Short n’ sweet – make sure the kids are all right

Editorial director of Switzer
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Last week Switzer Super Report expert, James Dunn, wrote about the perfect portfolio for his 15-year old friend Mitch.

The portfolio

To get Mitch interested in the stock market, he needs companies that he can relate to, like Coca Cola Amatil and Woolworths.

“I have to make the idea of the market relevant to him – the things that he knows, and to which he can relate. So while I am telling him about how an investor buys shares and becomes a part owner in those companies, the examples that I use are familiar to him,” James said.

His portfolio for Mitch also included Australian Foundation Investment Company (AFI), Argo Investments (ARG), Ramsay Health Care (RHC), Global Healthcare ETF (IXJ), Woodside Petroleum (WPL), BHP Billiton (BHP) and Magellan Financial Group (MFG).

How to do it

But buying shares as a minor, and for minors, can be a bit tricky. By law, it is not actually illegal to buy shares for someone under the age of 18, but it is difficult. Earlier this year Paul Rickard wrote about the best ways to do this, and recently we’ve had readers ask us the exact same thing.

“To buy the shares, first open an account with a broker. Open this in your name, with the name of your child/grandchild in the account designation field,” Paul says.

When the minor turns 18, you should be able to complete an off-market transfer that moves the legal ownership to them.

“As there will be no change of beneficial ownership, there shouldn’t be any capital gains tax to pay at that point,” Paul says.

Other options

And buying shares isn’t the only way you can invest for your kids or grandkids, there are also insurance bonds. These are long-term investment vehicles with some tax benefits.

One of the benefits for children is if they are over 10 years of age, an investment in an insurance bond can be made directly in the child’s name – with parental consent of course.

“Most insurance bonds also include a ‘child advancement policy’,” Paul says.

“Under this feature, the investment is initially made in your name and at a certain nominated time (known as the ‘vesting age’), the bond is automatically transferred to the child. Vesting does not trigger any tax consequences, and there are usually no fees or charges. The child must initially be under 16 at the time the policy is taken out, and the vesting age can be any age from 10 years to 25 years.”

You can read the full article here.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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