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We are saving up so we can hopefully pay our children’s university fees.
We’ve put a good amount of money aside already, and now I’m wondering whether it would be better off invested, because university is still some way off for my kids.
I know I can open a junior Isa, but is that the only option, and are there any rules around investing for children that I need to be aware of? P.L, via email
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Milestone: University is the culmination of many youngsters’ education
Sam Bromley, of This is Money, replies: This year tuition fees for full-time undergraduate students shot up by £285 to £9,535 a year.
When I went to university – which is unfortunately starting to become a distant memory – tuition fees already felt high at £3,225 a year, so I have lots of sympathy for those choosing further education today.
You’ve mentioned that university is still some way off for your children. This implies that there should ideally be some degree of flexibility in the nest egg you’re building for them.
University isn’t the only option open to young people – and with AI encroaching on all types of employment, who knows how courses and career paths will change over the next decade.
> Read more: The 30 jobs employers are desperate to fill
If you have a time horizon of five years or more, it’s wise to consider investing. And you’re right to identify an Isa as your first port of call, because it allows your money to grow free of income and capital gains tax.
Many of the major investment platforms offer junior stocks and shares Isas – some even offer junior self-invested personal pensions (Sipps) – alongside adult accounts. These include AJ Bell, Bestinvest, Fidelity, Hargreaves Lansdown and Interactive Investor.
> Read more: The best (and cheapest) investment platforms
But a big decision you’ll need to make is whether you’re comfortable using a junior Isa or whether you’d prefer to use your own Isa allowance, because of the rules around access to the account.
We spoke to a personal finance expert about the ideal course of action.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: Funding your child’s university education in full, rather than relying, at least in part, on the student finance system, requires a long-term plan.
Paying university costs on the go can be risky – even for high earners – as unexpected life events, such as job loss or large, unforeseen expenses can disrupt monthly budgets and derail your ability to support a child through higher education.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners
While a parent could contribute funds to a junior Isa (Jisa) in their child’s name, which comes with a £9,000 annual allowance, the child gains control of the funds at 18. That runs the risk that the child mismanages the funds, leaving the parents with a funding gap.
Alternatively, parents could dedicate a portion of their own £20,000 Isa allowance to their child’s university fund, with the Jisa reserved for other key life goals such as travelling, buying a car or a first-home deposit.
Next comes the choice between a cash Isa or a stocks and shares Isa. Over the long term, money invested in the financial markets has the potential to outperform cash and deliver an inflation-beating return – and historically it has consistently done so. But stock market investing is not suitable for everyone, and investors typically require a time horizon of at least five years to ride out any volatility.
> Read more: The best stocks and shares Isas
If your child is set to start university within five years, then saving in cash may be more appropriate, but those with a longer runway have more flexibility to invest. Asset selection should reflect the investment timeframe and your attitude to risk.
Money invested when children are very young, where the money can remain invested for almost two decades, can afford to be directed into riskier funds such as those largely invested in equities. Equities can be highly volatile over the short term but have historically delivered more robust returns over the longer term.
For teenage children, who will need the funds to cover university costs sooner, an equity-only approach is likely to be too risky, so a more balanced, conservative approach makes sense here.
Parents wanting a low-maintenance approach that also avoids excessive risk could choose to invest in tracker funds.
These have become increasingly popular in recent years for being low-cost and offering instant diversification, because they track the performance of a particular stock market or index rather than attempting to outperform it.
Alternatively, a highly diversified investment trust that factors in developed and emerging markets could act as a one-stop shop.
Parents that want more of an active approach but want to remain hands-off could also consider investing in a ready-made portfolio. These off-the-shelf investment products provided by investment platforms allow DIY investors to rely on experts to build a diversified portfolio tailored to their level of risk with ongoing active monitoring.
Ultimately, parents should strive to build a diversified portfolio, one that splits money across different geographies, sectors and asset classes, containing a mix of equities, bonds, funds, investment trusts, cash and gold.
Supporting your child’s higher education is admirable, but it should never come at the expense of your own financial security. Striking the right balance between helping the next generation and safeguarding your own future is essential.
> Read more: Investing for beginners – how to get started
We regularly review investing platforms. Low-cost options to consider include InvestEngine, Prosper and Trading 212.
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