Easter, Birthdays, Special Anniversaries will happen this Year SO Something Different for 2016
As we age, we focus on retirement and who should we leave our money /assets to when we pass.
These are not pleasant thoughts and in many cases we avoid it like the plague.
So, I thought to myself, a better way of achieving some of these objectives is to gift an amount of money to your young child or grand children.
This is the old man in me speaking now, but I am amazed at the amount of money we, as parents and grandparents spend on children’s toys, phones, and electronic gadgets which are discarded in a matter of minutes until the next fad takes hold.
So why not cut back on the disposable material things and think about that child’s future. You cannot predict many years in advance what that child may do, but it may be possible to instil a sense of savings for the future or achieve a goal, whether that is buying your first car, buying your first house, or even helping with education costs in the future.
I remember years ago putting $50 into a savings account for my nephew when he was born, he had enough stuffed toys and this (sorry the accountant in me) seemed like a good idea. The interest was re-invested and on Birthdays, Easter and Christmas I would add to the savings, the amount grew. I think when my nephew turned 18 the amount had grown to about $2500 and in those days it was a substantial amount. This strategy in 2016 would not result in any long term gains with a 2.5% return from the bank, but other options are available, and when you think about it a small amount put away today has to improve the cash position when it is time to educate the child, buy that first car or whatever you may have planned.
Times have changed and so have tax legislation etc, but the philosophy still holds true. Without going into the legislative requirements (and you should speak to us first) I have put down some thoughts on what can be done and the possible growth over an 18 year period.
First off don’t worry about what the economy will do, or “I don’t understand the Investment/Shares”. You don’t need to understand, all you need to know is that the money is invested for 18 odd years, the value will increase and it will decrease over that time but historically the initial amount will increase, if not in value, then by the Re-Investment strategy used.
There are some legislative hurdles to deal with, but it is easy to achieve the result.
I am a big fan of buying shares for minors – not because they might be the best performing investment (although often they are), but rather because I think the experience can be particularly educational and help foster a life-long interest in investing. All the evidence points to the share market being a fantastic creator of long term, tax effective wealth, so I am often dismayed when adults explain why they haven’t invested in shares. The biggest reasons I hear are a misplaced fear that investing in shares is like punting or gambling (which is fanned by an ignorant media), or I simply don’t know how to do it. Interestingly, you never seem to hear these “excuses” about property, or buying toys.
Minimum order size is $500, but a $1000 would be better once brokerage fees are taken out.
Is this a lot?
How much do we spend on toys, chocolates?
Let’s not worry about the value of the investment as this is only relevant when you wish to redeem it, in 18 years time!
Assuming a return of 6% fully franked over the 18 year period (the dividend reinvested) the cost value of the shares would be $2700. If we assume a modest capital improvement of only 3% per annum would value the investment at $3597. That’s better than buying a Star Wars figurine which is thrown out, when Lego becomes popular, or the chocolate consumed.
Other options are Insurance Bonds, with many funds providing options to determine what the money is to be used for. You can make a lump sum contribution and forget, or you can make regular monetary contributions whether monthly, half yearly or annually. You can also stipulate what age it can be cashed in, transfer the amount to the child to manage once a condition has been reached, no tax is paid, no capital gains and there is no requirement for you to deal with any of the paper work, it is all done by the fund.
As always please come in and speak to us before making any investment choices so that it is set up correctly and I hope that this off the cuff thought makes you consider other options and the financial well being of yourself and that of your child or grandchild.
I often tell the story of “How do you eat an Elephant”? A bit at a time!
Older person in the office.