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long term invst for kids

Discussion in 'Other Asset Classes' started by Deck, 6th Jun, 2016.

  1. Deck

    Deck Member

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    Hi guys,

    I am going to put aside 20k(for now) for each of my two young boys (5&2) to pay for their studies later on.

    Reading few posts here, Magellan Infrastructure Fund(hedged or unhedged?) and Sydney Airport bond 2030 came to my attention.

    I was wondering what you would invest in for this purpose ? any ideas ?

    Thank you
     
  2. austing

    austing Well-Known Member

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    A useful post in relation to Investing for Children from @Redwing:
    Re Magellan, I personally would be favouring their equity funds (unhedged) rather than Infrastructure.

    @The Falcon's internal compounders also come to mind eg BRK.B. Time permitting he will be able to add far more valuable information on this area and investing for children in general than me.

    Maybe consider a spread across a few shares eg AFI / MGE / BRK.B.

    Depending on your tax situation the following DSSP offered by AFIC may be useful. But if intending to sell AFI later on (more likely) to finance the children's education the decision is more complicated and may not be worthwhile. But if intending to keep AFI for its income to assist your children later down the track then the DSSP is well worth considering. More info here:
    http://www.afi.com.au/media/scripts/doc_download.aspx?did=262

    Not liscenced to give advice, general info only.
     
    Last edited: 6th Jun, 2016
  3. Deck

    Deck Member

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    I did not look much at this fund as its performance was quite low (0.75% last year)

    yes this DSSP is something I would need.

    Thank you
     
  4. austing

    austing Well-Known Member

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    You're investing for your kids. Think long term both going forward and also when looking at performance!

    From memory MGE is a recently listed equivalent of the following:

    http://www.magellangroup.com.au/fun...dates/magellan-global-fund-update-april-2016/

    If you're not as concerned about potential key person risk AND NTA issues way down the track then MFF is popular with many.

    Infrastructure has had a great run but in the long term I much prefer a more diversified equity portfolio.

    Again this is one for @The Falcon to expand on if time permits.

    Not liscenced to give advice, info only.
     
    Last edited: 6th Jun, 2016
  5. Ouga

    Ouga Well-Known Member

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    "Trying is the first step towards failure" Homer
    It looks like the DSSP would be the way to go in this instance, hereby avoiding any income while holding the shares, albeit lowering the cost base. But the shares would be to be bought in trust for the minor and then we enter the realm of whether the ATO considers CGT applicable upon the transfer of the shares to the minor. From what I have gathered online, it looks like this might not be as clear cut as one would hope.

    What about investment bonds though?
    They do seem like a good product for this purpose. Internally taxed at 30%, so no income to report, it's like a managed fund which looks beneficial for long term holding over 10 years. This is essentially an internally compounding vehicle with estate planning provisions to which capital can be added regularly. Past the 10 year mark, is where it gets interesting since if no withdrawals have been made in the 10 years, then the earnings on the bond will be tax free.
    I think I have also read they can be purchased in the name of the minor directly, once they reach a certain age (I think the commbank product I had a quick glance at stated a minimum age of 10 years old).
    A great summary here:

    https://www.moneysmart.gov.au/investing/complex-investments/investment-and-insurance-bonds

    I would be really keen to hear people's thoughts on this vehicle.
     
  6. The Falcon

    The Falcon Well-Known Member

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    for most people (without family trust) investment bonds would suit. Just watch the fees.
     
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  7. Anne11

    Anne11 Well-Known Member

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    Hi,

    I have looked into investment bond products a couple of times, IOOF, APM and few others from memory, however I did not go ahead due to two reasons: fee is over 1% (depending on the asset class you choose) and performance is relatively average.

    Ta

    Anne
     
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  8. S0805

    S0805 Well-Known Member

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    Just to give different opinion. I recently took entry in Austock & Lifeplan bonds. Mine is not for kids but may be in future when we start family.
    Fees depending on what fund you choose and again return is based on fund that you choose. Both above funds have vanguard fund from memory.... i found both above were giving decent fund options, no switching fees. what i like about insurance bond is 125% rule and tax free status after 10 yrs....I've spent about a month to understand these products and decided to go with above. Use morningstar to compare these fund that suit your needs....

    Not recommending anything....just my findings..
     
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  9. Anne11

    Anne11 Well-Known Member

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    Hi @S0805,

    I've had a look at Austock investment bond again and you are right, there are plenty of options to choose from from 3 main categories: with 1 is Vanguard index funds (Listed Property, Fixed Interest, Australian Shares, International Shares).

    The management fees are: 0.91% on top of the fees from the underlying funds. This is where I struggle to take this path, as for my personal situation, it would not benefit much in term of tax saved, but certainly a very good strategy for estate planning.

    It may work for others who are on the highest tax rate.

    Thank you for sharing.

    Anne
     
  10. Ouga

    Ouga Well-Known Member

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    "Trying is the first step towards failure" Homer
    Thank you for sharing.
    Yeah I think the 125% and 10 year rules are appealing!
    No CGT after 10 years, even with an extra 1% fee along the way seems pretty good to me if you can put the lot in an index fund.

    @S0805 do you know what happens after the 10 year mark? Can I add funds each year if I want to? Do I have to stick to the 125% rule still? Have not found information about this.
    If you have some resources you can share for more information about these products I would be grateful.
     
  11. S0805

    S0805 Well-Known Member

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    Anne, as long as you know your numbers it helps make decision. If you just concentrating on fees than i guess you r right....at the end of the day for me its not saving tax that's important but diversify the investments and in 10 yrs it will be tax free money which i can use as income stream if i like....if you want check Lifeplan as well i found they have lower fees that Austock and few vanguard options but not lower than going direct to the fund...

    Ouga, generally you should go through your Fin. Planner to buy insurance bonds as there are more to than just selecting the company. In my research what I've found is you don't really have to withdraw money after 10 yrs if you don't want to, you can carry on. in fact, you can continue using 125% rule after 10 yrs and keep accessing that money tax free....Please do not rely on my findings only and read the PDS. Its important you understand that or best to go through your planner.
     
  12. spludgey

    spludgey Well-Known Member

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    Personally, I'd back myself to outperform funds like that. Invest it in property, leverage and pay for their university later when it's needed.
     
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  13. Anne11

    Anne11 Well-Known Member

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    Hi @S0805,

    You made a really good point, about the capital gain tax free after 10 years, I will need to do some modelling to factor in the capital growth component against the fees charged.

    Will also look at Lifeplan again. I used to invest in their education saving plan years ago and I could claim education expenses from the income tac free. Not sure if they still offer that.

    Thanks alot.

    Anne