When should I ‘de-risk’ a Junior ISA?

Q: I am a grandfather making monthly investments into my grandchildren’s Junior ISAs. Initially the investments are into equity funds but at what age should one start to de-risk the portfolio and at the age of 17, one year from maturity, what percentage of the portfolio should be invested in equity funds?

A: It’s an interesting question. We don’t often think about de-risking portfolios for the young – they’ve got time on their side. If you were sat here with me, I’d probably start by asking what the money is likely to be used for at age 18. So, forgive me if I need to make a few assumptions when answering this one.

Another key point to remember is that when a Junior ISA matures at 18, the young adult takes full control. They can leave the money invested, withdraw some of it, or take it all out. That means the investment approach needs to reflect how certain you are about the timing of any future withdrawals.

It may therefore be worth having this discussion with your grandchildren and whoever is currently managing their portfolios.

Please remember this is purely guidance and not a personal recommendation.

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If the money is likely to stay invested beyond 18

If there’s no clear need to access the money at 18, it can make sense to remain largely invested in growth assets. Some investors use the “rule of 100” as a broad rule of thumb to guide equity allocation. This involves subtracting the investor’s age from 100. At age 18, that would suggest holding around 82% in equities (shares and equity funds) is a reasonable amount, balanced by lese risky assets such as bonds or cash funds.

If the money is earmarked for use at or around 18

If you expect the money to be used for university costs or another planned expense, it may be sensible to start reducing risk earlier. One commonly-used approach to de-risking – no matter the age – is to start around five years before you expect to withdraw the money, gradually moving from equities into lower-risk assets such as bonds or cash. By age 17, you might choose to hold a more balanced mix – for example, 30-50% in equities – to help reduce the impact of short-term market movements.

Ultimately, this is about balancing growth with certainty. The more fixed the withdrawal date, the more important it becomes to protect the value of the investments as that date approaches.

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• Read: What happens to a Junior ISA when the child turns 18?
• Read: 4 fund picks for a Junior ISA
• Read: Junior ISA boom: which funds are parents buying?

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Junior ISAs are long term tax-efficient savings accounts for children. Withdrawals will not be possible until the child reaches age 18. A Junior ISA is only available to children under the age of 18 who are resident in the UK. It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF). If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf. If your child holds a CTF they can transfer the investment into a Junior ISA. Please note that Fidelity does not allow for CTF transfers into a Junior ISA. Parents or guardians can open the Junior ISA and manage the account but the money belongs to the child and the investment is locked away until the child reaches 18 years old. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.