To conclude last week’s post about the wonders of Time (and compound interest), I want to talk about one of my discoveries while I was writing last week’s post.
For a bit of background, I had been researching some sort of saving/investments for my grand-children.
Of course there is the standard savings account, which we all know is not really worth putting money into these days, given the next to nothing interest rates (and in real terms, the value of the savings being eroded away because of inflation)!
Then I discovered the Junior Individual Savings Account (JISA) – particularly the stocks and shares and not the savings one. I got excited about the prospect of being able to invest in ETFs and Funds on their behalf (and allowing time and compound interest to work their wonders)! Also exciting was the fact that only the child could access the funds – we sometimes need a bit of extra funds and dip into accounts we’ve funded with the intent to replace the funds, which never happens (or perhaps not in its entirety); I did that several times when my kids savings accounts when they were much younger!
I was however disappointed when I saw that the child could access the funds at 18! The control of the account reverts to them from 16, but they can access the funds from 18. This gave me reason to pause, as I was trying to find an investment they would have access to at an older age; at which point they’d be able to make mature financial decisions.
Anyway, while writing last week’s blog, I discovered Junior Self-Invested Personal Pension (Junior SIPP). It is exactly the same as the standard SIPP (which I described in last week’s post as a ‘do-it-yourself@ pension). A bit like the Junior Stock and Shares ISA, the child takes control of investment decisions when they are 18, but are unable to access the funds until they are 55! Such a long time, but what a fantastic length of time to allow time and compound interest to work their wonders. Guess what, there’s some freebies with this account as well – tax relief of 20%.
I’d probably end up with a combination of the Junior Stocks and Shares ISA and the Junior SIPP; they access some when they become young adults and some much later in life 😊
For parents and other grand-parents, this is a way to put something away for your babies and grand-babies, and you invest as little and as frequently (or not) as you want, so it is worth looking into these.
Another option which could potentially be used as a later life fund is the Lifetime ISA (LISA), which can be opened by those aged between 18 and 40. With this ISA however, you are able to access the funds early for the purpose of buying your first house, otherwise it becomes accessible once you turn 60 – a bit longer than when some of the standard pension and the SIPP first become accessible. The maximum payable into a LISA is £4,000 per year (this counts as part of the annual ISA limits – £20,000 for 2020/21). With this type of account, the government tops the account up by 25% (up to a maximum of £1,000 per annum). For young adults starting their first jobs, this might be a good option (in addition to your work place pension I’d suggest) to help save towards buying your first home and if not, additional funds for later years.
So as you can see, there are several ways in which we can prepare for the future and the government’s top-ups or bonuses, in my opinion are also incentives to get us prepping NOW! We could also do the same for our children at different stages of their lives and in whatever mix we choose to. The choice and decision is in our hands – don’t leave it late like I’ve done and if you are late to the table, still start; the best time to do anything is always NOW (and remember, it’s never too late to start)!
Some might argue that they could do better by investing directly in the stock market and not in a workplace pension or by investing in property; my opinion is that one should take advantage of any opportunities (like the top-ups and additional contribution by employers) and should diversify their investments, but ultimately we all have to consider our personal circumstances when making these decisions. The most important thing though, is to make those considerations and start taking action NOW, both for ourselves and for our children (who in addition to benefiting from any investments made on their behalf, also learn from watching their parents’ actions).
Remember, this is not financial advice so do your own research and/or speak to a financial advisor before making any investment decisions.
Also, for those who are unsure about how these sort of investments fit within their religious beliefs, check it out with your imam, rabbi and/or priest, but do begin to prepare for a financially secure future by investing in a manner that meets your religious belief.
I hope my posts serves as a spring board for at least one person to start taking action NOW towards a financially secure future.
Comment below about any alternative/additional investments for the later years that are worth considering. Also like, and share with others who might find the post useful.