Investing for the Future: Simple Strategies for the Home CFO

While this blog post focuses primarily on the UK financial system, there may still be valuable insights and strategies that readers from other countries can adapt to their own financial situations.

Investing in your family’s future is crucial for financial security and growth. As the home CFO, your role is vital in managing and optimising these investments.

This guide offers simple, effective strategies for creating a robust family investment plan that will ensure a prosperous future for all family members.

Create a family investment plan

A well-thought-out investment plan is essential for securing your family’s financial future. To create a comprehensive investment plan, you will need to carefully consider your financial situation and goals.

Here are the steps to create an effective family investment plan:

1. Assess your financial goals and risk tolerance

• Define your short-term and long-term goals, such as saving for university, purchasing a home or retirement.
• Assess your family’s risk tolerance to determine the types of investments that are suitable. This involves understanding your comfort level with potential losses and the time frame for your investments.

2. Budget and allocate funds

• Review your family’s income and expenses to identify surplus funds available for investment.
• Create a detailed household budget to understand where your money is being spent and how much can be allocated to investments. Use a tool like PocketSmith to track your personal finances.
• Based on your goals and risk tolerance, allocate funds to different investment options.
• Prioritize your investments based on the importance of each goal and the time frame for achieving them.

3. Choose investment options

• Choose a mix of low-risk and high-return investments, so your investment portfolio is diverse, which will reduce your risk of loss and increase the potential for returns.
• Low-risk investments may include savings accounts, bonds and certificates of deposit.
• High-return investments may include stocks, mutual funds and real estate.

For example: If you aim to save for your children’s education and future home, you may want to mix how you allocate your funds, for example, investing in stocks and bonds and contributing regularly to a savings account. By diversifying your investments, you balance the potential for higher returns with the security of lower-risk options.

By taking these steps, you can build a strong foundation for your family’s financial future. Regularly review and adjust your plan as your family’s circumstances and goals evolve to help keep you on track toward achieving your financial objectives.

Managing family investments to get the best return for your family requires well-thought-through strategies and regular maintenance.

Explore investment strategies for children

Investing in your children’s future is a crucial aspect of family financial planning.

Here are some options you may want to consider:

Junior ISAs (Individual Savings Accounts)

Stocks and Shares ISAs

You could consider opening a Stocks and Shares ISA at birth and contributing monthly to build a significant university education fund.

• Overview: Allows investments in the stock market, offering higher growth potential.
• Benefits: Tax-free growth, higher potential returns.
• Risks: Market volatility can affect returns.

You will need to review and adjust your investment portfolio regularly to align with market conditions and your child’s age.

Cash ISAs

Use a Cash ISA for short-term savings goals like extracurricular activities or secondary school expenses.

• Overview: Savings account with tax-free interest.
• Benefits: Stability, guaranteed returns, tax-free.
• Risks: Lower returns compared to stocks and shares ISAs.

You will need to make regular contributions and monitor interest rates to ensure competitive returns.

Junior SIPPs (Self-Invested Personal Pensions)

Contribute annually to a Junior SIPP to leverage compound growth over decades for a substantial retirement fund.

• Overview: A pension plan for children offering long-term growth and tax benefits.
• Benefits: Significant tax relief on contributions and long-term growth potential.
• Considerations: Funds are locked until retirement age, making it a long-term investment.

You may want to start with small, regular contributions and adjust based on your financial capability.

Considerations when setting up investments for children

• Funds in Junior ISAs and SIPPs are accessible at age 18 and retirement age, respectively. Planning should account for these timelines.
• Parents or legal guardians should manage and monitor the accounts, making informed decisions until the child can take over.
• Consider combining Junior ISAs, Junior SIPPs and other investment vehicles like bonds or savings accounts to spread risk, provide stable growth and cater to short-term needs and long-term growth.

Understand tax considerations

When investing for your family, it is important to understand your tax implications so you can maximise returns and minimize liabilities. Proper planning and utilization of available tax reliefs and allowances can significantly enhance the family’s financial health.

Here are some key tax considerations to bear in mind:

1. Capital Gains Tax

Capital gains tax (CGT) is levied on profits made from selling investments like stocks, bonds and property (excluding the primary residence).

Tax-saving strategies

• Utilize annual tax-free allowances (e.g. £12,570 in the UK for the 2024/25 tax year).
• Consider timing sales to spread gains across multiple tax years to stay within the allowance.

For example: If you sell shares at a profit, ensure the gain is below the annual CGT allowance. If you exceed the allowance, use losses from other investments to offset the gain.

2. Tax relief

Tax relief can reduce the amount of tax owed, especially through contributions to specific accounts.

Tax-saving strategies

• Invest in tax-advantaged accounts like ISAs and pensions to benefit from relief.
• Contributions to a Junior SIPP attract 20% tax relief on contributions up to £2,880 annually (effectively becoming £3,600).

For example: You can contribute to a Junior SIPP for your child and receive tax relief, which boosts the investment. This helps long-term growth and reduces taxable income.

3. Inheritance tax planning

Inheritance tax (IHT) is charged on estates over a certain value threshold.

Tax-saving strategies

• Use strategies like gifting assets, setting up trusts and taking out life insurance to cover potential IHT.

For example: You could set up a family trust to manage and distribute assets, helping to keep the estate value under the IHT threshold and ensuring more wealth is passed on to your heirs.

4. Tax-free accounts (i.e. Junior ISAs and Regular Savings Accounts)

Tax-saving strategies

• Junior ISAs allow parents to save or invest up to £9,000 annually per child, with all gains and withdrawals tax-free.
• With a regular savings account, you can effectively use your tax-free interest allowance by ensuring the interest earned does not exceed the personal savings allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers).
• Make regular contributions and monitor growth, switching between cash and stocks as needed.

For example: You could open a Junior ISA and regular savings accounts to diversify and ensure all savings grow tax-free. Maximize your contributions to the ISA first for the tax-free benefit, then use your regular savings accounts.

Practical tips for the Home CFO

Managing family investments to get the best return for your family requires well-thought-through strategies and regular maintenance.

Here are some tips to help you excel at family investment planning:

1. Regularly review and adjust the investment plan

• Regular reviews help ensure that your investments align with your family’s evolving financial goals and market conditions.
• Schedule periodic reviews (e.g. quarterly or annually) to assess the performance and make necessary adjustments, such as reallocating funds from underperforming assets to more promising ones.

2. Encourage family participation in financial planning

• Include family members in financial discussions to promote a collective understanding and interest in managing finances.
• Have regular family finance meetings to discuss your goals, review progress and make decisions together. For example, monthly family finance meetings can be held where everyone can suggest ideas and ask questions about the family budget and investments.

3. Set realistic financial goals

• Establish clear, achievable financial goals for the short-term and long-term.
• Divide large goals into smaller, manageable milestones to maintain motivation and track progress.

4. Build an emergency fund

• An emergency fund can be there as a financial safety net for unexpected expenses.
• If possible, endeavour to save at least three to six months of living expenses in a readily accessible account.
• Set up an automatic transfer to a high-yield savings account dedicated to emergency savings.

Investing wisely for your family ensures financial stability and growth

By creating a robust investment plan, understanding tax implications, making informed decisions and actively involving all family members, you can secure a prosperous future. Start planning today to give your family the financial security they deserve.

Piotr Kubalka is CEO of J. Dauman & Co, a west London accounting firm within the J. Dauman Group. With extensive experience as a chartered accountant and business advisor, he’s passionate about helping UK companies grow and expand into European markets. Piotr’s expertise spans multiple sectors, developed through years of work in both British and international markets. His leadership has cemented J. Dauman & Co’s position as a key player in cross-border financial advisory services.