Investing for children

From: Ian Findlay


Hi all,

I've recently had a baby (pride gushing all over!) and want to invest some money for his future.

I want something I can invest a few thousand dollars in and then top up either monthly and/or ad hoc basis. It will be long term, perhaps 10-15 years so obviously I'm looking at maximising growth rather than income.

I would invest in more IPs but a few thousand dollars doesn't get too much!

Any ideas or suggestions?

Ian
 
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Reply: 1
From: Michael G


Hi,

In my view, some sort of fund looks good with the markets as they are.

Consult with a financial planner, but if the markets are low, then it "might" be to either;

a) a growth fund which invests in emerging companies (long term, could mean you tolerate slightly higher risk).

b) just "bet" on the index - and just let it grow normally.

c) a fund that allows partial margin lending, where you put in $x / month and you "borrow" $x against the equity you put in, this means there's more $$ being invested, but if the market continues to slide, then this can be a problem for you.

Without margin lending, then you only lose what you put in, actually you only lose what you sell, being long term, you can wait for the market to turn around and re-coup you losses (not necessarily your profits though :))

By the way - I dont have any stock investments, just super, I did read alot of theory, and "played" a little bit, but was not as comfortable with it as property. What I've mentioned is just the options I know that are available, I'm sure there are more.

Michael G
 
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Reply: 2
From: Phillip Jacovelli


Ian,

Congratulations! I’m in pretty much the same boat as you are except that we’ve just had our second. For our first, all money gifts and add ball dividend cheques were put strait into his account – so much so that it has quickly grown to a tidy little sum.

We haven’t decided on the best vehicle yet so I would be interested in what others in this forum have to share, however, there is a great story in Noel Whittaker’s first book (I think) Money Made Simple in the back section somewhere about investing in Children (can’t find the book now)! – He used the analogy that the initial investments for children being a toy train, and the train grew and grew into a thumping big steam engine within a few years. The investment wasn’t a toy any more, it had become a serious vehicle and the kid was barely a teenager.

The point is, I like the way you think and it is never too early to start.

Rgs

Phil J
 
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Reply: 1.1
From: Michael G


Hi again,

Just had another thought....

10 years hmmmm....

Could almost pay off a mortgage in that time.

I option, could be to have a long term lease/option/wrap with someone. Ideally with a retiree who is interested in cashflow (to support their retirement).

Idea being you offer to "rent/lease" the property for 10 years. Where the residual or balance purchase price is zero or very small.

Now if you looking to invest say $50/wk for you child, then you could "buy" something that is small, let's say something that rents for $120/wk

if you're willing to pay $50, then you could discount the rent to $70, to guarantee a tenant.

Or the $50 could be put towards a home improvement fund to fix the place up (add value).

In theory over 10 years, the mortgage is reduced and the value has increased.

Idea here is you obtain 100% vendor financing.

You'd also need to speak with a solicitor, 'cause I'm thinking that if you set up an agreement early (ie an option or something), then you could have the tax benefits of the property for 10yrs, then exercise the option (or whatever) later, and only pay the stamp duty for the original purchase price (or agreed option price), maybe there's a neater way to do this?, gifting into a trust perhaps?

I'm sure there's a lot more ideas that can be generated by forumites here, but remember, nothing you read here is advice, they are just the views, opinions, ideas of fellow investors here to help share their thoughts and is in no way to be taken as legal or any other kind of financial advice. And as always see a professional advisor before proceeding.

Regards
Michael G
 
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Reply: 1.2
From: Ian Findlay


I also like the idea of a geared fund. I think ANZ or Macquarie had one.
Perhaps if I borrow $1 for every $1 I put in (50% gearing) into a managed
fund?

Does anyone know any specific examples or schemes good or bad?

I did consider putting money into his super (now that the govt has allowed
childrens super from 1/7/2002) but firstly it can't be accessed until hes 60
and secondly my super fund doesn't do it yet!

Ian


> Hi,
>
> In my view, some sort of fund looks good with the markets as they are.
>
> Consult with a financial planner, but if the markets are low, then it
"might" be to either;
>
> a) a growth fund which invests in emerging companies (long term, could
mean you tolerate slightly higher risk).
>
> b) just "bet" on the index - and just let it grow normally.
>
> c) a fund that allows partial margin lending, where you put in $x / month
and you "borrow" $x against the equity you put in, this means there's more
$$ being invested, but if the market continues to slide, then this can be a
problem for you.
>
> Without margin lending, then you only lose what you put in, actually you
only lose what you sell, being long term, you can wait for the market to
turn around and re-coup you losses (not necessarily your profits though :))
>
> By the way - I dont have any stock investments, just super, I did read
alot of theory, and "played" a little bit, but was not as comfortable with
it as property. What I've mentioned is just the options I know that are
available, I'm sure there are more.
>
> Michael G
>
>
>
> To reply: mailto:propertyforum.66717@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
 
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Reply: 1.1.1
From: Ian Findlay


I accept that anything on this forum are personal suggestions only and
nothing is construed or taken as advice etc.
So how about it? If you feel hesitant about posting on the forum pleas email
me privately at ifindlay@bigpond.net.au.

All suggestions appreciated,

Ian


----- Original Message -----
From: "propertyforum Listmanager" <listmanager@bne003w.webcentral.com.au>
To: <Recipients of 'propertyforum' suppressed>
Sent: Thursday, July 25, 2002 9:21 AM
Subject: Investing for children


> From: "Michael G" <mgruber@au1.ibm.com>
>
> Hi again,
>
> Just had another thought....
>
> 10 years hmmmm....
>
> Could almost pay off a mortgage in that time.
>
> I option, could be to have a long term lease/option/wrap with someone.
Ideally with a retiree who is interested in cashflow (to support their
retirement).
>
> Idea being you offer to "rent/lease" the property for 10 years. Where the
residual or balance purchase price is zero or very small.
>
> Now if you looking to invest say $50/wk for you child, then you could
"buy" something that is small, let's say something that rents for $120/wk
>
> if you're willing to pay $50, then you could discount the rent to $70, to
guarantee a tenant.
>
> Or the $50 could be put towards a home improvement fund to fix the place
up (add value).
>
> In theory over 10 years, the mortgage is reduced and the value has
increased.
>
> Idea here is you obtain 100% vendor financing.
>
> You'd also need to speak with a solicitor, 'cause I'm thinking that if you
set up an agreement early (ie an option or something), then you could have
the tax benefits of the property for 10yrs, then exercise the option (or
whatever) later, and only pay the stamp duty for the original purchase price
(or agreed option price), maybe there's a neater way to do this?, gifting
into a trust perhaps?
>
> I'm sure there's a lot more ideas that can be generated by forumites here,
but remember, nothing you read here is advice, they are just the views,
opinions, ideas of fellow investors here to help share their thoughts and is
in no way to be taken as legal or any other kind of financial advice. And as
always see a professional advisor before proceeding.
>
> Regards
> Michael G
>
>
>
> To reply: mailto:propertyforum.66721@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
 
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Reply: 1.2.1
From: Michael G


Hi,

I once tried www.directportfolio.com.au

Michael G
 
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Reply: 2.1
From: Michele B


Ian, is this money going to fund private education or uni for your son? Or maybe kickstart his future with an IP or two?

Like you, I wanted to do something for my kids when they were babies and went the usual funds route which proved a waste of time. Something more creative like some of MG's suggestions above would have been far better.

However, I gave that up and instead concentrated all effort as a family group to accumulate an asset base. I think it has, and will continue to be, a far better way to get my kids started. All will have choices so many don't, including uni, travel and the knowledge, confidence and resources they'll need to build their own business and investment portfolio as and when they wish.
 
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Reply: 3
From: Nigel W


Hi Ian

Congrats!

Just a thought...couldn't you just invest through a discretionary (ie family) trust in funds, direct shares or property and your son will be a beneficiary of the trust.

Whilst he's still young enough for the penalty level tax for amounts of income to apply you can give him his ?$600 pocket money (Dale will know all this!)

and once he's 18 you can income split properly

the t'ee of the trust will have discretion to distribute capital or income of the trust to your son as and when it wants (in fact he could become the t'ee or become a director of the corporate t'ee)

in 80 years' time the trust fund will vest in him anyway as a beneficiary...

of course this isn't advice - get some...of the accounting and legal variety!

Cheers
N.
 
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Reply: 3.1
From: Ian Findlay


Yes this is a good idea. The problem is that, as I understand it, setting up
the trust will significantly eat into the initial fund.
Also mum and dad don't get the advantages of any tax-deductions etc?

Unless I'm mistaken , , , ?

Ian


----- Original Message -----
From: "propertyforum Listmanager" <listmanager@bne003w.webcentral.com.au>
To: <Recipients of 'propertyforum' suppressed>
Sent: Thursday, July 25, 2002 10:52 AM
Subject: Investing for children


> From: "Nigel W" <nigel.ward@msj.com.au>
>
> Hi Ian
>
> Congrats!
>
> Just a thought...couldn't you just invest through a discretionary (ie
family) trust in funds, direct shares or property and your son will be a
beneficiary of the trust.
>
> Whilst he's still young enough for the penalty level tax for amounts of
income to apply you can give him his ?$600 pocket money (Dale will know all
this!)
>
> and once he's 18 you can income split properly
>
> the t'ee of the trust will have discretion to distribute capital or income
of the trust to your son as and when it wants (in fact he could become the
t'ee or become a director of the corporate t'ee)
>
> in 80 years' time the trust fund will vest in him anyway as a
beneficiary...
>
> of course this isn't advice - get some...of the accounting and legal
variety!
>
> Cheers
> N.
>
>
>
> To reply: mailto:propertyforum.66785@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
 
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Reply: 3.1.1
From: Game Boy


I too would be very interested in any ideas. My son was recently left $10,000 inheritance, the executors in their wisdom have decided to invest this sum on his behalf into an interest bearing term deposit until he turns 18.
My solicitor tells me that, if I feel these returns are not being maximized we can try to have the money released to use elsewhere. Also we are expecting another child, and as this next child will miss out on the 10k inheritance I thought I would give that child 10k so they start out equally. I was thinking along the lines of building them an IP portfolio, perhaps as a partnership.

Any ideas would be appreciated, thanks.
 
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Reply: 3.1.2
From: Silver Ghost


Yes, I am also in the same position of wanting to stuff something away for my kids and I, too, tried all the usual avenues and found it a complete waste of time.

I would have thought that there is a pretty big (huge?) potential market out there for exactly this sort of thing but nobody seems to be doing anything about getting in on it, eg financial institutions, insurance companies etc.

At the moment, what little I have is going into property and I'll sort out who gets what when the little darlings are older.

If anybody has got any ideas, please post now!

SG
 
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Reply: 3.1.1.1
From: Michele B


Ian and GameBoy, why are you so intent upon separating the 'children's' investments from your own. Scattering your resources dilutes their effectiveness. Your children don't care what's in their names or isn't - they will only care at age 18 when they begin to grasp what their options really are and how your investment strategies AS A FAMILY have influenced that. Don't let egos cloud the issue!

I'm a parent too so I know how you kinda feel you 'should' invest in your child's name as a symbol of your love etc (it's how they get you in of course when you're pressured to take out unnecessary life insurance on your child!!) but truly, your kids don't care and it's none of anyone else's business how you achieve your successes.

Take the $10K or whatever amount you have and pool it with whatever else you can manage, then invest it in a tax effective way via a trust etc for maximum returns. Get loads of good advice and keep reading to streamline your focus and strategy. Concentrate your efforts and resources. A laser is only concentrated light but it cuts through steel.
 
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Reply: 3.1.2.1
From: Michael G


Hmmm,

Well at the next freestyler meeting all you parents could put your hands up to be counted, form a unit trust among yourselves then go and invest in a fund or two.

The idea is to cut down on management costs by having a single investing entity?

You could then have a look at www.nevward.com.au and see if that suits you.

Then you draft a set of rules to invest.

It would be like an investment club (there are a few books out there on the matter).

Then once a month or whatever you get to have a meeting to discuss the progress of the fund/trust, it would also become a nice social event with tea and bickies where you get to meet other like minded people (with screaming kids in the background!)

Or maybe you'd ask an accountant, if your meetings could be held somewhere like Centennial Park, then you'd chair the meetings around a picnic table with the children playing and running in open fresh air, while you care for their futures.

Just a thought...

Michael G
 
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Reply: 3.1.1.1.1
From: Michael G


I always thought the laser was a BRIGHT idea :)

Michael G
 
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Reply: 3.1.2.1.1
From: Michele B


* MB just KNOWS MG's tongue was hanging out while he typed the above, so she staples it firmly to his desk*
 
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Reply: 3.1.1.1.2
From: Ian Findlay


Hi Michele,

I am not intent on separating out children's investments - in fact I'd
rather not as rather have it in my name to get tax deductions whereas if in
child's name we can't.

The reason for having a separate entity rather than just "general
investment" is so that grandparents, friends etc can give to something
concrete for the child rather than a general giving to his parents. There
aint no egos involved!

Ian


> From: "Michele B" <michele_jb@hotmail.com>
>
> Ian and Adrian, why are you so intent upon separating the 'children's'
investments from your own. Scattering your resources dilutes their
effectiveness. Your children don't care what's in their names or isn't -
they will only care at age 18 when they begin to grasp what their options
really are and how your investment strategies AS A FAMILY have influenced
that. Don't let egos cloud the issue!
>
> I'm a parent too so I know how you kinda feel you 'should' invest in your
child's name as a symbol of your love etc (it's how they get you in of
course when you're pressured to take out unnecessary life insurance on your
child!!) but truly, your kids don't care and it's none of anyone else's
business how you achieve your successes.
>
> Take the $10K or whatever amount you have and pool it with whatever else
you can manage, then invest it in a tax effective way via a trust etc for
maximum returns. Get loads of good advice and keep reading to streamline
your focus and strategy. Concentrate your efforts and resources. A laser is
only concentrated light but it can cut through steel.
>
>
>
> To reply: mailto:propertyforum.66819@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
 
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Reply: 3.1.2.1.1.1
From: Manny B


I've also got 2 young kids, both under 3yrs old & when the first was born I did some research of my own & decided to put their money (presents, etc.) into a managed fund (in my case I went for an Imputation fun with one of the larger organisations, which gave us tax credits). These 2 funds (one for each) are under my wife's name (as she is on a lower tax bracket) with a special field indicating who the money is held for (children's names are in these)... With my research I found a wholesaler broker, who doesn't charge an entry fee (unlike other brokers charging the 4% entry fee) & I simply add funds to their accounts in (I save their money till they reach $500 lots & add them then)...

Although I love investing in IPs, I wanted to do something different for the kids (these funds could be used in the future to fund Uni studies OR to start up their own business, will leave that up to them)...

That is my 2cents worth...

MannyB.
 
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Reply: 3.1.2.1.1.2
From: Felicity W.


Well, here's my personal strategy!
I have a Commonwealth Bank Award Saver account for my son, and a Dollarmites account for my daughter. Both of these pay bonus interest if you deposit money each month but don't withdraw.
Each month $50 goes into each account, then when I have more than $500, I go and buy them some blue chip shares.
That's it!
Keep smiling
Felicity :cool:
 
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Reply: 3.1.2.1.1.2.1
From: Dale Gatherum-Goss


Hi

Our children have an ING direct bank account because it earns a reasonably good rate of return as far as bank accounts go.

We put a little money into their accounts each week and they must place a little money in that account when they get a present from an outlaw or something.

We bought them NAB shares when they were abt $19 each and allow the dividends to reinvest. On top of that, the NAB offer you to buy more shares twice a year and we withdraw some of the kids money from the bank and use that to top up and buy more shares.

This grown very well and it has actively encouraged the kids to save and invest. Believe me, they know more abt the NAB's future strategies etc than I do!!

It's just a thought.

Dale
 
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