Investing in shares for their kids

If you purchase shares in your own name and transfer to a trust later you will be up for both CGT (assuming the shares increase in capital value, which they generally do) and brokerage. You will also have to pay tax on the dividends at your current highest tax rate.

Whereas, if your wife is on a lower tax bracket then distributions (dividends) can be paid to her and/or to a bucket company paying 30% (soon to be 25%?) tax.

If you put your son's savings in term deposits you will get 2-3% versus 6% fully franked dividend plus capital appreciation in LICs. Of course they might go down, but generally speaking not if you hold them long enough.

A PPOR loan gives you a risk-free after tax return of the interest rate - i.e. around 4% and after tax and this might be 5-6%.

Not advice.

 

You're a great contributor on this forum @Gockie and I thank you for it.

You do have a good point - when someone wants something bad enough, they will find time.

However, when you have kids, and especially the young variety, the definition of busy changes.

 

Sounds like a grind! Check out gary vaynerchuk content specifically 7pm to 2am grind! This will put everything in pespective! I thought I worked hard too! You will find a way!

 

Nah, no complaints really. Enjoy being a hands-on Dad, love my job and it is not always this busy, although last few months were. Still got to oversee a reno on an IP last 1 month and just got leased out for $190 more pw on $20k reno.

 

Thanks @ErYan. Current thoughts are not to put under my name or wife's name. Prefer to buy some LICs under my son's name and do DSSP as suggested by @Ouga. Apart from the better yield from LICs or even some shares, I like the educational part of investment that I hope some day my son will understand and appreciate.

Does anyone know if one chooses DSSP instead of DRP, is there a price difference to the stocks offered? I understand that the DSSP doesn't give you franking credits but DRP does.

 

From AFIC info

Shares allocated under the DSSP rank equally with all of AFIC's other fully paid ordinary shares.

The price under the DSSP will be the same as for the DRP.

No income tax is payable on DSSP shares at the time of receipt (for Australian resident taxpayers) instead, tax (CGT) is paid only when the shares are sold.

DSSP shares do not receive the franking credit or any LIC gains.

 

Thanks @Redwing.

What does it mean DSSP shares don't receive any LIC gains?

 

By forgoing their dividend a participating shareholder will also not be entitled to franking credits or LIC Discount Capital Gain deductions to which they would otherwise have been entitled had the dividend been taken in cash.

 

For the purpose of this discussion, lets use BKI (NB. pier1 holds BKI).



Let us assume we are the worst at timing in the history of the universe and we pick the high prior to the GFC to purchase 10,000 share in BKI on the 12/02/2007 at the high for the day of $1.52.
Let us now fast forward 10 years to 13/02/2017 and we decide to sell our 10,000 shares in BKI at the low for the day of $1.62.
How is it that you have lost half of your value again @pwt ??

Now if we also include dividend payments it will look like this:



10,000 BKI shares would have entitled you to $6550 in dividend payments, not taking into account franking credits or your personal tax position.
So we have:
Bought 10,000 BKI shares for
$15, 200
Sold 10,000 BKI shares for
$16,200
Received dividends of
$6550
So by my account I am
$7550 ahead of where I started

Do your own research, past performance is not a predictor for future performance.

 

@Pier1

Wife maybe thinking short term (purchased 06-07 to the low point) and what if you needed the funds then

 

Correct

Well that sounds like funds used for expenditure instead of funds committed to acquiring future income or appreciation

 

Show her this chart I created which is the sharemarket plus dividends reinvested. And note that it's a rare investor who would have invested their life savings at the top of the market prior to the GFC. Most would have been averaging in over time. The press and fear mongers have a habit of assuming investors put all their money into the market at the top when a crash occurs:

If you look at the red line there was no crash!

 

This post is A+!

Just re emphasises the points of living within ones means and not spending all that one earns so a cash buffer can be formed and you won't have to be a forced seller in the most opportune times!

Stay the course!

 

Thanks guys, great feedback. I have been dropping thoughts on shares for last 2 weeks and wife getting warmer to the idea. The chart from @austing might just seal the deal

Wife had bad experience investing shares previously, so can't really blame her for being skeptical. She does like property much better but I told that is not much we can buy with our kid's savings

 

Just as described by @Pier1 previously. I think it is more exaggeration than norm. Losses in investment usually have bigger impact than similar magnitude of profit.

 

Yes preconditioned human nature best left languishing on the sideline.
Look at all the best investments/ investors are made with decades even centuries in mind.
Thread title is investing for children, shift time frame similarly even intergenerationally.

 

This one might even be more helpful. Focus on the dividends, not the erratic share price.

 

Or this one from Peter Thornhill

 

Yes, hence why I posted this earlier:

Learn to recognise fear and greed (ie deviations from the mean) and the ride will be much less stressful and potentially more profitable!

 

you don't need to go through Fin. planner. I read through 3-4 pds over and made some enquiries with them before committing.

There are two parts to topic here educating kids about investing and which vehicle and/or underlying securities are best place to hold investments for them considering cgt, dividend income....if you focusing more on educating (especially dollar cost averaging) then bond might not be the one. I can't get my head around DSSP and its CGT situation...for bonds the simple way I see it you invest the money in any of parent's name, no declaration on tax returns, subject to some conditions after 10 yrs its cgt free. At the end of the day returns will be dominated by underlying assets. Also, I've seen Vanguard fund being offered under them as well so now a days lot of choices....again it comes down to what you are trying to get out of it plus transferring to kids on maturity without cgt is bonus. very flexible asset planning if you ask me..