A growing number of investments are pitched at under 18s. We take a look at the options and what you need to know.
Kick-starting an investment portfolio for a youngster can be a great idea, potentially providing funds for future education costs, maybe a first home deposit, or just igniting a child’s interest in investing.
A range of investments are specifically aimed at children – and we’ll take a look at these shortly. However, there’s a catch. Along with fees and brokerage that can eat into a pint-sized portfolio, grown-ups need to be aware of the impact of tax on kids’ investments.
According to the ATO, minors can only earn up to $416 annually on investments held in their own name before punishing tax rates as high as 66% apply. On top of this, in Australia, it’s a legal requirement to be 18 years or over to invest in shares.
The solution can be for an adult to own an investment on behalf of a child though this too can be a tax minefield. In particular, capital gains tax can apply if an investment is transferred into a youngster’s name when they reach adulthood.
This can make it worth looking for options that let adults hold an investment in trust for a child. The adult needs to include any ongoing investment income in their personal tax return each year, so there can still be a tax slug. But, when the child turns 18 the investments can often be switched over to the child’s name through an off-market transfer potentially with no capital gain or loss for the adult who acted as trustee.
It’s a complex area and, with all the investments listed below, it’s a good idea to speak with your tax adviser to understand exactly how you (and your child) could be impacted by tax – both now and in the future.
With this in mind, let’s take a look at investments pitched at the kids.
SelfWealth Kids Share Trading Accounts
Online broker Self Wealth offers a Kids Share Trading Account where adults can buy shares on behalf of a child aged under the age of 18. The adult acts as the account trustee while the minor is the beneficiary. As noted earlier, this can see ongoing returns such as dividends reported in the adult’s tax return each year (this shouldn’t be too punishing thanks to franking credits). Then, when the child comes of age, the shares can usually be transferred into their own name without triggering capital gains tax.
The fees: A flat brokerage of $9.50 applies no matter whether you make a trade for $5,000 or $50,000.
Minimum investment: You can start investing with as little as $500 – the minimum marketable parcel on the Australian Securities Exchange (ASX). Allow a bit extra for brokerage.
The verdict: SelfWealth’s Kids Share Trading Account is a low-cost option for adults who are keen to pick their own choice of shares and/or exchange-traded funds (ETFs) for a child. Plenty of other online brokers allow adults to trade as trustees for a child, but SelfWealth stands out for its competitive brokerage.
→ Related: Should I invest in the sharemarket with only $500?
Superhero Minor Account
Superhero is a super-cheap online broker with a Minor Account for those under 18. You’ll need to open an account for yourself, then add a ‘minor account’. When the child turns 18 they can create their own Superhero account, and Superhero will organise an off-market transfer of the stocks or ETFs from the Minor Account into their adult account.
Fees: Pay a flat $5 fee on Aussie share trades or $0 brokerage to buy ETFs.
Minimum investment: You can start trading with as little as $100. That’s because Superhero uses a custodian model. Instead of your stocks being held in your name under your own Holder Identification Number (HIN) registered with the ASX, they are bundled with other investors’ and recorded under a single HIN belonging to Superhero.
The verdict: If you’re comfortable with Superhero’s custodian model, the platform offers incredibly low brokerage and requires very little upfront cash to launch a child’s portfolio.
Stockspot Kids Account
Stockspot is a type of robo-advisor. As part of the sign-up process, you’ll be asked a series of questions about your goals and attitude to risk, and from there Stockspot will recommend a readymade investment portfolio.
The instant portfolio means you don’t have to sweat it out picking individual stocks for your child. But neither does Stockspot. Its five portfolios are each comprised of varying blends of ETFs. Stockspot recommends a growth strategy for kids, given their long investment time horizon.
A Stockspot Kids Account can be opened by parents or other relatives but the investments are held in the adult’s name from a legal and tax perspective. The child’s name can be added to the account but only as an identifier. Alternatively, you can invest as a trustee of a family trust or discretionary trust where the child is a beneficiary. The costs involved in setting up and running a trust mean this is really only an option if there are big dollars to be invested.
Fees: The beauty of Stockspot’s Kids Account is that you’ll pay no fees for balances under $10,000 until your child turns 18. That’s a saving of $66 annually (what you’d pay with an adult account). Bear in mind, the underlying ETFs charge fees of their own – about 0.25% annually according to Stockspot.
Minimum investment: You can get started with $2,000. For portfolios less than $50,000, funds are automatically invested each time there’s $500 in your Stockspot cash account. So if you add $100 to the child’s account each month, the funds will be invested about every five months.
The verdict: Zero fees for youngsters and the instant diversity of a readymade portfolio can make the Stockspot Kids Account a low-cost, hassle-free way to grow a child’s portfolio.
Advertisem*nt
Raiz Kids
Raiz is a micro-investing platform that lets you invest very small amounts including small change on purchases made with a linked debit card.
Raiz offers seven readymade portfolios chiefly made up of ETFs, though the ‘Sapphire’ portfolio provides exposure to Bitcoin.
Raiz Kids works by using an adult’s existing Raiz account. You’ll need to open an account for yourself, then select the Riaz Kids option on the Raiz app, and nominate the portion of your balance plus future deposits that go towards the Raiz Kids saving goals.
When the child turns 18 they can open their own Raiz Account, with the option of having the accumulated Raiz Kids balance transferred into their account.
Fees: Raiz Charges $3.50 monthly on balances under $15,000 (no fees are applied to $0 balances). The fees are slightly higher for the Sapphire portfolio.
Minimum investment: There’s no minimum balance to open an account, but you’ll need at least $5 in the account before your money is invested.
The verdict: Raiz Kids appears to be an ‘in name only’ investment for children. The child’s money sits within your account as a feature, so the youngster can’t invest in a different portfolio to your own. Whichever portfolio you select for yourself will be the one in which your Raiz Kids funds will grow. Think about how much you plan to invest too because while the monthly fee is low in dollar terms, it can work out to be a big percentage of a small account balance.
→ Related: CommSec Pocket v Raiz Invest: How they compare
BrickX Minors
BrickX is a platform that lets you buy a small stake in a selection of investment properties. The value of each property is divided into 10,000 ‘Bricks’, so if you want to invest in a property valued at $400,000, each Brick would cost $40. Investors receive a monthly share of the property’s net rent (rent less expenses).
BrickX Minor accounts let adults invest as trustees for the benefit of a child. When the child turns 18, the Minor account can be transferred into the name of the (now adult) child or cashed in.
Fees: A fee of 0.5% applies whenever bricks are bought or sold and there is an investment management fee of up to 2% of the gross asset value. There are also a range of other costs including expenses relating to the acquisition of the property and operating expenses such as property management fees, land tax as well as repairs and maintenance. Check the product disclosure statement for details.
Minimum investment: You’ll need $250 to get started with a BrickX Minor account. There’s the ‘Smart Invest’ option where you add a minimum of $50 each month and let BrickX build a portfolio for you. Or you can take the DIY option and buy one brick at a time, paying the lowest available price. At the time of writing that was $39 per brick on a house in Wyndham Vale, Victoria.
The verdict: Kids can easily grasp the idea of ‘Bricks’ (we can probably thank Lego for that), and the property images on the BrickX website let children see what they are investing in. On the downside, Bricks can only be sold to other BrickX investors, so changes in the value of Bricks may not mirror movements in the broader property market.
→ Related: BrickX v DomaCom: How they compare
No matter how you invest for a child, make a point of talking to the youngster about what’s going on. Let them see what’s happening with their account balance, and explain why letting the investment grow with them could mean having a much bigger balance later on. It may spark enthusiasm for investing that lasts a lifetime.
Compare Online Share Trading Platforms
