Q I am looking to invest £3,600 in a stocks and shares junior individual savings account (Jisa) for my 13-year-old son. Should I invest the whole £3,600 straight away or spread it over the year?
A Jisas can be opened for any child who does not already hold a child trust fund. These are tax-advantaged plans that parents can use to build-up savings for the benefit of their children. Only a parent or guardian can open a plan for a child under 16, a child who is 16-17 can open one for themselves.
There are advantages to making the payment as a lump sum and maximising your son’s tax-free Jisa allowance for the current tax year, if you can afford it. Firstly, the funds will become tax sheltered straightaway; you might be liable to personal tax on the funds currently. Secondly, all of the funds will be exposed to any upside return provided by the markets.
However, if the markets are falling, the entire investment will also be exposed to any market falls. In the current climate of volatile, falling and rising markets there is a strong counter argument for dripping in your investment in regular intervals and amounts, such as £300 a month for 12 months. Pound-cost averaging is the term used to describe how you can build up a capital sum by investing a fixed amount on a regular basis.
The key benefit to this principle is that, when prices are low, your monthly contribution will buy more shares or fund units and when prices are higher you will buy less. This will provide a cushion against dips in the stock market because you are buying units at a variety of prices. During times of volatile markets the weighted average price you will pay for shares/units over a certain period will be lower than the arithmetic average over that same period.
Another benefit to pound-cost averaging is that it instils a sense of investment discipline. You don’t have to worry that you are picking the right time to invest or indeed worry that you have invested all of your monies at the top of the market, when units and shares are at their most expensive. The majority of Jisa providers will offer a regular investment facility that will mean the investment timing decision is taken out of your hands.
Whichever method you choose, bear in mind that your child will be able to access the funds when they turn 18, whether or not you would like them to. They will then have two options: either withdraw the savings free from any personal tax or transfer the funds across to an adult Isa where the funds will retain their tax-advantaged status.
l Mark Thornton-Smith, financial planner at Cornerstone Asset Management LLP.
If you have a question you need answered, write to Jeff Salway, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or email: firstname.lastname@example.org. The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd, Cornerstone Asset Management LLP and HBJ Gateley accept no liability on the basis of this article.
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