How to give your child the gift of £18k on their 18th birthday
Turning 18 is a milestone in everyone’s lives and when it comes to finding the perfect gift, many of us can be left scratching our heads. Yet analysis from the online stock broker, The Share Centre, reveals how investing for a new born child from as little as £1.67 per day could result in a staggering £18,000 windfall by the time they turn 18.
The figures demonstrate how, for less than the average price of a latte, this contribution can have a huge impact through the power of compounding, if drip fed over the long term. And, no surprise, the longer your timeframe for investing, the easier it is to hit your investment goal.
For instance, if you wanted to generate an £21,000 lump sum by their 21st birthday you’d need to put away £1.57 a day. While to gift a staggering £30,000 by their 30th, you only need put away £1.16 per day, and to have a £40,000 windfall for their 40th birthday, it’s a mere £0.84 each day.
To offer a comparison, high street banks currently offer savers 0.35%. That means for every £100 you trust them with, they will give you 35p at the end of the year. At a steady interest rate of 0.35% over an 18 year period, to achieve £18,000 by their 18th birthday you’d have to contribute £2.65 a day. This means you’d have to contribute an extra £358.28 a year or more than £6,400 over the same time period.
Commenting, Andy Parsons, Head of Investments at The Share Centre, said: “As Albert Einstein famously stated, ‘compounding interest is the eighth wonder of the world‘ and these figures clearly demonstrate this. Providing you set yourself a long enough timefrmae and remain committed to investing, the results can be truly fantastic.
“Lots of people are cautious about investing in the stock market, and with stories of businesses going under appearing in the media on a daily basis, that’s understandable. However, if you can invest for more than 18 years, history says you should end up with more than you started with.
“Simply put, set up a small direct debit and forget about it, remembering from small acorns, giant Oak trees are grown.”
The Share Centre has put together the following tips on how consumers can start investing:
Investing isn't just for high rollers – despite what many think, you don’t have to have thousands of pounds to start investing. Many investment funds will accept smaller monthly deposits, such as £50, yet with any investment you must be able to tolerate watching your savings fall in value as well as rise
Identify your goals – one of the first steps is to identify your investment goal and with everyone investing for different reasons, no goal is ever the same. If you’re investing for a retirement that is 20 or 25 years away then you’ll have time to navigate the inevitable ups and downs of the market. Yet if you’re saving to buy a property, or if your child will be attending university soon, then you may not have time to recover from a downturn so be mindful of what you invest in.
What do you want to invest in – the saying ‘cash is king’ isn’t quite true when it comes to investing, as the value of any cash investment could be eroded by inflation. Fixed interest investments, which are loans to companies or governments, generally provide modest but consistent returns and are seen as lower risk than equities
Don’t put all your eggs in one basket – while you might think putting all your money in one company means a better return, this in fact is the riskiest strategy. As should the worst happen and the company goes under, you will lose it all. The aim of the game is to diversify, so divvying up your lump sum across a range of companies, asset classes or markets. This means, as some markets fall, others will rise and equal out the losses.
Regular saving to benefit from pound cost averaging – we all too frequently set up monthly direct debits for mobile phones or gym memberships so why not one for investing. After a couple of months it becomes a standard feature of your monthly outgoings, whilst actively working for you through investing for your future. And by investing each month, should the market fall at any time, you end up purchasing more units/shares.
And finally, please remember, investments can go down as well as up.
For more information, visit share.com