Junior ISAs: where are ii experts investing their children’s ISAs?

Saving for your children’s future amid market turbulence and the cost-of-living squeeze.

• The top three bestselling investments in JISA accounts with ii over the tax year (until 4 March 2022) are Scottish Mortgage Investment Trust, Fundsmith Equity, and Vanguard LifeStrategy 80% Equity.

A Stocks & Shares Junior ISA (JISA) is a great way of investing for children to help put them on a sturdy financial path once they reach adulthood. Even modest contributions could add to a decent sum over time, tax-free .

At interactive investor, the UK’s second-largest DIY investment platform, there are 100 JISA account holders with a value of more than £97,000* and the average age of these accountholders is 15. Of course, some of the largest JISA pots may have started out as Child Trust Funds and have been running since 2005.

More broadly, the value of the average JISA on ii is £12,116, with contributions averaging £137 a month. The typical accountholder is 10 years old, and some 14% of JISA accounts are fully subscribed (i.e., maxed out the £9,000 annual tax-free contribution allowance).

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “As they say - 'great oaks from little acorns grow.’ Cash invested in a JISA from the birth of your child has an entire 18 years to grow and benefit from compounding, all within a tax-efficient wrapper.

“Naturally, saving for our little one’s future might not always take priority at the moment, with more immediate living costs on the rise. But even small, regular, contributions can add up to a significant sum over the long term. History shows that even a ‘middle of the pack’ fund is likely to compare favourably with cash over the long term, so, you don’t need to be an expert stock picker to benefit.”

Where are the ii experts putting their children’s JISAs?

Don’t forget your greens! A chance to consider ethical investments

Becky O’Connor, Head of Pensions and Savings, interactive investor, believes JISAs are a perfect opportunity to explore the ethical investment space: “Junior ISAs are ideal for ethical investing because they are for your children’s future, which naturally, you would like to be one worth living in.

“Lower carbon emissions, less pollution, better health outcomes, and more prosperity for all, are among the goals of some ethical and sustainability focused funds - the kind of things your children would presumably feel pleased you invested in on their behalf.

“What’s more is that ethical Junior ISAs can make great talking points for older kids who are interested in business and economics, as well as environmental and social causes. After all, there’s no better way to teach them about profits and principles than for them to have their own financial stake in the future. 

“The long time frame of Junior ISA investments of up to 18 years means they also lend themselves to longer term growth investment opportunities rather than quick wins. Long time frames can be better suited to sustainable investments, which can involve the building of green infrastructure and other big structural changes to the global economy that might take years to deliver profits. A long-term horizon also means you could afford to be more adventurous with your picks, as there is longer for your fund to iron out any dips in performance with gains along the way.

“TheClimate Assets Fund from Quilter Cheviot and Impax Environmental Assets are focused on the transition to a clean energy future, while Montanaro Better World is a positive impact fund focused on smaller companies, which can grow with your kids. These are the funds I’m looking at for my kids’ JISAs.

“These, and many more, can be found among the interactive investor ACE40 list of ethical investments. ACE stands for Avoids, Considers and Embraces, to denote different ethical investment approaches.”

Don’t neglect your own financial position

Myron Jobson, Senior Personal Finance Analyst at interactive investor, explains why parents should carefully consider their own financial position too, when preparing for their children’s future financial well-being: “I’ve regularly contributed a decent amount to my four-year-old daughter’s Stocks & Shares Junior ISA since she was only a couple of days old. In my daughter’s ISA are Fundsmith Equity and Baillie Gifford Emerging Markets Growth Fund.

“However, I’ve actively reduced my contribution to the account in recent months. It is not because she’s done something to annoy me (although her rendition of Frozen’s ‘Let it Go’ is a particular bugbear), or because of the recent downturn in global markets – as the cash can’t be accessed for another 14 years, which should be more than enough time for significant investment growth. But rather, I’ve sought to shore up my own financial position amid the cost-of-living crisis.

“Ultimately, higher prices mean we all have to spend more to maintain the same levels of expenditure. While half of the usual contribution is invested in an emerging market fund and a US fund in her portfolio, a quarter has gone back into my own coffers and the remaining quarter has gone into, what I call, the ‘parent-running costs’ fund – encompassing all the unexpected costs that come with having a young child.

“I want to give my daughter a financial leg-up when she reaches adulthood, but not at the expense of experiences with her in the short term.”

Opportunities in investment trusts

Kyle Caldwell, Collectives Specialist, interactive investor, said: “Given my son won’t be able to take money out of his Junior ISA until he turns 18, it makes logical sense to me to invest in emerging markets or Asian economies, which are growing at a much faster rate than their Western counterparts - a reflection of their youthful demographics and growing middle classes.

“When deciding where to invest, I have opted for an investment trust on the grounds that I prefer investment trusts to open-ended funds or unit trusts.

“There are a number of reasons for my view, but the main one is that I think the fund managers of an investment trust are more accountable for performance because they have independent board members to answer to.”

An ISA portfolio with ‘skin in the game’

Kyle Caldwell, Collectives Specialist, interactive investor, adds: “I picked Aberdeen Standard Asia Focus (LSE:AAS) investment trust, managed by the highly experienced Hugh Young. Young has plenty of ‘skin in the game’, having been an investor from day one – 26 years ago. This was a key reason behind my choice. Another factor is that over the long term, small company shares have outperformed large ones. My son has time on his side to allow this trend to hopefully play out.”

ii JISA best sellers

The top three bestselling investments in JISA accounts on ii so far this tax year (to 4 March 2022) are Scottish Mortgage (LSE:SMT) Investment Trust, Fundsmith Equity, and Vanguard LifeStrategy 80% Equity.

Myron Jobson says: “Despite the potential for eye-catching returns through investing, almost 70% of JISAs subscriptions in the 2019-20 tax year were in the cash variant. Cash Junior ISAs are frankly pointless other than as an option for teenagers approaching adulthood who might shortly need to use their pot and therefore want to remove the short-term risk of a sudden loss of value.

“Most Junior ISAs are going to be inherently very long term, because they cannot be accessed until the child is 18, there is ample time for short-term bumps in stock markets to be ironed out.”

*Data from Feb 2021-January 2022