Have you heard of a JISA, or Junior ISA? Possibly not. Sadly, children aren’t educated in school about this particular ISA. I wish I had been. My wife would certainly be more pleased with me. Because my portfolio would have benefited from decades more compound growth.
Imagine looking back 15 years from now knowing your good decisions turned a £10,000 JISA into £50,000. That might pay for a house deposit or a university degree. So how would I do it?
You’re doing a great thing for your children if you’re thinking of investing in a JISA. As long as you’re not gambling away your kids’ future on risky biotech stocks or the latest fad.
Back before in the dotcom bubble and crash of 1999-2000, value investors like Warren Buffett were ridiculed for not owning the ‘hottest’ internet stocks.
Fast forward just five years. The billionaire maestro wasn’t being mocked any more.
Once-vaunted online shopping companies that were trading at crazy valuations — the likes of Pets.com and Webvan (the proto-Ocado) — had long-since collapsed. Even if you do get supremely lucky investing in lottery-ticket-style fads you’ll experience way more heartache than is strictly necessary.
From £10k to £50k
The real keys to quintupling a JISA are time, and regular investing.
Take a £10,000 lump sum. Leave it alone in a JISA for 15 years. I’d say a 6% return rate each year is achievable.
With inflation at 2.9% (the historical yearly UK average over the past three decades), you end up with £13,158.
But add £25 a week into the JISA and something rather special happens. Your £13,158 just turned into £30,199.
£217 a month is the magic figure. This, at a 6% annual return, is what turns a £10,000 JISA into £50,173 over 15 years. On top of a £10,000 lump sum, it will cost you just £54.25 a week.
Slow and steady
What any good parent would want from a JISA is steady growth from quality stocks. I’d choose dividend-paying shares and funds, which you can reinvest to increase your holdings. This produces compound growth. It is definitely worth Googling if you’re not sure what that is.
I’d consider shares that are so large and so well diversified it would take much more than a financial crisis or recession to make them go bust.
Standard Life (LON:) Aberdeen or Legal & General would be my first picks. At present they offer 7.5% dividend yields.
I’d also suggest popular renewable energy funds for a good JISA, like Greencoat UK Wind (LSE:UKW). This fund buys up whole or portions of wind farms in the UK, Scotland and Ireland. Then it returns the proceeds to investors via a healthy 4.8% dividend, paid quarterly.
With £5bn of assets under management its parent company Greencoat Capital is one of the largest renewable fund managers in Europe.
Shares in UKW consistently trade at a 16% premium to its Net Asset Value (NAV). Sometimes as much as 20% higher than the NAV. What does this mean in practice? It is so well-trusted, that investors are willing to pay more per share than the calculated value of what the fund owns.
I’d put that phenomenon down to the managers, Stephen Lilley and Laurence Fumagalli, who deploy funds in a sensible and conservative manner.
Reading that back it sounds rather boring. But if I’m investing for my children’s future I’m very happy with boring. Slow, steady growth is good, in my opinion.
Tom Rodgers owns shares in Greencoat UK Wind. The Motley Fool UK has recommended Greencoat UK Wind. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020