The sums that present why you must make investments to your kids from start

Last month, my wife and I welcomed baby Boyce number two to the fold – a joyous few weeks have elapsed, and we’re feeling incredibly blessed.

Amid the endless nappy changes and snuggle frenzy, on top of our to-do list is to start an investment account for our second daughter.

When our first daughter was born in late 2018, we managed to get a stocks and shares Isa up and running for her a few months later.

We started with £1,000 of savings, and ever since, have both stuck in £75 a month in the form of a direct debit that automatically invests, with occasional one-off sums going in from birthday money received from generous relatives.

The result so far? Well, the account with DIY investing platform Vanguard has returned 72.66 per cent. We have already built up a £15,347 nest egg, with £4,182 of that being investment returns.

I’m hoping that in five years’ time – so after 10 years of investing – that sum will sit at somewhere between £35,000 and £40,000, given the current trajectory, although of course investment returns aren’t guaranteed.

I’m then hoping it’ll be at the £75,000 mark at year 15, and then £140,000 by year 20, with all sums worked out using This is Money’s compound saving and investing returns calculator.

The vast majority of that £140,000 will be investment returns – all from that £1,000 start, and £75 a month payment from the pair of us, or just £1,800 a year.

I visualise that pot as a small snowball at the top of a steep hill cascading down and growing as it does.

For daughter two, we’re going to invest in the same way with the same sums involved.

The hardest part is getting off your backside, opening the account and getting started. 

It’s easy to dither, especially when you have sleepless nights and priorities elsewhere, AKA, keeping a small human alive.

But the only motivation I need – and I’m hoping may pass to you – is the maths mentioned above. And once the payments automatically come out of your account, all the hard work is done for you.

Saving for children is beautiful because time is on your side. You know you have 18 years to play with – a long-term investment horizon that can yield wonderful returns.

That’s why I believe investing for children is far better than sticking it in a Junior cash Isa or the popular option of Premium Bonds.

For daughter one, we have the Lifestrategy 100% Equity Fund with Vanguard, which comes with a low 0.22 per cent annual fee for investing all around the world. It also has a high-risk rating, given the nature of the fund.

This doesn’t matter so much when you have a long investing horizon, such as saving for nearly two decades for a child.

There will be years of losses, peaks, and troughs. For two of the five years, our investment has returned a loss.

In year one, it was down 9.38 per cent (which didn’t matter too much, given the small balance in there). It would have been easy to panic at that stage, but we kept calm and carried on.

In year four (31 March 2022 to 31 March 2023) it was down 0.31 per cent.

But year two saw a return of 36.3 per cent, year three 11.97 per cent, and year five 17.59 per cent.

I save into my own Isa allowance (I will never need £20,000) and it’ll be the same for daughter two.

The main reason for this is control – a Junior Isa can be accessed by your child at 18.

In our circumstances, this pot will be used for us to directly pay for things such as driving lessons and a car deposit, potential university education or even a deposit on a home, rather than handed over in the form of a lump sum.

Regardless of what path you choose when it comes to saving for your child, just get on with it and get started. Having even a small pot of cash at the start of adulthood can be hugely helpful.

With £100 per month from a standing start and annual interest or returns of 5 per cent, it would give your child a near £35,000 pot at 18 – around £13,000 of that would be interest.

With a 10 per cent return you’re talking £60,000 and 15 per cent £110,000. They sound like unrealistic returns, but given our investing experience so far, it can be entirely feasible.

Don’t delay and give your child a financial turbo-boost that can make a world of difference.