Hey friends,

Well, I turned 35 this week and now can't pretend I'm early 30s anymore. Scarily the years seem to flick by ever faster which is explored rather nicely in a recent episode of Explained on Netflix named 'Time'. It also has a cracking theme tune.

👷 Garage Roof

At last! The garage has a roof and the building is dry for the first time since we bought the place. The metal sheets worked out well despite me pushing the span a little over the 1.2m recommended. Having Joe's help really made things easier and turned a weekend job into an afternoon's.

They feel really strong and look decent from the landing window in the house. I wonder how clean they'll stay. Last job is to put back the guttering at the back and feed it into a water-butt or two.

The fibreglass sheets make a big difference to the light levels inside so I'm really happy with how it worked out and overall I think it was a good decision to ditch the joists. Now to tidy up...

🎥 Video

My final project on the studio is now out on how I went about staining and putting up my shelves. Depending on where you are in your DIY journey, it's either a very really cool little project or stupidly simple.

I'm thinking of rounding off the studio series with a workspace tour and talking about the various kit I own and workspace optimisations I've mentioned previously in this newsletter. Undecided though.

💷 Saving For Your Child's Future

Consider this an addendum to my stock investing newsletter. If you were new to the idea of compounding you probably came away with the feeling of 'Damn, I wish I'd started sooner!'. We all feel like that and the only thing we can do is start investing today. But you know who has loads of time? Kids. Which leads me on to a question posed to me this week:

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Hey mate!

Hope this finds you well. I've been sitting with this newsletter in my inbox since you sent it deciding what to do! 

Well, since you wrote it I've had my first child and just wanted to pick your brains with what you do in terms of saving for your little one. 

To me it seems like there's a few options.

1. Just stick it in any old account - easy access, no growth

2. Junior cash ISA... similar to 1, but still a bit meh

3. Junior stocks and shares ISA... slightly more interesting, but lack of access is playing on my mind somewhat

4. To hell with it all and invest in the all cap index fund

We're not talking massive money here - but thinking of stashing the child benefit plus whatever else we can into it and seeing where it goes in time for sprog's 18th birthday!

I know it's cheeky asking - but thought you might have some awesome insight on it! 

Cheers, looking forward to the next newsletter! :) 

Mike

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Well firstly a big congrats to Mike and I think it's great he's thinking about his little one's future. Here's my take on things but first, as before, a little disclaimer.

This does not constitute legal financial advice and is solely my opinion. Do your own due diligence and research.

Savings Account

The first option of putting spare cash in an easy-access savings account is the 'zero risk' approach. Unfortunately with interest rates below inflation, it will be losing money in real terms every year so the only reason I can think of to go with this option is if you think you may need to raid the fund to pay for something before they hit 18. The good news is children's savings accounts are usually top in terms of interest rates, so not too bad.

Junior Cash ISA

Option 2, the Junior Cash ISA really doesn't present much more benefit than Option 1. Cash ISAs used to be a decent savings vehicle when interest rates were higher and there were no Personal Savings Allowance (now £1,000 tax free interest for lower rate taxpayers, £500 for higher rate) or Starting Rate For Savings (up to £5,000 tax free if earning under £17,570, as most kids will). More info here. Unless you're stashing away a large sum each year, these figures will almost certainly not be breached and therefore the fact that the money is in an ISA represents no real advantage, though it can be converted to a S&S ISA at a later date.

So that leaves us with two options for tax free growth that will take advantage of compounding over time from being invested in diversified stocks. The Junior SIPP and the Junior S&S ISA (Mike's Option 3).

Junior SIPP

The Junior SIPP has the benefit of tax relief of 20% so you can put in up to £2,880 a year and the government will top it up to £3,600. This extra cash injection early on will also benefit from compounding so as with an adult SIPP (which is what a Junior SIPP will turn into on their 18th birthday) mathematically it's the best option. The draw back, as always with pensions, is access.

This will likely be at least 60 years old (though it's anyone's guess what it could be) by the time your sprog is old enough to get at it so three issues arise:

1) You’ll be old or dead (morbid but true) and won’t get to see them enjoy the funds, which is a shame.

2) If you are dead they will have already had their inheritance (if you're so generous) so the SIPP you diligently set up 60 years ago is not as useful as it might have been had they had it in their earlier years. Even if you are alive and kicking it's likely you may pass on assets early anyway, so same result.

3) Most of the expenses of setting up of a decent life comes in the late teens to early 30s (uni, car, travel, house, kids of their own etc) which leads us to the junior S&S ISA…

Junior S&S ISA

No government top up here but you can invest up to a very generous £9,000 each year. The good news is that your kid will have access from 18 so they can use this for the expenses outlined above. The bad news is that your kid will have access from 18 so if they are of the spend thrift variety the money could be wasted. Obviously a SIPP doesn't have this issue but there are plenty of 55 year olds who blow their pension too! However I like this option as it gives you a good chance to teach your kid about saving, investing, compounding and other finance lessons.

So this is the route we went down and exactly like Mike intends, we invest the child benefit of £92-ish a month (you get it or some of it if you and your partner each earn less than £60k a year - a threshold you can keep under if you invest excess income in your own pension!), we then top it up to £100 and put that in each month. Birthday and Xmas money can also go in there, at least while he’s young. I estimate he should end up with between £50-70k (inflation adjusted) by the time he’s 21 which is a great start and will really propel him forward in life.

Ideally we’d increase the monthly amount by inflation each year so if inflation is 2% then £102 next year and so on. That way, if we were to have a second kiddo in year 3 then they’ll start on £106.12 so it should be fair. Of course you can always top up one account later if needed.

We do this via Vanguard in the global all cap index fund as we do with our own investments. If and when he needs these funds we may look at de-risking, much as you would when approaching retirement.

Keep it yourself

Mike's Option 4. Now, the other very good option is to hold it all yourself along with your own investments, especially if you and your partner are not maxing out your ISA and pension accounts each year. If you're a higher rate tax payer, arguably putting all the funds you can into your pension will give the maximum return due to the tax relief you'll get. If you have kids in your mid 30s your pension will be accessible by the time your first kid finishes uni (if they go, I'm not that pro uni to be honest) so you can pass it along then. It also gives you maximum flexibility if for example you don't trust their latest girlfriend/boyfriend!

I'm hoping ours will be sensible and I'll use his JISA to educate him but I also don't feel we need to have to put in as much as possible. One way or another, it'll be a good 18th birthday present though.

Conclusion

All these options have their pros and cons and it comes down to how much you have to invest. The other option is to set up a trust fund of one kind or another which will give you more control on how much your child can take out and when. Alternatively if you own property in a company you can pass on shares of said company and therefore income. Worth looking into if you're dealing with larger sums.

Other fun things

Away from money, here are some other cool things you can do when you have a kid:

• Plant a tree. If you do it in a public space then they can always come back to it in future.
• Buy a fancy champagne or wine of the year they are born that will age well. Pop it open on their 18th.
• Open a gmail account. Most firstnamesecondname combinations are taken but you'll have a better shot now than when they think to open one.
• Secure a web domain for them, again with their name. Remember to renew it each year until they're old enough to take it on themselves. It's not that costly but I think the benefits are numerous.

If you have any other good ones, let me know!

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Hit "reply" if you've got any comments on this week's newsletter – otherwise I'll see you next time. Have an epic week :)

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P.p.s. You can find all previous newsletters here.