# Grand-daughter investment fund



## bacdj (27 July 2009)

I have only 1 grandchild, now 2 years old, and I put $50 a month into an account for her.  As the balance of this account grows I think about investing it into shares rather than in the fairly low yielding cash management account it is presently in.  It is also a way of teaching her later in life of the value of investment and the rewards it can give.

I am looking for advice on investing $1000 of her account into shares and over time adding to that as her balance changes.  I do not want to swap and change regularly or at all.

I am also interested in the tax complications of investing on behalf of a minor and or if it could affect our personal retirement plans as we are self funded retirees and my wife also draws a small centrelink age pension.

Any advice would be greatly appreciated.  Brian DJ


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## matty2.0 (27 July 2009)

If you spend the $ yourself and then let your grand daughter work for the $$ herself you'll teach her the value of hard work.


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## tech/a (27 July 2009)

Id be looking for something with long term POSSIBLE exponential growth.
SFR I noticed the other day as I was rummaging around the shed.
But hey I'm a builder---I wouldn't take advice from me unless I was building something---


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## gooner (27 July 2009)

might be worth thinking about low cost index funds such as Vanguard given the size of funds mean direct share ownership would be expensive due to brokerage.

As for tax, are funds in your name or grand childs?


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## beamstas (27 July 2009)

Accumulating blue chips and putting them on DRP should return a good amount, even if the market stays sideways. 

With such a small capital base, you won't be able to afford much. One of those "Share Packs" on Comsec with discount brokerage might be good, if the shares in it are decent.


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## gfresh (27 July 2009)

I would consider an index fund..


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## Krusty the Klown (27 July 2009)

Minors cannot legally own shares, so they will have to be in your name or in a trust for the child.

For $1K probably not worth the cost of setting up and administering the trust.

You are already carrying the tax burden, so no real change to your position if the funds are for your grandaughter or not.


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## jono1887 (27 July 2009)

Krusty the Klown said:


> Minors cannot legally own shares, so they will have to be in your name or in a trust for the child.
> 
> For $1K probably not worth the cost of setting up and administering the trust.
> 
> You are already carrying the tax burden, so no real change to your position if the funds are for your grandaughter or not.




yea, you would need at least 10k for it to be worth it after paying for brokerage and all that...


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## kolothuk (27 July 2009)

An Investment Bond otherwise known as an Insurance Bond is another option.

It is very tax effective and will invest in a range of assets like a super (managed) fund for the long term.

Summary of features of an investment bond:


Earnings are taxed at the current company rate of 30% (as opposed to 15% in super)
After 10 years all withdrawals are free from capital gains tax
To meet the the above 10 year rule.  You can only contribute upto 125% of what you contributed in the last financial year.  If you contribute more than 125% then the 10 year cycle will start from the beginning.
You can list a person as the beneficiary for the Fund.  So if you were to die at anytime, the balance of the fund would go to beneficiary tax free irrespective of your will.

You can get an investment bond with various providers such as CommonWealth, ING, AMP etc...

Also none of the earnings or balance of an investment bond has to be declared in your tax return.  You would only need to declare it in your tax return if you withdraw it before the 10 year rule. 




bacdj said:


> I have only 1 grandchild, now 2 years old, and I put $50 a month into an account for her.  As the balance of this account grows I think about investing it into shares rather than in the fairly low yielding cash management account it is presently in.  It is also a way of teaching her later in life of the value of investment and the rewards it can give.
> 
> I am looking for advice on investing $1000 of her account into shares and over time adding to that as her balance changes.  I do not want to swap and change regularly or at all.
> 
> ...


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## bacdj (28 July 2009)

Thanks all for your comments.  I will further explore your recommended options, but the "-18 year olds can't own shares" will probably be the main stumbling block.  She is currently earning about 4% in a credit union junior saver account which is in her name, but still under my control. 

Brian DJ


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## Nick Radge (28 July 2009)

All my kids own shares. You do it through your own name on their behalf, or in their mothers/fathers name on their behalf. There doesn't need to be a trust setup. Tax implication will be on you and included in your tax return.


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## tech/a (28 July 2009)

$1000.

If you just place $5 a week into the account thats 25% plus the 4% compounding you'll have a total of 30% a year.

Do this until she is 18/21.
Find the $5/10 or 20/week in years to come from your own larger portfolio investments.
No tax problems its a gift.
Your tax as normal with all your deductions.

My guess is you'll have a greater return than most of the other suggestions.


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## Krusty the Klown (28 July 2009)

tech/a said:


> $1000.
> 
> If you just place $5 a week into the account thats 25% plus the 4% compounding you'll have a total of 30% a year.
> 
> ...




Plus there will be no risk of a severe market downturn in the 12 months before you want to gift the investment to your grandaughter.


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