Nappies, formula… and a Junior Isa! The essential newborn purchase to set up your child financially – and the exact choices to make so they take a tidy nest egg into adulthood

Nappies, formula… Junior Isa? Investing might seem like an unusual choice for a newborn’s shopping list, but parents who start putting money aside for their children as early as possible can set them up for life.

Junior Isas allow a family to stash away up to £9,000 a year for their youngsters and, just like an adult Isa, all gains are tax-free.

Someone who maxed out the account every year from when their child was born until they were 18 would have put aside a total of £162,000.

In a cash account paying 3pc interest, that money could grow to almost £227,000 by 18.

However, if it were invested and grew at 6pc a year, they could end up with more than £309,000 – an extra £82,000.

Parents can enlist the help of friends and family to add to the pot – perhaps suggest a contribution as an alternative birthday gift.

The accounts can be opened for a child from birth. However, children take control of the account from 16, and at 18 can access the funds. So it’s vital to have a conversation ahead of time about how you hope the money will be used.

Unless the money is withdrawn, the account will roll over into an adult Isa on their 18th birthday, and they can continue to make contributions if they wish.

Parents have the option to save for their child in a Cash Junior Isa, effectively a type of savings account, often with a set rate of interest. Of the £1.8billion that was subscribed to Junior Isas in 2023-2024, around £655million – roughly 36pc – was in cash, according to Government figures.

While it might be tempting to choose the safe option when dealing with your child’s financial future, a stocks and shares Junior Isa could lead to greater rewards.

For those who start setting money aside when their children are young, the long time horizon until the money can be accessed is well-suited to investing. This means the money has years to grow and compound, and to ride out any dips in the stock market along the way.

Even smaller amounts add up over time. Investing £100 a month from birth could build a pot worth almost £40,000 by age 18 – enough for a first car, to help with university fees or even a house deposit.

Ben Yearsley, of Fairview Investing, says: ‘Your first instinct with young children is to protect them, so it’s no wonder so many parents and grandparents decide to save money for them in cash. But this is a time to embrace risk.’

Choosing a mix of growth-focused investments alongside some ‘Steady Eddies’ which can endure market volatility, is a smart way to help build a tidy nest egg.

Kamal Warraich, of Canaccord Wealth, suggests starting with a low-cost global tracker fund for the core of the portfolio.

These offer instant diversification, investing in thousands of businesses across the world. Popular options include Fidelity World Index and Vanguard FTSE Global All Cap Index. For a balanced option that will protect the pot from market dips, consider the Troy Trojan fund. This invests in bonds issued by the UK, US and Japanese governments as well as in gold and the shares of multinational businesses, such as Visa. It has returned 21.5pc over five years.

The Blue Whale Growth fund is a ‘high conviction’ portfolio investing in just 30 stocks, which the management team believe are the highest-quality, fastest-growing companies on the planet. Its top holdings include semiconductor maker Nvidia, gambling company Flutter Entertainment and luxury goods firm Moncler. It has returned 99.5pc over five years.

Fidelity Special Situations is run with a ‘contrarian’ approach – selecting businesses unloved by other investors but which they believe are due a turnaround.

The fund also offers exposure to small and medium-sized firms, which can often achieve faster growth than their larger counterparts. About 80pc of the portfolio is invested in UK stocks and it has returned 81pc over five years.

To add another layer of diversification, consider infrastructure funds. These invest in assets such as roads, railways, airports, trains and utilities. They often have very long, inflation-linked contracts, so they can provide a growing income to investors each year.

Yearsley rates First Sentier Global Listed Infrastructure. It has returned 41pc over five years.

Investing might not be front of mind for new parents, but starting early can lead to substantial gains. And fostering an early interest in investing in a child could lead to a lifelong – and lucrative – habit.