I'm thinking of building a little share account for my son (now 12) and then hand over to him when he's 18. Was thinking of putting 10K in and just buy a mix of CBA, NAB and maybe ANZ…. and then just let them sit there.
Worth doing? Or better just to set up a savings account for him (albeit won't get much interest at all over that time).
https://www.ato.gov.au/individuals/investing/in-detail/child…
Example 2 – declaring dividends on child's tax return
Simon withdraws $5,000 from his bank account to buy shares in the name of his son Jordan. He quotes Jordan's TFN when he buys the shares.
Simon makes all the decisions about those shares as Jordan is only three years old.
All dividend income and any profit from the sale of those shares are deposited into a bank account in Jordan's name with Simon as trustee.
The dividends and capital gains are declared on Jordan's tax return.
yes, a minor pays a higher tax than someone over 18
https://www.ato.gov.au/individuals/investing/in-detail/child…
Income | Tax rates for 2019–20 income year
$0 – $416 | Nil
$417 – $1,307 | Nil plus 66% of the excess over $416
Over $1,307 | 45% of the total amount of income that is not excepted income
Look into ETFs… diversify
There's a bit of discussion on this topic on r/ausfinance
https://www.reddit.com/r/AusFinance/search?q=kids&restrict_s…
If you want them to learn a bit, get them to play the ASX share market game. That said, the winners usually go hard on the extremely risky stocks and strategies so best to temper expectations.
You should diversify way beyond that.
VESG would be my pick but a combination IVV and VAS would also work for me. I'll leave you to research the shares in those ETFs.
Avoid DRP until you can receive a meaningful amount of shares.
You need to understand the tax implications of the dividends (or DRP shares) plus the implications of a minor receiving income. Or, if held in your name, the CGT implications when transferred into his name.
I'd also hold on until at least 21 unless you want it spent on a 2026 version of a Nissan Skyline (plus 6 years isn't a huge time frame) because once he turns 18 the money is his to spend as he wants (having this difficulty with my 19yo at the moment). My best shares have now been held for 15+ years.
+1 for VESG.
I'm finding my investments in "ethical" sectors (however you'd like to define that) are doing as well/better than other sectors. They don't seem to take as big a hit during the declines either
In part due to the fact oil and electricity companies got hit bad due to reduction in demand because of COVID19.
I'd like to look at ESG as a long term thing therefore certain sectors will benefit. Healthcare is another one. Rich developed countries with low birth rates ageing. They will need to spend more on health care as people live longer but have tiny ailments.
I'm interested into why you recommend avoiding DRP, I would recommend DRP as it works like compound interest, plus no brokerage to accumulate extra shares/units.
Having a quick look at VESG they have a very narrow view of what they consider "ethically conscious" 38% of their portfolio is made up of tech and financials. Does anyone consider a bank or Facebook, Apple, Amazon and Google as ethically conscious companies. Personally I think the opposite.
"ethical" sectors (however you'd like to define that)
I've already said that you can make your own decision on what you define as ethical.
Feel free to keep taking me out of context as I said
Avoid DRP until you can receive a meaningful amount of shares.
The emphasis on meaningful. I personally can't see the point of faffing about with the admin on a handful of shares. The amount of people that buy something like IVV and then can't understand why it takes several years of dividends to get 1 share is unbelievable. Personally, I'd rather just get my dividend in cash and combine it with other dividends and buy a decent tranche of shares.
eg: OP implies he is going to buy $3333 of CBA. Todays close was $73.07 so he'll get 46 shares (rounded up). The 2020 total dividend was $2 h1 and 98c H2 so H1 will give you 1 share with $19 retained and H2 will give zero shares with $65 retained. 2021 will probably give you 1 or at most 2 shares in total. The admin is equal whether you have 1 share or 1000 plus they are also a dividend so you have to do the tax admin for that FY as well (which also means you have to find the cash to pay any applicable tax).
I recently did a tax return for my GF. She'd sold her company issued shares that she'd had on DRP for 14 years. 28 lines of DRP plus another 70+ lines of bonus shares. It was no fun.
Do what you want though
@brad1-8tsi: Thanks for the reply Brad, My reply re VESG wasn't to meant in any any way to get into any angst that can sometimes be on this site. i just found it interesting as I've never looked at that instrument VESG. Re CBA I just look at more on a longer term historical dividend (say $4.00) (2-4 shares next year maybe 3 or 5 the year after) compared to getting a dividend, sitting in an account with a very low interest rate. And i totally agree that a EFT is better (in this situation) as long as it's not synthetic.
Having a quick look at VESG they have a very narrow view of what they consider "ethically conscious"
If you look at the top 10 companies in Australia. At least 2 are miners which isn't very ESG right now. [here, not sure why RIO isn't on the list]](https://www.fxcm.com/au/insights/10-largest-companies-in-aus…)
For companies tech companies, financials and health care it is easy to go green with their office space, warehouse by getting green electricity which would take out a majority of their emissions.
+1 for Nissan Skyline 😉
I would (and have) set up a managed fund arrangement for this circumstance.
A simple mix of Australian and International equity index funds (I've got a 65/35 mix). Drop $100 a week into it for the next two years to make up your $10k.
what are the fees like on the managed fund, who would did you go with?
managed fund min 0.8% pa management fee on the balance. Buy index probably between 0.12% - 0.4%.
70% of fund managers don't beat the index.
I use Stockspot for this same purpose and they don't charge any fees if you set it up as an account for your child.
I have it with Colonial. The Australian index fund costs 0.31% p.a.; the International index fund costs 0.32% p.a.
That is expensive, have a look at Betashares A200 only 0.07%
https://www.betashares.com.au/fund/australia-200-etf/
@MrMarket: It depends on your approach.
If you plonk $10k, yes, you'll pay less through that ETF.
If you wish to accumulate in the way I've described, you'll get eaten alive on brokerage.
One option available is to have it a bit both ways. Accumulate via a managed fund to avoid transaction costs, then do a one off transfer to an ETF once you've reached an economic parcel.
mix of CBA, NAB and maybe ANZ
You should add WBC to diversify a bit.
Buying into the same sector is not diversification
Owning CBA is the same as owning all 4 banks
diversification is something like
CBA - Financial
WES - A mix bag of everything from online to bunnings to industrial
WOW - Comsumer staple
It was definitely a joke
I appreciated the joke Jimb0
What does he learn from all this?
That dad will buy shares for him. If it goes up, he wins, if it goes down, it's someone else's money.
My strategy is to pay the kid for solutions/labour. That would teach then that labour is linear income, solutions requires education.
What do you mean by pay them for solutions?
For example, I have grass growing in the garden beds. If they can keep the beds grass free for 12 months, I'll give them $500.
They are faced with a problem. They can just go ripping grass out every weekend but that's not time efficient they'll have to use their noodles to come up with a less laborious method.
If they're going to weedmat it, they'll incur cost so they'll need to work out whether the $500 is worth it after doing some basic maths to determine amount of material required.
Something like that.
Famy trust is a better option if you have other investment already
Really, for $10k investment?
Think the fees will kill the fun for a 12yo
Did you read the full sentence? if he has other investment then that money can be combined in the trust and he ditch out this asset later to his Son
CBA, NAB and maybe ANZ
Have a look at their price over the last 10 years before wasting your hard earned money.
CBA closed at $48.29 on 12 November 2010.
CBA closed today at $73.07 (up $24.78 over the last 10 years).
Along the way it's paid out fully franked dividends of $38.48, or around $54.97 before tax.
By my calculations, your original $48.29 would have earned pre-tax profits over that period of $79.75, even without any reinvestment.
Damn banks and their [shuffles cards] 165% profit on my investment.
By my calculations, your original $48.29 would have earned pre-tax profits over that period of $79.75, even without any reinvestment.
Damn banks and their [shuffles cards] 165% profit on my investment.
That isn't bad for over ten years.
However, the $48.29 could just as easily be $420 on paper today with something as boring as CSL.
https://imgur.com/a/7DdevHz
Banks stock may be the first stocks that come to mind for new investors, but it should be on the bottom of the list if they want to make real gains.
Banks can be accused of a lot of things, but delivering inadequate long term returns to investors is not one of them.
Yes, there are any number of companies that have provided better returns over the last 10 years … and a hell of a lot that have provided worse.
If you were given a choice between CBA (as an example) and a random selection of companies listed on the ASX today, it would be a brave person who plonk their cash in the random.
Ultimately, for the uninformed/uninterested/set-and-forget punter, I'd go with a mix of Australian and International indexed equity funds (as I've noted above). But, if someone was desperate to hold individual stocks, you could do a lot worse in selection of four stocks than the big banks.
@Seraphin7: OP's son is 12 years old. There is plenty of time for him to invest in bank stock after he picks a few winners and losers.
BTW CSL has the biggest Mkt Cap on the XTL. CBA is 2nd.
@whooah1979: At the end of the day, it's each to their own … it's your money, spend/invest it how you like!
The point is, there are many people out there who "want to give their kids shares". These people often don't want to go down the managed fund/ETF road because they want them to actually be invested a company. If that's what they want to do, the banks are far from the worst choice.
I have a vanguard managed fund , which recently moved to their new setup recently.
Easy to do regular small BPay transfers
It's under our name so we deal with the tax implications as it's just easier that way (plus if they grow up to become terrible people for some reason I can keep the $)
Went with vdhg as they are still in their single digit years so plenty of time for the diversity and high growth strategy to hopefully pay off.
I did this for my son when he was 15 & inherited a smallish legacy from his grandma (GRHS).
Spent a long time reading up on it.
Problem is, if you make an investment account in his name, you won’t be able to. Most brokers will not allow it.
For us it worked out best to have you (the Mum/Dad) as the legal owner & your son as the beneficiary.
When your son reaches 18 yo, you can simply transfer the ownership over to his name using an off market transfer form.
Very simple really.
Read more here and do your own research
Oh & by the way, what did I buy for my son?
Bought 4 different Vanguard ETF’s.
Broker in our case was Westpac, but CBR offer same service.
My wife & I have five share trust accounts for our five grandchildren. We own the shares, with grandchildren as the beneficiaries when they turn 18. All share dividends are re-invested into more shares, so no cash income accrues. We mainly use AFI (Australian Foundation Investments) to spread the risk Grandchildren own the shares when they need them for education or other expenses. They can also retain them and start a new portfolio for themselves if they wish
All share dividends are re-invested into more shares, so no cash income accrues
that doesnt stop any tax implications on earnings though? (from my layman's understanding)
Maybe capital gains tax. However student income in early years may be below income threshold.
We followed the Barefoot investors advice, put it in the name of the parent on the lowest income ( which was me as a stay at home Mum ) and invested in AFI and Argo.
Thanks everyone, good advice all round
For my kids, I did this, as there is no tax if not touched for over 10 years. I do a 50/50 split between Aus/International stocks.
https://www.commbank.com.au/investing/investment-growth-bond…
Interesting.
1.4% management fee where most ETFs are between 0.1% - 0.4%
30% tax on earnings. Then zero tax on withdraw after 10 years. I would argue ATO already got their share.
ATO only taxes earnings over $416 pa for kids. I assume that is roughly the dividend on $15k of ASX200 index (about 2.8% dividend).
Yeah, the management fee on these bonds is a bit of a killer. It's unfortunate that they are much more expensive than their equivalent managed fund options (even setting aside ETFs).
What I also realised after reading the link I included the following:
If your taxable income is less than $66,667, you will get the low income tax offset
The offset is worth $700pa. Which means the kid can earn about $1500pa tax free (after offset) before paying any tax. That is a lot of shares depending on yield.
@Seraphin7: Thanks. I just dig into a it a little.
If you are under 18 years old as at 30 June of the income year and you have unearned income, these offsets can't reduce the tax payable on this income.
These ATO people!
Did exactly this from day both my sons were born.
In early 90s wrote down what $10 would buy - pizza, movie ticket, cheap red.
Same same today.
Religiously put in $10 week for both. Interest rates probably 7% then. Recorded.
One son got gifts totalling $400 day he was born. Recorded.
All birthday money/Xmas money eg $20 from Nanna etc also banked and recorded.
Every silver coin I had from 1993 put into big money tin and after six months, guessing competition, counted and banked. Yes, recorded in long hand. No good with spread sheets.
I knew nothing about shares. Listened to radio guru of the day - Bruce Bond ABC - and brought NAB. Decided my kids would own the bank instead of other way around.
In fact each fortnight took them to local branch to physically fill in the deposit forms, hand over the cash and see the big numbers recorded in their passbook. Still have the passbooks.
Knew nothing about shares. Reinvested dividends at every opportunity. Listened to finance shows - Clitheroe etc.
Each fortnight, trip to bank, every night silver coins saved, rinse, repeat and recorded.
Gave them Rich Dad, Poor Dad and Noel Whittaker’s book. Wrote to him and thanked Noel and he replied.
Bought Coles Myer - the card - Woollies - BHP - NAB etc. few misses too - AMP, Brambles, Telstra.
DIP or reinvest cash dividends twice a year. Explained all this to them.
Made them read annual reports. On and on for years. Never withdrew, except to finance share purchases.
March this year, market at its worse and now in their mid twenties, university graduates, joint portfolio worth in excess of $120000. That is through Covid, GFC, dot com bubble, 1997 Asian crisis.
Basically only cost me $20 week - all recorded. I wanted them to understand and be educated about money and budgeting and paying yourself first more than I ever was. My parents never had two bob spare, growing up. Like every other post war family.
Sure, save and buy the Nintendo, but allocate a percentage to investing in long term appreciating, income producing never to be sold assets.
Hard for kids today cos they always saw me get cash from ATM. My first wage - in pounds and shillings - in brown envelope.
One or two friends have copied. Thanked me. Another guy had nothing in the 1990s. Told him my sons had $4000. Said “more than I’ve got.” He still wouldn’t have four grand today.
The shares were always bought in their name. Some I had to act as trustee for, and my accountant always noted this for ATO purposes.
This should be given to every parent in the maternity ward. Congratulations on what you've done and how you've educated your boys. If every parent did this for their children, the population would be far more educated than it is.
While some of the details are different, dropping money every single week into an investment fund is exactly what I'm doing for my boys. They too will ultimately amass (hopefully) a good chunk of money and a lot of investment knowledge.
In my humble opinion, practically every parent should be able to spare something every week to provide for the kids as you have done. It doesn't need to be enormous amounts every week to add up to a very meaningful amount of money many years later.
This should be given to every parent in the maternity ward.
Financial literacy would make the bankers poor indeed. That is why there is such a big push back on any responsible lending laws (like the government is trying to take it down how to help pump up the economy with more debt)
Remember the baby bonus? Wonder where all that money went.
You should consult a tax accountant beforehand to be aware of any tax implications, we are not talking about pocket money here.