How to plan for your family’s future
Balancing short-term financial decisions with longer-term financial goals can be a tough balancing act. This article demonstrates how a sensible investment approach now can potentially reap the rewards in years to come.
6 minute read
Once you start a family, life becomes much more complicated. Not only do you have your own financial future to consider, but you’re also responsible for the health, happiness and future success of your children.
As a result, planning your family’s financial future involves juggling lots of separate issues all at once. You want to make sure you can take care of the day-to-day costs of looking after your children. You also need to think about taking out insurance and protection to maintain your income, even if something unexpected happens. You also want to make sure your children get a good head-start in life – including childcare and education. However, you also need to keep planning your life too, which includes making financial preparations for your own retirement.
The building blocks of any family’s financial plan
The best place to start, of course, is to create your family’s financial plan. We always recommend talking to a qualified adviser, such as an independent financial adviser (IFA) or professional wealth planner. But to get things moving, you can begin by asking yourself – and your family – a few important questions. For example:
- What future do you have in mind for your family? Working this out now will help you determine how much money you will need in the future.
- What are your biggest and most urgent priorities? Understanding the key life goals to focus on will help you to make the right financial decisions.
- How much income do you earn, and how much do you owe? Having a good grasp of your income, any debts, as well as your day-to-day spending habits, will help identify how much you can afford set aside for investing, and whether you need to make changes to your lifestyle now to achieve the life you want in the future.
- What about your retirement plans? Do you have a pensions or any other investments in place, and if not, how do you plan to pay for the retirement you want? It’s essential to plan for your own future as well as the future of your family.
Once you’ve considered all of your family’s financial goals, it should be much easier to explore the ways in which you can get there. Of course, it’s important to include your family in any financial decisions that you make. This way, they will understand what you’re trying to achieve, as they also have an important role to play in the family’s financial journey.
Investing is the key to building long-term wealth
Planning for your future – and theirs – sounds daunting, and it may feel hard to know where to even begin. Unless you already have an inheritance or other sum of money to rely on, most people reach the conclusion that investing their money is one of the best ways to achieve their long-term financial goals. And it’s well documented that investments, on average, tend to outperform cash savings over the long term (5+ years).
At Janus Henderson Investors, we believe that investment trusts should be a core component of any family’s financial plan. Setting aside regular amounts or occasional lump sums into an investment trust can help you to plan for the future, while relieving the stress and burden of trying to do everything all at once. In most instances, investing for your children means you have a longer investment time horizon. In other words, your investment should have plenty of years in which to grow, which means you can afford to take on greater risks in the pursuit of better long-term returns.
Investment trusts are collective investments that are listed on the London Stock Exchange. They give investors the opportunity to put their money into a diverse range of companies or types of assets in a cost-effective way, and the investment trust itself is managed by a dedicated investment manager on your behalf.
Investment trusts have an independent board of directors who are responsible for safeguarding investors’ interests. And, because investment trusts are managed like a company, they pay dividends to their investors. These dividends can be paid out to investors in the form of income, or reinvested, helping to grow the investment further. Unlike other types of funds, investment trust can retain up to 15% of their net income each year, which gives them the ability to smooth these payments over the years. For example, they may be able to ‘top up’ the income that investors receive in years when the portfolio’s income is lower than the average.
This potential for consistent income is one of the key attractions for investment trusts, and many have impressive records of sustained dividend growth going back 30 years or more. In fact, several investment trusts managed by Janus Henderson Investors have earned the label ‘Dividend Heroes’ from the Association of Investment Companies (AIC).1
Which type of investment trust is right for you?
Another reason why investment trusts are an increasingly popular option with UK investors is because there’s a broad variety of different options to choose from. For example, we manage a range of 12 investment trusts, with a combined total value of £7.4 billion.2 They invest in a wide range of different countries, sectors, and asset classes, and are managed to ensure that we provide investors with choice, diversity, and opportunity. So, whether you’re interested in an investment trust that offers growth, income, or a combination of growth and income, there are plenty of options available.
For those looking to build a more balanced and diversified portfolio, you can also invest in more than one of our investment trusts. For example, if you invest in one of our trusts that focuses only on the UK market, but are looking for international exposure, then you might want to look at some of our global trusts. To make it even easier to make them part of your family’s financial plan, investment trusts can be included within an Individual Savings Account (ISA), Junior ISA or as part of your personal pension.
When you strip away all the jargon, financial planning involves knowing what you want your family’s future to look like, and then identifying the ways in which you can achieve those goals. However, the most important thing is to start as early as possible and to be consistent as this may give your money more time to grow. Before you make an investment, it’s always a good idea to think about the goals that are most important to you and your family, and to discuss those goals openly with them. After all, it’s their plan too, and it’s a journey that you’ll want to take together.
Find out more
For more information on investment options and the steps you can take to secure your family’s future, download our latest guide. There’s also a wealth of information for parents on our Family Future Hub.
2Source: AIC as at 30 June 2022
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.