Building the Best Portfolio for Your Child

Looking for some last minute Junior ISA investment ideas? Experts agree that the longer your investment horizon, the more short-term volatility you can stomach

Kara Gammell 30 March, 2017 | 3:25PM
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When it comes to investing for your children, getting the balance right is crucial.

“The best approach is to blend several funds into a portfolio that meets your objectives and your attitude to risk,” advises Charlie Musson, spokesman at AJ Bell, the investment platform.

“This doesn’t mean that if you are a cautious investor, all of your holdings need to be in cautious investments, as by combining lower risk investments with slightly higher risk investments it is possible to benefit from diversification that lowers the overall risk of the portfolio.”

Experts agree that the longer your investment horizon, the more short-term volatility you can stomach. In many cases, whether you are saving for up to 18-years in a Junior ISA, or over many decades in a pension for a child, that means focusing on equities. Parents and guardians would do best not to allocate to lower risk assets such as government bonds or cash until much later, when approaching a point when the money may be used and capital preservation becomes a priority.

Funds Suitable for a Junior ISA

As a guide, Musson suggests that those at the lower end of the risk scale, should consider equally weighting three different strategies, namely a corporate bond fund, an absolute return fund and an equity income fund.

He tips Royal London Short Duration Credit, which has a two-star performance rating from Morningstar, and Henderson UK Absolute Return and Artemis Income, both which have been awarded a Bronze rating by Morningstar analysts.

For those with a longer time scale, he says, you might consider some higher risk overseas equity funds such as: Schroder US Mid Cap and Jupiter India, which Morningstar analysts gave Silver and Bronze ratings respectively.

Go Global for Diversification

Jason Hollands, managing director at Tinley Investment Management advises investors to take a global approach, either through constructing portfolios of regional funds, or investment funds within an international brief.

He tips Scottish Mortgage Investment Trust (SMT), rated Gold by Morningstar analysts who describe it as a high-conviction choice for long-term global equity exposure.

“For a more diversified and team based approach, another option – and one I invest in for my two children – is the venerable Foreign & Colonial Investment Trust (FRCL), which has been around since 1868 and is built to last,” says Hollands.

Morningstar’s Manager Research team has awarded a Bronze rating for this fund and points out that the fund's objective is to grow capital and income, and in both respects it has delivered – paying dividend increases for the last 45 years with the expectation that this will continue.

“But whatever approach you choose,” says Musson, “it is important to review the investments you have made at least annually to check they are performing in line with your expectations and that your expectations or the market context have not changed.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Artemis Income R Inc2.21 GBP-0.50Rating
F&C Investment Trust Ord821.10 GBP-1.07Rating
Janus Henderson Absolute Return A Acc165.00 GBP-0.12
Jupiter India L Acc143.89 GBP0.15Rating
Schroder US Mid Cap Acc1.93 GBP-1.16Rating
Scottish Mortgage Ord892.92 GBP-1.16Rating

About Author

Kara Gammell

Kara Gammell  is a freelance journalist and author, specialising in personal finance and consumer issues, writing for Morningstar.co.uk