It is ISA season – a time when the financial pages will be splashed with fund ideas for the last-minute savers who have yet to max out their tax-free savings allowance.
Putting cash away has been tough this year as the cost-of-living crisis and resulting spike in energy bills, mortgages and other household essentials has made it harder to save.
It means that there will either be a rush of people with a bit of cash to squirrel away at the end of the year, or that no one has any money at all to invest.
I have written in this column before about taking cash out of my ISA and must admit I have struggled to pick the savings habit back up in full force, and haven't added savings for much of the year.
However, one area I have not ignored is my daughter’s junior ISA, which I opened weeks after she was born (as all good financial advisers told me to do). I have previously noted that while I invest actively, my daughter’s cash is in a tracker.
I was surprised to find that data from interactive investor shows I am far from alone in my thinking. Half of the 10 most-held junior ISA funds are passive, including Vanguard LifeStrategy 100% Equity, where my daughter is invested.
On average, the pot size of a junior ISA with ii – the UK’s second-largest investment platform – is around £12,500, and the average age of the children invested for is 10.
Unlike the most successful ISA investors, who typically invest more in trusts, the asset split for JISA accounts with between £50,000 and £100,000 is more heavily weighted to funds, as the below chart shows. There were 1,211 qualifying accounts, according to ii.
Weighting to different assets in JISA accounts worth £50,000-£100,000
Source: interactive investor
Yet trusts have been the place to invest for much of the past 20 years, as data from AJ Bell highlighted this week.
Of the 472 funds and trusts with a performance record stretching back to 1999, when ISAs were launched, just 50 would have made you a millionaire from investing your full ISA allowance in them each year, with 35 coming from the Association of Investment Companies universe.
Among the active funds backed by ii junior ISA holders, Scottish Mortgage and Fundsmith Equity were the most popular. Undoubtedly brilliant long-term funds, both have gone through a rough patch recently, making losses of 45.7% and 13.8% respectively in 2022.
They may well come good again – the smart money says they will – but I am not of a mind to go active with my daughter’s money. She will continue to invest in a passive for the time being.
One thing is for certain: even with cash rates high, putting it in a cash ISA has not crossed my mind. ii's senior personal finance analyst Myron Jobson backs me on this.
While 57% of all money invested in junior ISAs is put in cash, he said they are “frankly pointless other than as an option for teenagers approaching adulthood who might shortly need to use their pot”. I tend to agree, even if the current yields are enticing.