Since 1995 the Motley Fool website has halped millions of people invest carefully and avoid the financial jargon of the professionals. This book uses their off-beat, humorous style to help parents invest wisely for their children.
I discovered that if I start investing now, by the time my child is 18, I can pay for her university fees, pay for the car, and maybe even pay for a deposit on her first house. I like the sound of this. If I keep on saving until she reaches the grand old age of 60, she can be worth as much as £2m, provided the stock market continues to grow at the same rate that it has in the past. Tell me more, I thought. The book also highlights that is vital that you invest in the right place.
National Savings do not produce a high enough return and neither do premium bonds. As for the lottery, well that's money you never see a return on unless you're very, very lucky. With-profit-bonds are another undesirable area as they are simply another form of endowment policy. We all know that many millions of people have had to increase monthly payments on their endowment policy because their returns have turned out to be less than anticipated. And I loved the illustration of this using the conversation with Mr Chargetoomuch.
As for banks, forget about them. The great British bank is another no go area due to low interest rates and excessive charges. Building societies perform much better. For example compare Nationwide's Smart2Save account offering 6.9% to an equivalent account from Barclays offering just 1.5%. So I earn over 4 times more interest with the building society. Excellent. Building societies offer a safe environment for growth and easily-accessible money, but what about long term growth?
The book suggests the stock market. I was suddenly reminded of the Disney cartoons I watched as a kid when the character's eyes would pop out of his head in disbelief. Why should I invest in the stockmarket? It's too volatile. It hasn't really grown that much in the last year, has it? My money isn't safe? If I invest this year in the stockmarket, it can slump next year. At least a building society will keep growing slowly but surely.
But the book teaches you about investing for the long-term. That's the difference. Not one or two years but fifteen, twenty years or even longer. Then you can see a fantastic return. Yes, stock markets can fall, but since the early twenties, the stock market has grown at an average rate 12.2% per year. No other type of savings vehicle can touch that. But you need time. Day trading is a waste of hard-earned money. Taking a long-term view is the strategy to achieve real wealth.
I'm given examples, of what to do and what not to do. I'm given example of other Fools and how they have learned from their mistakes. The best ways ahead are tracker funds. Why? Low charges but rates of return consistently higher than typical managed funds.
That sounds like the kind of thing I want for my child. And let's not forget ISA's, and picking stock from blue chip companies. The book says we should learn about choosing the right companies and investing through an execution-only broker. A full-service stockbroker can be tempted to trade too much because he gets commissions each time he does so.
There are many books out there on finance, but all the best books seem to be from The Motley Fool. In less than 200 pages, the world of finance is not only made simple, it has changed my views on just putting a little money aside each month for my daughter in a designated bank account. In less than a few hours, I have learned more than years of reading articles and speaking to IFA's. So my daughter's future is now looking rosy.
All I need to worry about now is her growing up, asking for pocket money, going out late, bring home new boyfriends, buying clothes, getting into the wrong company and keeping my sanity.