of 48% and the USA’s S&P 500 Index up 79% so those who chose to take some risk and invest in equities in the first wave of Junior ISAs three years ago, will be way ahead of those who chose cash.”
Hollands argues that because JISAs can only be accessed at age 18, parents with very young children have a sufficiently long -time horizon to take more risk for more reward by investing in equities. “While returns on equities over the next few years may not be at the stellar levels of the last three years, we continue to believe that on a longer term view, equities offer considerably greater potential than cash. Cash based Junior ISAs should really only be considered by parents with teenage children who might need to draw on their investment within a couple of years”.
The ten most widely held funds in Tilney Bestinvest’s Junior ISA:
TILNEY BESTINVEST RATING
This is a fund of funds invested in 20 underlying funds
First State Global Emerging Market Leaders
Fund is now soft closed
This article is not advice to invest, or to use any of our services. The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.
Underlying investments in emerging markets are generally less well regulated than the UK. There is an increased chance of political and economic instability with less reliable custody, dealing and settlement arrangements. The market(s) can be less liquid. If a fund investing in markets is affected by currency exchange rates, the investment could both increase or decrease. These investments therefore carry more risk. Funds may carry different levels of risk depending on the industry sector(s) in which they invest. You should ensure that you understand the nature of any fund before you invest in it.
Due to their nature, specialist funds can be subject to specific sector risks. Investors should ensure they read all relevant information in order to understand the nature of such investments and the specific risks involved. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.
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About Tilney Bestinvest
Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions. We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning. We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.