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Investing child trust fund vouchers

Trust fund vouchers make a tidy nest-egg

Once you get hold of the Child Trust Voucher (CTFV) you’ll naturally be looking for some way to have it grow. Lots of parents opt for an easy cash fund because they are afraid of the stock market. But don’t miss out – this is free money for your child from the Government. Worth making the most of! The Government makes a second gift of £250 when the child turns 7, by the way so they do get another top-up.

There are a few points you do have to remember and the rest should fall nicely into place:

Trust your instincts – Don’t believe the hype generated by share tips and do a lot of research on what industry you’d like to be involved in.

Get knowledge – Investing as an individual can be worrying, so do a bit of reading around to get some information for yourself.

Keeping track of your investment

The company you choose to invest it in will send you detailed reports on your child’s account showing the following:

The value of the CTF at the start and end of the year.

How much of the income has been added to the account since it was opened.

Money added to your child’s CTF.

Charges made to the account will also be shown.

The important thing about this exciting gift from the Government is to try and make it as much money as possible during those 18 years.

Most parents are afraid of the stock market so they stick the £250 into a savings account with a building society or a bank. But you only get around 5% interest from such accounts (before tax), which over time doesn’t keep up with inflation. So by the time your child gets to 18 the money won’t be worth much at all.

So make the most of your child’s nest egg and head for the stock market which has a much better long term record in making money. It really isn’t scary for a child’s investment because you have so much time to spread the risk. Eighteen years is more than enough to cope with the ups and downs of the City.

Think about investing directly into shares of FTSE companies

Many people would say that £250 was too little for direct investment in the stock market, and that £500 or £1,000 would be more likely. But there is nothing to stop you investing such a small sum into a company with trading costs as little as £12 a time plus some stamp duty.

Also, you’re allowed to top up your child’s £250 with up to £1,200 a year and many are doing this with grandparents and relations chipping in. With the annual £1,200 you could finance, for example, a single purchase of a share or stake in a fund.

If you’re really keen you can build up a share portfolio for your child or children. This is only if you have the time and inclination to spend studying the Stock Market. Get knowledge and read the financial pages of newspapers and look at all our articles on investing.

…or invest in funds

If you don’t have the time or interest – or the courage – to do that, though, you can easily put all the money into a tracker fund which goes up and down according to a share index. Index trackers are a good cheap way of investing in the Stock Market long-term, as are ETFs or Exchange-Traded Funds which work rather like trackers and are even cheaper to trade in some cases. Have a look at our articles on tracker funds and ETFs on the website and make your choice.

If you assume an average 10% return on a stock-market investment every year over 18 years and assume that you will put in about £500 every year into this fund then your little one would have a nice, fat £50,000 to play with when they’re 18. Of course it won’t buy what it will buy now because of inflation but it’s still not a bad amount!

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