My grandson is seven and I’ve already built him a £63,000 pension pot

In our weekly series, readers can email any questions about their finances to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk. Question: I am a 76-year-old grandfather and have contributed to my grandson’s pension since he was born seven years ago. It is now worth £63,315. How can I make sure I choose the right investments for the long term? Answer: Investing for your children or grandchildren can be one of the most rewarding things to be able to do in life, helping to establish their financial futures and ensure they are on a solid footing long after you have passed. The amount saved in your grandchild’s junior pension is an impressive feat after just over seven years, and a return of over 70 per cent is not to be sniffed at. Shorts Junior pensions can be one of the most effective vehicles for growing wealth over the long term. A junior pension has an allowance of £2,880 per year, which becomes £3,600 once tax relief is factored in. As such, it can be a great thing to use your £3,000 annual gifting allowance on, or other allowances such as gifts out of surplus income, knowing it will immediately get boosted by tax relief. The junior pension will then automatically turn into a pension when the child reaches 18 and they will assume control over it and then be able to access it later in life. In this case that will be when they reach 57, although this could ultimately change. This gives your grandchild a really great time horizon to be invested for, with still at least another 50 years of growth, and hopefully a number of years of contributions to come. Given the long-term time horizons with junior pensions, it is vital that they are invested predominantly in equities. Shares give you the greatest return potential over the long term, and as your grandchild has time on their side, they can ride out the ups and downs of the stock market, especially as you intend to keep contributing. This means that even if share prices were to fall, you are buying units at a lower price and thus helping to mitigate any volatility. From what you have sent about your investments separately, you have done the right thing investing in equity funds, however, what is perhaps missing is diversification. The three largest funds are all global technology funds and will likely hold the same companies that we have all come to know through the artificial intelligence boom that continues apace. With a US index fund held too, that adds in another layer of concentration risk as the US stock market is dominated by just a handful of global tech companies, such as Nvidia, Microsoft, Google and the like. It is important to have exposure to these companies, and to other growth areas of the market, but too much and you risk everything falling in value at the same time. Clearly those picks have worked to date, but with concerns around the valuations of artificial intelligence companies, it makes sense to diversify exposure both on a geographical basis, but also by sector. Increasing exposure to Europe, Asia and emerging markets will still give you access to world-class leading companies but help to remove a little more of that tech bias. Getting the portfolio more diversified also means you can leave it alone more and help to lessen the need to constantly rebalance should one holding increase considerably more than another. The less tinkering over the 50 years of this portfolio’s life, the better. I am not aware of your own circumstances or investment portfolio, but it would be worth considering holding the junior pension with the same provider as yourself to help make things simple. This can ultimately help with intergenerational wealth planning and make contributions seamless. Furthermore, given the size of fund you have already established, and your willingness to keep funding it, it may also be worth considering a junior ISA if there is not one in place already. Junior ISAs are available to hold in cash or in stocks and shares, and given your grandchild’s age they still have time on their side before it matures at 18 and thus investing through a stocks and shares ISA would be the way forward. Often inheriting money at age 18 when it is a pivotal time of your grandchild’s life (going to university, or buying a car) can really enhance their standard of living later on. Having a junior ISA in place too will give your grandchild the opportunity to access the money when they turn 18, or leave it be and allow it to transition to an adult ISA. The level of investment risk will be slightly different, but with an annual allowance of £9,000, a good size pot can still be generated at this stage. The good news, however, is that you have done the hard work in setting up what is already a substantial future fund. Your grandchild is well on their way to becoming a millionaire pensioner.