So, it turns out that properly preparing for your children’s financial future involves much more than simply investing as much money as possible into a Junior ISA (JISA), which why this new father has had to reconsider his plans. 
Keen readers of FE Trustnet might have noticed that I’ve been off for a few weeks: while a small part of me wishes that I was sunning myself on a beach ahead of a UK winter, I’ve been on leave for the birth of my first child.
Magnus arrived in early October – see a picture of him in his penguin towel on the right – and the constant sleepless nights have given me plenty of time to think about my little one’s investment portfolio.
Planning a portfolio isn’t the first concern of most new parents but as a self-confessed investment geek I have to admit taking some pleasure in it. However, things don’t appear to be as easy as I assumed they would be.
Knowing that time in the market is what counts, I’m keen to get started immediately. Many of the investors I have spoken to while researching this article suggest that annual growth of around 6 per cent would not be unreasonable, which would lead to a sizable pot being accrued over the long run.
Darius McDermott, managing director at Chelsea Financial Services, said: “We generally find that with the 18-year time frame you have in a Junior ISA, people tend to take greater risk.
“You’ll find that emerging market and Asian funds tend to fit the bill given the potential for much higher growth than in developed markets. Other options include smaller companies. We all know that smaller companies can have periods of illiquidity and underperform but over the longer time frame, small companies nearly always outperform large-caps.”
However, the challenges arise when deciding exactly which savings structure to use. As far I as I can see, there are three main options when it comes to saving for children: I can put more money in my own account and earmark it as being for them; pay into a Junior ISA (JISA) that they receive upon turning 18; and set up a Junior SIPP for their retirement.
At first I thought it would be as simple as cramming as much money as I could into a JISA – starting with a decent lump sum then contributing as much as I can afford each month. But after discussing this with a few investment commentators, I realised that this approach might not be the best for my own finances or Magnus’ future.
Adrian Lowcock, head of personal investing at Willis Owen, said: “The Junior ISA is an interesting one for. In one sense, it’s great to have more money in it rather than less but at the same time your child could eventually get access to a lot of money when they turn 18 – which may or may not be a good thing.”
The annual JISA allowance stands at £4,260 a year and I had hoped to contribute this to Magnus’ portfolio. Assuming a decent 6 per cent annual growth rate and that amounts to over £135,000 after 18 years, but is this the fantastic gift I thought it would be?
“The biggest risk with a Junior ISA is that they receive it when they are 18 and that can be a pretty vulnerable time,” Lowcock said.
“It can be a big step change and many 18-year-olds don’t make the best financial decisions. You might not have intended that money to be used in one big splurge but it becomes their money at that point and they can do as they like with it.” 
This rings true to me. While your editor might be an example of financial prudence now, things were very different when I was an 18-year-old. Being handed £135,000 wouldn’t have resulted in an early start on the housing ladder or any of the other sensible outcomes I hope for Magnus; there’s a good chance it would have ended in a very profitable summer for the publicans of Sheffield.
So, if children might not be sensible enough to be handed a windfall at 18, surely they would be ready for it when they are in their mid-50s? This is where the Junior SIPP, which allows parents to start building their child’s pension pot from birth, comes in.
Tilney Investment Management Services’ Jason Hollands is a big fan of this product. “While it may seem counter-intuitive to invest in a pension for a child, this could be the greatest financial gift you ever make them,” he said.
“That’s because although most children have no income and therefore pay no tax, they can still get up to £720 tax relief on pension contributions, so a net investment of £2,880 for a child will be topped up by £720 to £3,600.”
Hollands noted that parental contributions would amount to £51,840 over 18 years, then be topped up by £12,960 through tax relief to £64,800. He added: “If they achieved an annual compound annual growth rate of 6 per cent, the child would end up with a pension worth £1.48m by the time they are 60.”
As I’m serious about creating the best possible financial future for my son, this is a very appealing option. Like many people of my age, I left saving for retirement rather late and am now playing catch-up; to be able to reduce this burden for my own children would be an amazing legacy.
That said, going all out to build up the Junior SIPP at the expense of other savings doesn’t seem like the best strategy either. Money held in such a product cannot be accessed until 55 (rising to 57 from 2028 and likely higher when Magnus is retiring), so can’t be drawn upon if it’s needed an earlier stage. Added to this is the risk that Junior SIPPs could eventually become subject to government meddling, such as being the target of a tax raid.
Thankfully, the very long investment horizon of means a small investment today has the opportunity to grow into a life-changing sum so I might not have to contribute every month. Lowcock said: “A Junior SIPP is a good way of turning a small sum of money into an awful lot more in the future.
“If you don’t have a sum of money that can make a difference today or even in 18 years’ time, a Junior SIPP can allow a small amount to work incredibly hard for your child over the long term – even with a moderate growth rate, there will be a huge compounding effect over 50 or more years.”
So, I’m reluctant to channel too much into a JISA to avoid a reckless 18-year-old blowing through it and I don’t need to put everything I have into a Junior SIPP to build up a meaningful sum. This means that, boring as it sounds, I’m going to be putting more of Magnus’ savings into my own ISA than I originally thought.
Even though it’s early days, I’m seeing how expensive having children is so it would be good to have pots of cash that have been earmarked for Magnus and can be used before he turns 18. I have to remember that planning for my son’s financial future isn’t all about making sure that he is a wealthy adult but also comes down to having the resources to give him the best possible childhood.
“Some steps in a child’s life happen before they are 18 and cost money – things like driving lessons, taking guitar lessons or learning to ski,” Lowcock said. “Keeping some of your child’s savings under your control means that these expenses don’t have to come out of your discretionary income if you don’t want them to.” 
Readers with more experience of family life might not see this as revolutionary but I’ve concluded that the best approach is this: building up a decent JISA so there's pot of money which is just for him (but it isn’t so large that it really hurts if it’s wasted); nurturing a Junior SIPP so it makes a difference to his retirement; and making sure that the household finances are as strong as they can be.
But halfway through researching this column, I realised that the best way I can influence Magnus’ financial future isn’t have the money to indulge his every whim as a child, handing him £135,000 at 18 or sending him into retirement with £1.5m.
No, the best thing I can do for my son is to make sure he has a good financial education, especially as he is likely to have to fend for himself financially much more than I or his grandparents have to.
I want to make sure that he grows up understanding that it’s important to regularly put aside money, how to invest prudently to achieve set aims and how to spend it sensibly when the time comes. This is probably going to mean he stares at more portfolios, FE Trustnet factsheets and spreadsheets than the average child, but I think turning him into a little investment geek might be one of the best things I can do for my son.