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Junior ISAs let you save or invest up to £9,000 every tax year, with the returns locked away until the child turns 18. By contrast, Junior Self-Invested Personal Pensions (SIPPs) are designed for retirement, with access typically not allowed until age 57. It may even be later, depending on future pension rules.
I already manage a Junior ISA for my daughter, but I’m planning to start a SIPP too. Here, I’ll explain why and what type of investing strategy I might use.
Longer to compound
The main reason I want to start a SIPP is because my daughter won’t be taking the money out of hers for university or to help buy a first home (as with an ISA). Therefore, the portfolio will have many more decades to compound.
If I invest £150 a month and generate an 8% annual return, the portfolio ends up worth roughly £70,000 after 18 years. Let that carry on for another 40 years without adding another penny? It grows to around £1.5m!
Now, I should mention that this calculation doesn’t include any investing platform fees. But even factoring those in, the end result would still be very large.
Safety in numbers
But what investing approach should I take? This is where it gets a bit more complicated for me. You see, my own ISA and SIPP portfolios are mainly geared for growth. In other words, I don’t mind taking on an extra bit of risk in my pursuit of market-beating returns.
This growth stock-focused approach continues to serve me well. As I type (9 May), one of my largest holdings — The Trade Desk — is up by 24% in a single day after a massive Q1 earnings beat.
However, it also fell 50% inside a month in my portfolio earlier this year. I’m not sure I want that level of risk and volatility in my daughter’s SIPP, even if it has many years to recover.
Therefore, I think different index funds, investment trusts and ETFs are probably the best route for me to take. They hold multiple stocks, helping spread risk, even if it results in lower overall returns than certain individual shares.
Investing in the future
That said, I still want my daughter’s portfolio to be involved in lucrative investing themes. One of the most powerful is likely to be artificial intelligence (AI), which most tech experts predict is going to be utterly transformative over the next few decades.
One option I’m considering is iShares AI Innovation Active UCITS ETF (LSE: IART). As the name suggests, this active fund focuses on companies at the forefront of AI innovation. These include AI chip king Nvidia, Snowflake, Amazon, and 35 other holdings.
A thing I like here is that it’s also invested in Asian firms, including Alibaba (China), Softbank (Japan), and Kakao (South Korea). In future, a huge amount of AI innovation’s likely to happen in the East (we saw this recently with China’s DeepSeek AI developments).
As for risks, the fund was only launched a few months ago, so doesn’t have a track record of outperformance. And it’s down 24% as the overall stock market has moved lower since February. But I believe in it and am considering exploiting the lower price by starting a long-term position when I open the Junior SIPP.
