Best long term option to invest 20k for child?

[SirJimi05]

Hi Folks,

I want to put away 20k for my soon to be born child for when he turns 18. What would be the best place to invest it for long term gains?

I've never really been into shares nor do i know much about them. Is this a viable option still?

I don't want to have to think about it or do anything once it's invested.

Would a simple long term deposit be the way to go. Obviously re-investing the matured funds at the completion of every term?

What do people think?

 

[bunsen burner]

I'd personally go for 8 or so blue chip stocks across multiple verticals at $2500 each and make sure they have reinvestment plans. i'd go:

RIO
MQG
CBA
AGK
ORG
WOW
WES
ALL

I don't know enough about depsosit bonds and the likes to know how good a return they get. Also not sure if an indexed fund has a reinvestment scheme.

 

[Good Win]

IMHO you can't go pass the stockmarket. In the current climate, investing wisely in the top 50 (maybe 100) shares in the ASX will double your money every 3-4 years. It can be as simple as studying trend lines (eg. when a stock is rising from a trough and is over the trend line BUY, and when a stock is falling after a peak and below the trend line SELL). Obviously there are several other things you need to consider as well but this is certainly legit. It's also surprisingly not as risky as most people think if you never invest more that 20% of your capital in any one stock and use a stop loss (say of 10-15%). Highly recommended if you ask me.

 

[poppy1]

I'd personally go for 8 or so blue chip stocks across multiple verticals at $2500 each and make sure they have reinvestment plans. i'd go:

RIO
MQG
CBA
AGK
ORG
WOW
WES
ALL

I don't know enough about depsosit bonds and the likes to know how good a return they get. Also not sure if an indexed fund has a reinvestment scheme.

Either that or whack it on mouriliyan in the cup tomorrow.

 

[Good Win]

I'd personally go for 8 or so blue chip stocks across multiple verticals at $2500 each and make sure they have reinvestment plans. i'd go:

RIO
MQG
CBA
AGK
ORG
WOW
WES
ALL

I don't know enough about depsosit bonds and the likes to know how good a return they get. Also not sure if an indexed fund has a reinvestment scheme.

Good list I'm a big fan of TLS atm too

 

[SirJimi05]

I'd personally go for 8 or so blue chip stocks across multiple verticals at $2500 each and make sure they have reinvestment plans. i'd go:

RIO
MQG
CBA
AGK
ORG
WOW
WES
ALL

I don't know enough about depsosit bonds and the likes to know how good a return they get. Also not sure if an indexed fund has a reinvestment scheme.

What do you mean by reinvestment scheme? I was under the impression that you just hold onto stocks until you wish to sell them? Can you explain this please?

 

[Simon_Nesbit]

I don't know for a fact, but I'm presuming it automatically purchases more shares using the dividends you receive.

As an alternative, we've set up an off-set account against our mortgage. I run an excel spreadsheet, and essentially he's getting "mortgage" rates of interest. There's not much in there now (about 10k - he's 3 years old now) - but by the time he's 21 there should be enough there to "buy" his 1st property unencumbered - essentially setting him up for life.

As a fail-safe, zero time input it's by far the most effective method (for us anyway).

 

[DeanoT]

Good list I'm a big fan of TLS atm too

I would not be listening to anyone who says that TLS is good long term investment. TLS is still trading at less than half of its 1999 value, and is about to be structurally re-organised to remove its monopoly.

 

[SirJimi05]

I don't know for a fact, but I'm presuming it automatically purchases more shares using the dividends you receive.

Ahh ok this makes sense.

As an alternative, we've set up an off-set account against our mortgage. I run an excel spreadsheet, and essentially he's getting "mortgage" rates of interest. There's not much in there now (about 10k - he's 3 years old now) - but by the time he's 21 there should be enough there to "buy" his 1st property unencumbered - essentially setting him up for life.

As a fail-safe, zero time input it's by far the most effective method (for us anyway

)

How does this work exactly? Do you have a link or anything that i can read up on? Sounds interesting. Is it just the same as a term deposit but off-shore? If so, how exactly does it make such nice returns?

20k into a long term deposit here will only end up being around 50odd K by the time my kids turns 18 right?

 

[Good Win]

TLS is still trading at less than half of its 1999 value

There's the clincher. Their shares are currently undervalued.

Not only should the stock rise a considerable % but the dividend yield is fantastic.

 

[DeanoT]

There's the clincher. Their shares are currently undervalued.

Not only should the stock rise a considerable % but the dividend yield is fantastic.

LOL. By that argument they have been undervalued for ten years, yet failed to show an investor a profit. When they drop below $3 I suppose they will be an even bigger bargain ?

 

[bunsen burner]

What do you mean by reinvestment scheme? I was under the impression that you just hold onto stocks until you wish to sell them? Can you explain this please?

You get dividend from shares. Say you have $2500 worth of WOW you might get a $65 cheque every quarter. Rather than them put that in your bank account, they reinvest it without any broker fees.

Say WOW are $30 each they'll give you 2 shares and hold the left over $5 until next dividend payout.

You want that nest to grow as fast as possible but without touching it. Just make sure the stocks have a DRP (Dividend Reinvestment Plan).

Pretty sure all those I mentioned have them. I know BHP don't. I have some BHP but would have thought twice had I known they don't have a DRP.

 

[bunsen burner]

Personally I wouldn't touch Telstra with someone else's dick.

They own the copper wire infrastructure but things are going wireless and mobile. They seem too cumbersome to be cutting edge technology leaders.

I just can't see obvious upside.

 

[SirJimi05]

You get dividend from shares. Say you have $2500 worth of WOW you might get a $65 cheque every quarter. Rather than them put that in your bank account, they reinvest it without any broker fees.

Say WOW are $30 each they'll give you 2 shares and hold the left over $5 until next dividend payout.

You want that nest to grow as fast as possible but without touching it. Just make sure the stocks have a DRP (Dividend Reinvestment Plan).

Pretty sure all those I mentioned have them. I know BHP don't. I have some BHP but would have thought twice had I known they don't have a DRP.

Ah ok this sounds like a good idea. Is it a good time to buy thhe shares you suggested or should i wait a bit longer?

My baby isn't due for another 6 months so can invest the money any time before he is born.

I know it is impossible to predict but what sort of money do you think the 20k could turn into after 18 years investing in blue chip shares structured the way you suggested.

 

[Good Win]

LOL. By that argument they have been undervalued for ten years, yet failed to show an investor a profit. When they drop below $3 I suppose they will be an even bigger bargain ?

FYI it is not just my opinion. There are many reputable experts that support my claims.

Have you had shares with them before and lost some $? That could explain your outburst.

 

[bunsen burner]

Ah ok this sounds like a good idea. Is it a good time to buy thhe shares you suggested or should i wait a bit longer?

Nowish, but no immediate rush. I'd do a bit more diligence too. Simon Nesbit's idea may need more investigation.

I know it is impossible to predict but what sort of money do you think the 20k could turn into after 18 years investing in blue chip shares structured the way you suggested.

My kids are 5 and 3 and their little portfolio will be at about $20k in by EOY.

I also put all the coins I get into a tin (one of those ones you buy from $2 shops with the Aussie notes on it). Every 4-5 months or so it fills up and I take it down the bank, deposit it (usually it's $1500-ish) and then buy another stock for my kids.

I think it will be worth about $250k by the time the are 18. That will be enough for a decent deposit on an investment property for them.

 

[Bulldog Joe]

If you really want something that will grow without you needing to worry, you could simply use a managed share fund. You will have professional managers keeping on top of changes that need to be made. It is a higher cost but means you need do no personal work on it and don't need to look for share tips you don't personally understand.

There are even some geared funds, where they accelerate the investment by using borrowing. They also produce a pretty good tax outcome on a year to year basis. A typical geared fund is likely to average double the share market return when things are on the up, but will also accelerate losses in the down times.

This type of fund could be expected to double every 3 to 5 years, meaning the potential for $20K over 20 years is in the vicinity of $500k.

 

[bunsen burner]

If you really want something that will grow without you needing to worry, you could simply use a managed share fund. You will have professional managers keeping on top of changes that need to be made. It is a higher cost but means you need do no personal work on it and don't need to look for share tips you don't personally understand.

I'm not overly keen on doing this. You have to pay them and the chances are that they won't be able to beat the indexed. If going this route I think it's better to get an indexed fund.

There are even some geared funds, where they accelerate the investment by using borrowing. They also produce a pretty good tax outcome on a year to year basis. A typical geared fund is likely to average double the share market return when things are on the up, but will also accelerate losses in the down times.

This is a good idea but no for a novice investor. it's not rocket science but some education on margin lending would be needed. This would be a good option down the track to try and speed his growth up. I'm pretty confident I will be doing some margin lending when the time is right.

 

[Bulldog Joe]

I'm not overly keen on doing this. You have to pay them and the chances are that they won't be able to beat the indexed. If going this route I think it's better to get an indexed fund.

This is a good idea but no for a novice investor. it's not rocket science but some education on margin lending would be needed. This would be a good option down the track to try and speed his growth up. I'm pretty confident I will be doing some margin lending when the time is right.

managed funds can beat the index but an index fund or a reputable active fund is fine for someone without personal expertise.

There is less of an issue with a geared fund than direct shares for a novice investor. There is no need to understand margin lending because the gearing is internal to the fund and there is no prospect of margin calls.

The last 6 months has actually been terrific for margin lending.

 

[DeanoT]

FYI it is not just my opinion. There are many reputable experts that support my claims.

Have you had shares with them before and lost some $? That could explain your outburst.

Many "experts" have been talking about TLS being undervalued for many years, and yet the stock never approaches its T2 price of $7.40 or thereabouts.

I haven't been burned, I've never put my money in the stock, I just think it is a s**t company, which will be left behind with technological advancements. Bunsen burner highlights a few good points on this.

My ex girlfriends' parents sought my financial advice and about TLS when T2 was occurring, and I advised them then not to touch it. Of course they went ahead and bought in ("It's a monopoly" they said!!!) and watched the price tumble year after year. When it went below $5 they doubled up, figuring it was only a matter of time. As of today it is $3.24 and still heading south.

Don't get too caught up in high dividend yields. Just about every blue chip coy that has gone broke has had a very attractive div yield before going broke. Not saying TLS will go broke, but it doesn't mean it is about to experience a price burst either.

All the arguments for TLS have been around for many a year and yet the price trend is this (click on the 10-YR or Max graph):

http://www.google.com/finance?q=ASX:TLS

Anyways, thats just my opinion too. Proof is in the results. When TLS gets back to the $7.40 point (break even point only for many Australians) I'll consider myself partly wrong. Won't be holding my breath.

 

[bunsen burner]

There is less of an issue with a geared fund than direct shares for a novice investor. There is no need to understand margin lending because the gearing is internal to the fund and there is no prospect of margin calls.

How does this work? Is this a product? Can you just explain for the benefit of myself and the OP what this is, how it works, and how you can have gearing without margin calls. And what are the fees like for this sort of product?

 

[DeanoT]

How does this work? Is this a product? Can you just explain for the benefit of myself and the OP what this is, how it works, and how you can have gearing without margin calls. And what are the fees like for this sort of product?

I'll let Bulldog Joe respond in detail to your post, but the link below provides a good explanation, and links to current product offerings:

http://www.2020directinvest.com.au/investment-opportunities/geared-funds.aspx

 

[Bulldog Joe]

How does this work? Is this a product? Can you just explain for the benefit of myself and the OP what this is, how it works, and how you can have gearing without margin calls. And what are the fees like for this sort of product?

Effectively the manager invests the Investors money through a pool and enhances that with an internal gearing that will vary depending on the manager.

If the strategy of the particular manager is to gear at 50% they will borrow an amount equivalent to the investor's money and buy twice the value of stocks.
If we consider this only in relation to a stock like Comm Bank (CBA).
The investor contributes $1000
The Manager borrows $1000
The Manager buys $2000 of CBA
If the dividend from CBA was then $140 fully franked there would be imputation credit of $60.
Interest on the borrowed funds at say 7% would be $70
Manager's costs would be up to 2.5% (I did not claim it as cheap) or $50

The investor would then have a distribution due of $20 but tax credits of $60.

I have used a high dividend rate (but less than CBA paid based on their share price through 08-09 FY) because the manager also needs to ensure that there is a distribution available to pass on the tax credits.

In practice they will invest across a range and some realised gains also add to the distributable income.

There are several funds available and the costs and strategies will vary. Some will use a strategy that simply makes use of the dividends to offset the interest. Note also that some managed fund options in superannuation also employ this type of strategy.

If you have enough personal competence you can invest on line or you can find a financial planner to assist you.

 

[Simon_Nesbit]

Just a bog-standard mortgage offset account. Although we couldn't afford it at the time (who knew kids were expensive? ) we "committed" 10k to him on his birthday, and add $100 a week out of our pay. 5k a year in savings.

So there's 5x21 (105k) plus the original 10k. All of his birthday money and his own savings **Mantis look away now** (he gets our loose change of an evening before bed if he's been good/done his homework/done special jobs/etc).

Add in the interest over 21 years and the extra money for birthdays, his own savings, etc and we're looking at 250-300k.

Certainly not saying it's great returns (you only 'double' your money in 20 years) - but it's probably the safest investment of all. It's the best fit for us as we are asset-poor/income-"rich" (comparatively) and it's an easy way of 'forced' savings - which "earns" him whatever our mortgage is - and compared to other income-producing assets is 'tax-free'.

Nothing complex, nothing special - but for those without the money or the inclination, it's a good way of "forgetting" about it, and suddenly "finding" 10, 20, or 50k.

 

[James23]

Wait the 6 months before investing it