Maximising the full Junior ISA allowance at the start of the tax year is a luxury which many people cannot afford. Regular investment plans are a simple way to put money into a Junior ISA and are a very worthwhile alternative route to building a meaningful pot for the next generation.
When you’re trying to juggle the seemingly relentless expenditure of life with youngsters, from replacement PE kits to school skiing trips, the idea of making any significant contribution to a long-term investment account for them can feel like wishful thinking.
It’s certainly true that many parents can spare little of either cash or mental bandwidth to think about investment plans. However, that absolutely does not mean nest eggs for the next generation are off the table.
Regular investment plans are a simple way to put money into a Junior ISA or other account for your child each month, and it’s easy to set one up with an investment platform, see our How to invest section for further details.
Simply open an account for your child (you may need to have your own account with the investment platform to do this) and select the ‘regular saving’ option. Then choose an affordable sum to come straight out of your bank account on a set date each month: you (and other family members too, if they wish) can pay in as little as £25 a month with some investment platforms.
The investment platform then makes the investment each month on your behalf, keeping costs down by bulk-buying for regular investors on an allocated date.
Some investment platforms discount their ‘regular investing’ trading fee; others do away with it altogether. Either way, it can be a cost-effective way of investing.
Once the plan is up and running, you don’t have to give contributions to your child’s nest egg a second thought; moreover, it’s surprising how little you miss cash that automatically leaves your bank account on a regular basis.
Regular saving vs. lump sum investments
Saving regularly is an attractive way of investing for other reasons beyond sheer convenience.
In a nutshell, it helps to smooth the impact of market volatility on your investment, and in some market conditions can actually mean you’re in a stronger position over time than if you had invested a single lump sum.
First, by saving ‘little and often’, rather than paying in occasional larger sums, you do away with the uncertainty of trying to time your investments, and the risk that you will make a meaty investment directly before a market plunge wipes out a chunk of your capital.
A second big advantage is that because their contribution takes place automatically, regular investors tend to be in it for the long term – which is one of the key attributes of successful investing.
Thirdly, it allows you to benefit from so-called pound-cost averaging. When markets are generally uncertain and choppy, this enables you to pay less on average for units over a certain period of time by investing on a regular basis than if you’d bought them at the start of that period.
Let’s take a very simplistic example. Say you set up a regular investing plan, paying £60 a month into your daughter Clara’s Junior ISA. In the first month, the share price of your chosen investment is £5, so your £60 buys 12 shares. The price has dropped to £4 by the next month, so it stretches to 15 shares; in the third month it has fallen again to £3, and you add a further 20 shares.
That’s a total of 47 shares in your portfolio, ready to gain value when markets pick up. In contrast, if you had ploughed a lump sum of £180 into that investment at the start of the period, you would own only 36 shares. In effect, you have paid only £3.83 rather than £5 per share by regular investing.
Clearly this drip-feeding approach only works to your advantage in some circumstances. In a rising market, investing a lump sum from that start would mean you’d be buying investments at a lower price, which in turn could potentially mean higher long-term returns. As with all investments, remember your money is at risk and you may get back less than invested.
It’s also important to remember that any money you don’t invest at the start will presumably be kept as cash. And, if you keep your money in cash for a very long time, you may even lose money, thanks to inflation.
But as we've already established, those lump sum investment decisions involve taking a punt on future market movements, which are driven by a variety of factors whether macro (e.g. political, economic growth, inflation) or stock-specific. Many people have neither the time needed to research all of these various considerations, let alone the available cash, for that approach.
It’s important to note that with either option, no withdrawal of funds is normally possible until the child reaches 18 and takes ownership and therefore parents are unable to withdraw any funds which they invest.
Which approach has worked better in the past?
All of which raises an obvious question: which approach has historically been more successful? It will depend to some extent which period you choose. However, as an example, data from the Association of Investment Companies¹ for the 10 years to June 2024 shows that on the whole, ‘early bird’ lump sum investors tend to win out over regular investors.
According to the AIC, an investor who invested £20,000 into an adult ISA on the first day of each tax year for those 10 years would have achieved a total return of £314,500.
In comparison, someone who split the same £20,000 into 12 monthly payments of £1666,67 would have been worth £296,000 - around 6% less than the lump sum investor. The same principles, obviously, apply for a Junior ISA.
Nonetheless, the differential is not huge. The bottom line is that if you, like most people, are not in a position to plough the full Junior ISA allowance into the markets at the start of the tax year, investing regularly is a low-cost and very worthwhile alternative route to building a meaningful pot for the next generation.
J.P. Morgan Asset Management’s investment trusts
J.P.Morgan Asset Management has a range of highly rated broad-based investment trusts with a long-term growth focus that could make an ideal choice for regular saving within a Junior ISA. Examples include The Mercantile Investment Trust, JPMorgan Global Growth & Income and JPMorgan American.