The Weekly Advertiser Horsham

Giving the gift of investing

- With Robert Goudie CFP Graddipfp Consortium Private Wealth

Did you have a savings account when you were young? It was not uncommon and those old passbook accounts funded many a first car.

Now you are a parent, are you thinking of opening an account for your kids? Record low interest rates have taken some of the fun out of watching bank accounts grow, but there are alternativ­es. For example, have you considered a share portfolio?

Direct shares follow market movements, whether that be up or down, but over time, quality shares have greater growth potential than many other investment types.

For a child’s investment fund, you are probably looking at a savings term around 15 to 20 years – ideal for riding market ups and downs.

How do shares and savings accounts compare? Consider the following example – initial investment $500; monthly contributi­on $50; investment term 20 years. Assumption­s: Savings account return calculated on one percent per annum interest. Share portfolio return four percent per annum based on a comparison of mixed balanced asset funds over the past three years to December 2020.

This example demonstrat­es how shares, year-on-year, can potentiall­y outpace a savings account. By year 20, your child’s projected savings account balance could be $13,899 and the projected share portfolio balance could be $19,450.

Straight-forward? Not so fast, because there are a few other points to think about.

Your child can have a tax file number, TFN – there’s no minimum age. All funds will request a TFN, but whether you quote the child’s TFN or your own depends on factors such as who is contributi­ng to the investment, whether the money is being used and so on. Tax is tricky too. Your child’s age and whether they are earning their own money will determine whether they have an income-tax liability and need to lodge a tax return.

Additional­ly, there’s Capital Gains Tax, CGT. Share portfolios are assessed for CGT if the assets are sold for more than their purchase price. The amount of CGT payable will depend on a number of elements, but your tax agent will be able to help.

There will always be tax, but how much, what type and how it is calculated will depend on your, and your child’s, circumstan­ces.

Do your sums to work out the most suitable tax outcome for you and your child. Remember that mistakes can be costly so it is wise to consult a tax accountant for advice.

Everyone’s situation is different and investment types and structures are not onesize-suits-all. Before making any decisions, seek the advice of qualified profession­als, and regardless of whether you choose a share portfolio or an alternativ­e investment, you’ll be across your options and confident your particular needs are being met.

• The informatio­n provided in this article is general in nature only and does not constitute personal financial advice.

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