Investing for your children is one of the best things you can do for their future. It helps your money work harder and hopefully grow over time.
We think so-called ‘steady Eddie’ stocks can offer real opportunity, without the heightened emotion of watching your child’s nest egg fluctuate wildly. For ‘steadier’ stocks to work their magic, the main ingredient you need is time, although like all investments their value will still rise and fall.
Here are three share ideas to help.
Remember, investing in individual companies isn't right for everyone. That's because it's higher risk, your investment depends on the fate of that company. If that company fails, you risk losing your whole investment. If you cannot afford to lose your investment, investing in a single company might not be right for you. You should make sure you understand the companies you're investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
Disney
Not only is Disney a favourite with children, it has real long-term growth potential.
Disney+, the group’s streaming service, is nursing heavy losses at the moment. But Disney’s unrivalled back catalogue of content means scale and profits should continue to build. Things could be a bit bumpy for now, but we think this is an area of real growth potential overall.
And while that cooks up a storm in the background, the theme parks are a major source of income too. Now the world of travel is getting back to normal, these should continue to offer reliable revenue long into the future.
Disney’s brand and fan appeal are some of the strongest around. It’s a core business with a growth story tacked on. The shares change hands for a price-to-earnings ratio of 21, which is lower than it’s been, but still quite high. That means there could be ups and downs on this magic carpet ride.
To buy US shares you must first complete and return a US government W-8BEN form.
SEE THE LATEST DISNEY SHARE PRICE AND HOW TO DEAL
Lloyds Banking Group
Lloyds Banking Group is a bellwether for the UK economy, so ups and downs are part and parcel. But over the longer term, its business model is attractive.
Lloyds is working to reduce its exposure to the interest rate cycle, over which it has no control. But for now, interest income will be where the group makes the majority of money. Interest rates of 2-3% are the sweet spot for banks, and it’s reasonable to predict a return to these levels in the medium term.
Lloyds boasts one of the highest return on tangible equity percentages (a measure of profitability) among the major UK banks too.
Ultimately, retail banking is a bread-and-butter service where we expect demand to remain strong, and Lloyds’ balance sheet is in good health. This enables it to pay a dividend, which is an important element to consider when investing over the long-term. But bear in mind, no dividend is ever guaranteed.
These strengths are on offer for an undemanding valuation. This also reflects some nerves from the market about the group’s short-term challenges.
SEE THE LATEST LLOYDS SHARE PRICE AND HOW TO DEAL
Diageo
We always say it’s important to diversify, and stocks like Diageo offer geographical diversification in one company. The drinks company sells its famous products like Guinness, Smirnoff and Johnnie Walker, all over the world.
Strong brand power is what sets Diageo apart. While food-sellers are more likely to see margins come under pressure as customers trade down to own-brand options, that same behaviour doesn’t impact our preferred booze in the same way. If we walked into a bar and non-branded vodka was on display, we’d probably steer clear.
These very strong brands feed into a more reliable dividend too. We think Diageo could be viewed as a robust compounding option – and the rare occasion where we’d say gifting whisky to a baby is no bad thing.
The biggest risk where Diageo is concerned is its valuation. The market has high hopes for the group with a price-to-earnings ratio of 20.3 – this adds pressure for Diageo to perform.
SEE THE LATEST DIAGEO SHARE PRICE AND HOW TO DEAL
Learn more about investing for children
Invest now for your children’s future
The end of the tax year is fast approaching.
Make sure you don’t miss out on securing your child’s or grandchild’s allowance this tax year before it’s too late.
Act now and secure the £9,000 Junior ISA (JISA) allowance before 5 April. Tax rules change and benefits depend on individual circumstances.
This article isn't personal advice. If you’re not sure if an investment is right for you, seek advice. Investments and any income they give you can fall as well as rise in value, so your child could get back less than you invest.
Unless otherwise stated, estimates are a consensus of analyst forecasts provided by Refinitiv. These estimates aren’t a reliable indicator of future performance. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
Article image credit: Mario Tama / Getty images.