While university study is now amongst a myriad of choices open to teenagers, the concept of investing now for the benefit of future generations has stood the test of time, and remains a popular way to give children and grandchildren some financial assistance no matter what their path in life might be.

At FMT, we have a number of investors who set up an investment account for their family members, and we’ve even had some grandchildren attend our Investor Meetings so they can get to know us and understand our investment model further. Some have even added to the investment in their own right, and then used the funds for study or towards a first-home deposit or decided to keep the fund and continue investing for their future.

The appeal of longer-term ‘grandchild funds’ is linked to the power of compounding interest; this is where the interest earned is held in the account and consolidated with the initial sum deposited.

As an example of compounding interest at work, let’s say that you decided to invest $10,000 for your grandchild at birth, with the fund’s return rate of 5.2% per annum (after charges and before tax) with the interest compounding quarterly. By the time your grandchild reached the age of 18, the investment would be worth approximately $23,000.

Double that initial investment and the results are even more satisfying. For example, if you invested $20,000 for your grandchild at birth, and the same compounding interest and assumptions applied, the future value of the fund at aged 18 would be $46,000.

At First Mortgage Trust, we provide the option of opening funds for your family members, with an initial lump sum investment, and the option to add to the fund should you wish. We have many parents and grandparents who have opened accounts, creating a new generation of FMT clients who are now raising a toast to those who’ve supported them with their financial foresight.

To learn more about opening an account for children – talk to our team.

This is an example only; actual returns will differ and the differences could be substantial. Calculations used are based on return rates of 5.2% p.a (after charges and before tax) across the 18 years with no withdrawals or deposits. The annual return rate of 5.2% is based on the average return of the FMT GIF Fund over the last 5 years, after charges and before tax. Marginal tax rate used is 10.5%. These calculations do not take inflation into account. Past performance is not a reliable indicator of future performance and returns are not guaranteed.