Trusts help solve university challenge

Long-term saving goals, such as covering university costs, are something that many parents will have in mind from an early stage in their child’s lives. With university costs likely to increase dramatically over the next few years and almost half of future students expecting to graduate with more than £20,000 of debt, it has never been more important to plan ahead.

Investing £50 per month in the average investment company over the last 18 years to 31 May 2011 would have produced a £23,661 lump sum for parents to help cover these costs and ensure a good start for their child. Over 21 years the rewards are even greater, with the average investment company returning £34,217 on a £50 per month regular investment to 31 May 2011.

Regular saving schemes are a good way to access investment companies and, in addition to online broking sites or traditional stockbrokers, many companies accept regular investments of as little as £50 per month. Some saving schemes, such as those offered by Henderson Global Investors and RIT Capital Partners, are available with a minimum investment of £20 per month. One of the advantages of regular saving is known as "pound-cost averaging".

Buying shares monthly smoothes out some of the highs and lows in the share-price over time. This is because you buy fewer shares when prices are high and more when prices are low, thus taking away some of the risk of market timing.

Another way in which parents will be able to make their savings go further is to take advantage of the newly launched Junior ISA, the successor to the recently abolished Child Trust Fund, which is expected to be available by the end of 2011. This will allow parents to invest in a tax-efficient way on behalf of their child and instil the sense of financial responsibility that comes through regular saving.

Within individual AIC sectors there is scope for even greater returns. Those willing to accept the risk of investing in emerging markets would have seen a return of £44,373 over 18 years to 31 May 2011, assuming a £50 per month investment in the Global Emerging Markets sector. The AIC member company that would have earned regular savers the most is HGCapital, from the Private Equity sector, returning £59,791 to shareholders who had invested £50 per month for the last 18 years to 31 May 2011.

Of course, over the long-term, lump sums have a tendency to outperform regular investments. This is because more money is essentially being "put to work" over a longer period of time and, traditionally over the longer-term, markets have risen.

Of course not all of us have either the funds to do this, or indeed the appetite to entrust so much of our capital at once to the stockmarket.

The question of where to entrust your child’s nest egg is one that will depend on each investor’s financial profile and appetite for risk. Sectors come in and out of vogue, so a well-balanced portfolio is worth considering.

Indeed, while Asia Pacific excluding Japan was seen as one of the darlings of the sector at the beginning of this year, and was certainly generally expected to perform well, analysts at Oriel point out that the NAV of the average Asia fund has lost 5 per cent in value over the first half of 2011 while the average fund investing in Europe has increased by 4 per cent. This is despite the well-publicised problems in the eurozone, most notably Greece, Portugal and Ireland.

Stephen Macklow-Smith, manager of the JPMorgan European Investment Trust, argues: "Relative to other areas, Europe looks as if it offers good value."

"The doubts over debts in the periphery are increasing the risk premium demanded by investors, but there are many companies whose sales are more or less unaffected by events in the periphery and benefit from the more competitive exchange rate that is the result of these issues."

"We are also seeing growth in dividends from most of our investments and we anticipate further growth as confidence increases."

Details of investment-company saving schemes and performance data on individual companies and sectors can be found in the monthly AIC statistics publication on the AIC’s website.

Annabel Brodie-Smith is communications director at the Association of Investment Companies (AIC). The views expressed here are her own.

*Performance figures are to 31 May 2011 and based on the mid-market share price return on £50 per month regular investment with net income reinvested and a 3.5 per cent deduction for charges, stamp duty and market spread.