Many kids will be hoping that a Sony PlayStation 5 (PS5) is waiting for them under the tree on Christmas day, but what with the eye-wateringly high price tag and the fact that the PS5 is sold out everywhere, the chances are very slim. But is it wise to spend so much on something that is likely to be out of date this time next year? Your kids won’t thank you, but yule thank us for suggesting you give your kids a headstart with a long-term investment that grows alongside them.
According to the Association of Investment Companies (AIC), if you’d invested £1k in an investment company 18 years ago, it would be worth £7,913 today (based on an annualised return of 12% a year). Alternatively, if you’d invested £50 a month over 18 years, the AIC says that your total £10,800 investment could be worth £34,348 today. That’s a sizeable chunk towards a gap year, university, a house deposit and much more…
Small is beautiful
The AIC represents investment trusts and closed-ended fund providers (Confused about funds? See our guide here). Its data shows that the best performing sectors over the last 18 years were:
European Smaller Companies – 1306% return
Biotechnology & Healthcare – 1176% return
Global Smaller Companies – 1064% return
Global Emerging Markets – 1027% return
UK Smaller Companies – 1001% return
It’s no surprise that these are relatively niche, concentrated sectors. The pool of available investments is much smaller when it comes to Smaller Companies, Biotech and Emerging Markets, which means that the risk is higher but so too is the reward if/when the investments eventually come good.
When you’re making long-term investments for children, that might be a risk you’re willing to take, but otherwise it pays to diversify – global is always a safe option. The AIC represents closed-ended funds, but there also open-ended equivalents and you should do your research.
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