Adelaide’s Christmas pageant is this week, so minds will soon turn to Christmas gifts.
Are you a grandparent, parent or adopted ‘aunt/uncle’ to young children? Perhaps you’d be interested in a constructive gift for them that could start a shared discussion for many years ahead? Older folk usually have wisdom and a little wealth to offer in enhancing the outlook for their younger loved ones. Dealt with thoughtfully, this can be an enduring gift of real substance.
Our clients often ask us to arrange a small investment for their grandchildren or adopted ‘nephew/niece’. Either way, the intent is to give them something of long-term substance that can be a talking point between you. Over the years as they develop their understanding about the ways of the world and the role of money, it can be a highly educational, bonding opportunity. Indeed, the conversations that follow your gift can be of equal or even greater value.
Such a portfolio has a long time-frame as it’s typically intended to grow untouched until they reach their 20s. So it would contain long term growth assets – possibly a small quantity of shares and listed property, ideally at least $1,000 to justify the ‘buy’ costs. Over the years, this portfolio can amplify itself via dividend reinvestment and, if desired you could gift more later to augment their portfolio.
Perhaps start with a core investment in a listed investment company (LIC) that itself owns a large portfolio of Australian shares. Each year its annual report will list the companies it owns as well as some information about prevailing investment conditions. This can trigger real world discussion about jobs and products – fertile ground for some value-adding chats between you and your favoured child as they progress through their formative years. For example, did you know you own part of these everyday things? …maybe Woolworths, the banks, BHP, Adelaide Brighton cement, Origin Energy, Flight Centre, Qantas, health companies, etc.
Later, you could add some listed property and listed international equities. Then the conversation could broaden out to include the wider world and how politics around the world may influence this, sometimes dramatically. The graph below shows the cumulative return (including dividends) from LIC investments over the last 10 years including the GFC crash.
Apart from investment specifics, they can learn some good investment habits – to enrich their natural personality regarding money decisions. They’ll see how long term investing is rewarded and the power of compound interest. Your conversations may also include any investment trends they can detect over time – e.g. the current shift away from fossil fuels; aging population amplifying healthcare demand; profit damage during the telco and grocery wars; overpriced houses adding risk for banks and all of us, etc.
In the course of these discussions they can become aware of their own tolerance of risk. When markets crash, are they inclined to buy, hold or sell? History shows that markets always recover… eventually. Waiting for recovery is well worthwhile and can also be an excellent opportunity to add to their holdings.
These are all valuable lessons and a great way to build long-term rapport with your favoured child – passing on some wisdom with a little of your tangible wealth, while sharing the learning experience.
If you would like to discuss the information in this article or your investment options with one of our wealth management professionals, get in touch today!
Disclaimer: All information in this article is intended to be general in nature for discussion purposes only. So you should not rely on it and seek personalised professional advice before making any decision.