If you want to get children interested in investing from an early age, one approach is inspiring them to do good in the world with money that will eventually belong to them.
There are plenty of compelling ways to invest ethically, which offer opportunities to teach children about overcoming challenges in the world in an age appropriate way.
We previously looked at what to consider more generally when choosing funds for a Junior Isa, to help parents looking for ideas as this year’s deadline nears.
Looking to the future: There are plenty of compelling ways to invest ethically, which offer opportunities to teach children about overcoming challenges in the world in an age appropriate way
Financial experts suggested engaging children in investing decisions, keeping costs low to generate more money for a child’s future, not playing it safe given the long time horizon, and even exploiting market setbacks to invest in promising but volatile areas of the market.
Below, experts offer tips about educating children about investing and make further fund and trust suggestions, this time with ethical goals in mind.
What should you tell children about their Junior Isa?
Start at a young age: ‘Remember when your parents told you “money doesn’t grow on trees” or Granny was on hand to teach you that “every penny counts”?’ says Emma-Lou Montgomery, associate director for personal investing at Fidelity International.
‘Well, following the events of the past few years these sayings are now more true than ever, which is why it’s important to start educating your children on savings and investments from a young age.’
How do Junior Isas work?
Find out the pros and cons of cash or share Isas, how to start saving and all the rules here.
What funds and trusts might be suitable for a junior Isa? Find out here.
She adds: ‘Ensuring your children enter adult life with some money behind them will obviously help their financial future, but it won’t count for much if they haven’t also learned some fundamentals of living a healthy financial life for themselves.
‘Instilling a savings habit in your children – even from a very young age – means they are more likely to go through life in the black, and not in the red.’
Encourage children to save and invest their money too: ‘For teenagers that might mean encouraging them to put aside 10 per cent (or more) of any money they receive – through Saturday work, say – into savings,’ says Montgomery.
‘That money can be added to later or used for something really worthwhile.
‘Even smaller children can learn the value of saving if a bit of pocket money or some of the cash they get for birthdays or Christmas is put into a savings or investment account. The key is to learn the lesson that saving now means you can afford good things in the future.’
Talk about their life goals: ‘Time is a resource and children have plenty of it before they’re able to access their Junior Isa,’ says Zoe Dagless, senior financial planner at Vanguard.
‘Even a relatively small amount of money such as pocket money, given time to compound, can end up covering big bills – university fees, a deposit for a first house – in future.’
‘Encourage them to think about their life goals, choices they might make as they get older, and how savings or investments could help contribute to their financial success.’
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Explain the importance of diversifying investments: ‘I would always advocate for a diversified portfolio,’ says Isabel Kwok, investment manager at JM Finn.
She says this is reflected in her fund suggestions below, which include a broadly invested equities fund, a themed fund, a fixed interest fund, a renewable investment fund, and finally one making a direct, positive social impact.
What ethical funds and trusts could be suitable for a junior Isa?
Isabel tips… Janus Henderson Global Sustainable Equity (Ongoing charge: 0.85 per cent)
One of the pioneers of ethical investment, Janus Henderson, launched this fund 31 years ago, says Kwok.
‘The mandate has been honed over the intervening decades into what is now a strategy focused on investing in businesses that are aligned to the core global social and environmental mega trends that are shaping the global economy – namely population growth, resource constraints, an ageing population and climate change.
‘The fund typically invests across 50-70 holdings, broadly in line with the MSCI World index with a bias towards quality growth stocks.’
Guinness Sustainable Energy (Ongoing charge: 0.70 per cent)
An actively-managed portfolio of global equities launched in 2007, the fund focuses on companies playing a key role in global decarbonisation, supporting the growth in demand for renewable energy and energy efficiency, explains Kwok.
‘This is a concentrated fund comprising 30 equally-weighted positions, with an investment time horizon of three to five years per stock, and following a ‘growth at reasonable price’ investment-style.
‘The managers apply both a top down and bottom up stock selection process, seeking out the various short and long-term trends associated with the global energy transition. The geographical spread of investments includes 49 per cent in North America, 30 per cent in Europe and 16 per cent in Asia Pacific.’
Threadneedle UK Social Bond (Ongoing charge: 0.41 per cent)
This diverse fund invests primarily in UK fixed interest assets with a social impact focus, says Kwok
It covers a broad range of sectors including housing, transport, communication infrastructure, health and social care, education and training, and community services, she adds.
Isabel Kwok: I would always advocate for a diversified portfolio
‘Issuers represent a range of organisations, many of whom do not issue shares on the equity markets, such as charities, special purpose vehicles, government agencies, and supranational institutions.
‘Addressing social inequality is one the fund’s core aims; 24 per cent of bonds support the development of the north of England, 59 per cent favour development outside of the South East.
Greencoat UK Wind (Ongoing charge: 1.03 per cent)
Listed on the stock market in March 2013, this investment trust is solely focused on UK wind farms, says Kwok.
It has delivered on its forecast yield whilst growing both the income and the net asset value in line with inflation, she goes on.
‘The company structure and approach is designed to be simple and transparent, with low debt to ensure a high level of cash flow stability.
‘The management team are highly disciplined in terms of new acquisitions, which must not be dilutive for current shareholders, and they never take on development risk. The running yield is currently 5.4 per cent grown in line with inflation.
‘The company stands apart from all the other listed renewable energy infrastructure companies, in that it does not hedge energy prices. This means that the company has benefited from the recent sharp increase in wholesale energy prices.’
Home REIT (Ongoing charge: 1.41 per cent)
Kwok says this listed real estate investment trust was set up by an experienced property management team to buy high quality accommodation to lease to people at risk of being or currently homeless in the UK.
‘In 2020, the UK Government spent £410 million on housing homeless people in temporary (and often unsuitable) accommodation.
‘Home REIT are able to reduce the costs by an average of 65 per cent by offering long term accommodation, typically leased on 25 year term via its partner organisations.
‘As an added benefit, secure homeless housing is centrally funded by the Department of Work and Pensions, and so local authorities are able to remove this liability from their balance sheet whilst fulfilling their statutory duty to provide secure accommodation for people who are homeless or at risk of homelessness.
Zoe Dagless: Even a relatively small amount of money such as pocket money, given time to compound, can end up covering big bills
‘Tenants are housing associations and registered charities, which the management have built up strong partnerships with. A hundred per cent of rents are index-linked, with increases capped at 4 per cent per annum, to ensure secure sustainable rental growth.’
Ben tips… Ninety-One Global Environment (Ongoing charge: 0.83 per cent)
This is an equity fund that seeks to invest in companies critical to mitigating the risks of climate change, says Ben Staniforth, research analyst at Redmayne Bentley.
‘It has a number of concentrated positions in companies such as NextEra Energy, one of America’s largest capital investors in infrastructure such as solar and wind energy.
‘The fund’s three key investment themes that guide its ethos are renewable energy, resource efficiency, and electrification.
‘The climate transition will be a long-term phenomenon, and through this positive fund, children can play a part in bringing about a better future.’
Trojan Ethical (Ongoing charge: 1.02 per cent)
If you are looking for a diversified investment, Trojan Ethical is a multi-asset fund that uses an ethical framework across its portfolio, explains Staniforth.
‘The fund excludes any equities relating to alcohol, oil and gas, arms, gambling, and more while investing exclusively in government debt of the G7 group of nations.
‘Although the fund has a large position in gold, it ensures this is sourced ethically and minimises exposure to gold sourced before 2012.
‘Though this fund won’t provide racy growth, you can be sure your capital will be preserved over the long term and will not go towards unethical causes.’
Gordon tips… Royal London Global Sustainable Equity (Ongoing charge: 0.72 per cent)
To get core global equity exposure, Mike Fox and his team at Royal London have a well-considered approach, says Killik & Co head of fund research Gordon Smith.
The fund has a portfolio of 30-50 holdings, and is benchmarked against the MSCI All Country World Index.
It aims to identify companies with products and services contributing to a cleaner, healthier, safer and more inclusive society, and those with high ‘environmental, social and governance’ (ESG) standards which encourage good corporate behaviour, says Smith.
‘We believe the recent market setback has provided an opportunity to accumulate exposure to areas of the market more focused on secular [consistent and long term] trends associated with sustainability, particularly as the requirement for energy and resource security has become ever-more critical.’
Smith adds that the two specialist funds he highlights below could complement the broader core equity exposure offered by the Royal London portfolio.
Schroder Global Energy Transition (Ongoing charge: 0.72 per cent)
This is a fund targeting emerging technologies and strategic industries integral to the global shift to cleaner energy, according to Smith.
It seeks opportunities across areas including renewable power generation, energy storage, electric transport infrastructure and distribution.
‘The strategy excludes investment in companies with any exposure to fossil fuels or nuclear energy.’
Pictet Global Environmental Opportunities (Ongoing charge: 1.11 per cent)
Smith says this fund has a global strategy focused on companies engaged in clean energy and water, agriculture, forestry, and providing products and services that help reverse ecological damage and increase resource efficiency.
Emma-Lou tips… Baillie Gifford Positive Change (Ongoing charge: 0.53 per cent)
I’m setting up a stocks and shares Junior Isa for my toddler…
Can I stop him getting hold of the money at 18 if he’s not responsible enough then? Read more here.
A lot of funds promote their green credentials, but this fund offers something truly innovative in letting you see the impact of your investment on the world, says Mary-Lou Montgomery of Fidelity International.
‘Its “impact indicator” gives metrics on the carbon, health and social impact of various investment levels.
‘This takes investment “transparency” to a new level and one that I think is very exciting and has real potential to prove there is added value in sustainable investing.’
Fidelity Global Demographics (Ongoing charge: 1.06 per cent)
‘An ageing population will be an increasingly important driver of global economic change, having a huge effect on countries’ economies and the world’s resources,’ says Montgomery.
‘When you’re investing for your child’s future, looking ahead to the needs of future generations feels like an obvious thing to consider.’
According to Montgomery, this Fidelity fund is a one-stop shop for investors who want an easy way tap into such opportunities.
‘Investing in the likes of Microsoft, Apple, LVMH and L’Oreal, it looks for companies around the world that are working on changes that will appeal to the ageing populations of the next generation and beyond.’