This teen’s savings pot has been managed by Gran. How should they take over and invest the money?
I’m 19 and have a large savings pot in an investment Isa. My grandma has been managing it but we’ve agreed I’ll take over responsibility for picking investments next year.
I’d like to reinvest most of it so that it can make more money. What should I do?
Receiving a large sum of money when you’re young can give you a great head start in life, especially when you consider how expensive it is to pay for further education or get on the property ladder.
Before you consider where to invest it, Danny Cox, chartered financial planner at Hargreaves Lansdown, explains you first need to think about how you’re going to spend it.
“If you’re going to need some of it in the next five years, look at cash accounts and Isas,” he says. “Anything that you don’t expect to need for five to 10 years can be invested and work much harder for you.”
It’s also sensible to think about your overall financial position.
“Make sure you’ve paid off any expensive debt and have enough money in cash to cater for any short-term emergencies or requirements,” says Patrick Connolly, chartered financial planner at Chase de Vere. As a rule of thumb, keep between three and six months’ worth of expenses in an easy access savings account. Having this safety net will stop you having to sell investments at the wrong time if you do need cash.
Isas are also a great option for any longer-term investments. These are tax-efficient, and you can pay in up to £20,000 this tax year (2019/20).
As well as Stocks and Shares Isas, Mr Connolly says that if you’re planning to put the money towards a first home, you could consider a Lifetime Isa. These are available to anyone under 40 and allow you to pay in up to £4,000 each year until you’re 50. You can hold cash or stocks and shares in a Lifetime Isa, and on top of any growth, the government will add a 25% bonus, up to £1,000 a year.
There are conditions. You can only withdraw money to buy your first home or once you reach 60. Dip in early and you’ll be stung with a 25% withdrawal charge, so think carefully before committing.
Thousands of potential investments are available but Mr Cox recommends starting with funds that invest in shares that might be a little more familiar. “Most investors start with the UK, so you could opt for a low-cost tracker fund like the Legal & General UK Index, which copies the overall growth of the market,” he says. “You could also consider an active UK income fund, such as Artemis Income, where the manager aims to beat the market.”
Investing globally is also sensible, especially as you have a large sum to invest. Mr Connolly recommends Legal & General International Index Trust, which is a low-cost global tracker fund, and two active funds, Rathbone Global Opportunities and Fidelity Global Special Situations.
“Many people feel more comfortable investing in their home market – but remember that most of the best companies in the world aren’t based in the UK,” he says. “Global funds give you exposure to these companies while also providing valuable diversification.”
If you’re comfortable seeing the value of your investments fluctuate, Mr Cox also suggests looking at emerging markets. He likes iShares Emerging Markets Equity Index and JPM Emerging Markets. “These are riskier but have good potential for growth,” he adds.
Depending on how much money you have – and your future spending plans for it – you might also want to consider paying some of it into a pension. “Contributions attract tax relief,” says James Higton, financial planner at Quilter Private Client Advisers. “This means any money you invest will get a 20% uplift if you’re a basic or nil rate taxpayer.”
Tax relief provides a healthy boost to your money, but there’s a small catch. As you won’t be able to access anything you paid into your pension until you reach the age of 55, make sure it’s money you can afford to tie up for that length of time.