Prudent Parent: avoid this common Junior Isa mistake

With my son only a couple of months old and dribbling being his main hobby, it was decided that the only present under the tree for him would be a Junior Isa.

I felt a bit mean at Christmas 2017. With my son only a couple of months old and dribbling being his main hobby, it was decided that the only present under the tree for him would be something he won’t get his hands on for at least 16 years – a Junior Isa.

Given the long-term timescale involved, investing the money in the stockmarket is a no-brainer, but this is not a view shared by most parents. The latest Isa statistics show that during the previous tax year parents saved £514 million in cash Junior Isas, compared with £388 million in investment Junior Isas. The reality, however, is that while cash may feel safe, its Achilles’ heel is that inflation slowly but surely erodes its real value over time.

The bigger dilemma was where to invest. I wanted to avoid ‘doubling up’ on holdings in my own Isa, so I opted against Scottish Mortgage. Instead, I picked Aberdeen Asian Smaller Companies IT, recently renamed Aberdeen Standard Asia Focus IT.

I chose this investment trust for four main reasons: emerging markets in Asia look better placed than their western counterparts for long-term growth; small-company shares tend to outperform large over 10-year-plus periods; the trust’s experienced manager Hugh Young has his biggest personal stake in the trust; and it was trading on an 11% discount.

Market timing is clearly not a strength of mine, as shortly after I hit the buy button Asia and emerging markets hit a rocky patch. Volatility, though, is par for the course in this area of the world. It is a long-term investment, so rather than panicking, I am considering topping up exposure heading into 2019, particularly given that the trust’s discount has widened to 15%. But first things first: my son has discovered Thomas the Tank Engine and I have some shopping to do.

Prudent Parent is a new column that offers money-saving tactics to help save for children and grandchildren. 

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