Recently, I opened a Junior SIPP for my one-year-old daughter. I’ve stuck £500 in it to start, with the intention of adding a few hundred pounds here and there when I have excess cash.
The question is – where do I invest the money? Should I go with an index fund, a thematic ETF, or an individual stock?
A financial head start
I’m really excited about the potential here. With more than 50 years of compounding ahead, just imagine what this pension account could be worth by the time my daughter gets to retirement age.
Let’s say I put £1,000 a year into the account for the next 10 years, picked up tax relief on this, and the investments grew by 9% a year after fees until she turned 60. I calculate that it would be worth nearly £1.5m by age 60.
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I’m focusing on growth
In terms of the investments, I’m going to take a higher-risk, growth-focused approach. Because, with a time horizon of over 50 years, my daughter can afford to take on risk in the pursuit of higher returns.
I’m thinking I’ll start with a diversified growth fund. Then, as the account grows, I’ll look to add some individual growth stocks in an effort to turbocharge returns further.
Where I’ll start
Blue Whale Growth could be a good fund for me to start with. Its manager, Stephen Yiu, is very skilled at identifying growth opportunities.
I’ve held this fund in my own SIPP for over five years now and it’s been a brilliant performer – it’s up about 70% over one year and 150% over three. It could help to propel my daughter’s SIPP too.
Scottish Mortgage Investment Trust is another product I like and will probably allocate some capital to. It’s run by Scottish investment firm Baillie Gifford, which also has a knack of identifying potential early (it has made a fortune on SpaceX).
This could complement Blue Whale nicely. It has a similar growth approach but has different holdings (and holds some private companies).
A growth stock for the long term
As for individual stocks, my first pick will probably be Amazon (NASDAQ: AMZN). The reason why is that it’s essentially a number of different growth businesses under one umbrella.
For starters, we have the online shopping business (which I personally use multiple times a week). This has the potential to get bigger over the next decade.
Then, we have the cloud computing business. This is almost certainly likely to get much larger over the next decade (85% of IT spend is still on-premise today).
We also have an incredible chips business. This is now generating revenue of over $20bn a year and growing at a triple-digit year-on-year rate.
Additionally, Amazon offers exposure to robotics, self-driving cars, video streaming, digital healthcare, and space (the space segment has enormous potential).
Of course, there’s no guarantee that Amazon will be a good long-term investment from here. An economic slowdown, or a drop in AI spending could derail my bull case.
I’m convinced that over the next 10 to 20 years, however, this company is going to get significantly bigger. So, I think it’s worth a closer look today.
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Edward Sheldon owns shares in Amazon and has positions in Blue Whale Growth fund and Scottish Mortgage Investment Trust.
