Investing for longer increases the likelihood of positive returns.
This is good news if you’re investing for children. They have time on their side, so they can benefit from the power of compounding.
Over a period of five years or more, investments usually give you a higher return compared to cash savings. As part of a diversified portfolio, it means it’s a sensible option for children.
Our latest share ideas could make great long-term investments for children, so that you can give them a head start in future. Each of the companies could play a part in the lives of younger generations, giving you the chance to get your kids involved with their finances from a young age.
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This article isn’t personal advice. If you’re not sure an investment is right for you or your child, ask for advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Ratios also shouldn’t be looked at on their own.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you or your child. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
Alphabet (Google)
Our children will grow up in a world dominated by technology and Alphabet is likely to play a major role in their lives, just like it has for billions of people over the past couple of decades.
It’s already integrated into everyday life through its far-reaching businesses.
Google search has dominated the internet for the past decade or more, YouTube has helped transform the way we engage with media, and the cloud business is helping artificial intelligence (AI) become a reality.
Current operations continue to centre around advertising. Marketers spend handsomely to promote their products and services to Google and YouTube's captive audiences. The rapid growth of AI is proving a valuable tool to both engage users through search and help advertisers get the most bang for their buck.
AI is also giving a tailwind to the cloud business, but it comes at a hefty cost. Alphabet, along with many in the space, are investing tens of billions to build out their cloud computing capabilities. In the short term, it’ll squeeze margins, but the long-term opportunity is huge.
Alphabet faces several challenges, from AI newcomers trying to take market share from Google search to regulators looking to break the company up. But the valuation has already come under pressure this year, and at 18 times forward earnings, it looks attractive. Of course, there are no guarantees though.
GSK
The pharmaceutical industry has been a crucial driver of both the length and quality of life that we can expect to enjoy and is continuing that mission for future generations.
It also offers many attractions to investors.
The deep expertise and even deeper pockets needed to bring new medicines to market help keep outside competition at bay. It also gives established players like GSK a strong platform to build further value.
There are some risks to be mindful of though.
Many research programmes fail to bring products to the market. And the complexities of the regulatory environment can mean that even successful products don’t reach their full commercial potential.
Tampering with the body’s mechanics and chemistry brings safety risks and the possibility of expensive legal action. But these are risks GSK appears to be navigating with some skill.
We believe concerns over cancer links to its heartburn drug Zantac, is weighing on investor sentiment. Legal proceedings are going in the right direction, but a favourable outcome isn’t guaranteed.
Financial progress of late has been impressive, with a full-year guidance upgrade accompanying second-quarter results despite a disappointing outlook for vaccine sales.
Research & development, the driver of future success, is producing good results too. The group had four major product approvals last year and there are potentially more significant clinical milestones to come in 2024.
However, just like with any company, success isn’t a certainty. Comfortable debt levels and expectations of improving free cash flows support both investment in the clinical pipeline and the forward prospective dividend yield of 3.8%. Remember though, yields are variable, and are not a reliable indicator of future income.
TUI
Having kids is an adventure. It’s all about making lasting memories, and there aren’t many better ways to open children’s eyes to the wonders of the world than a family holiday.
TUI ticks that box in abundance.
It owns an airline, hotels, resorts, and cruise ships, giving around 19 million customers a year the choice of over 180 destinations. There’s also the Musement business, which offers a range of tours and activities to give you and your kids a wealth of unforgettable experiences.
Revenue in the third quarter rose 9% to a record €5.8bn, supported by both higher volumes and prices.
We think the overall outlook is positive and full-year guidance of at least 25% growth in underlying operating profit looks within reach.
A €1.8bn capital raise back in April 2023 closed a miserable chapter for the group. It’s used this cash to shore up the balance sheet which now looks in good shape. That’s why markets are expecting dividend payments to return next year, but there are no guarantees. Overseas dividends can be subject to withholding tax which you might not be able to claim back.
There’s also been a strong focus on improving customers’ digital journeys. This gives TUI access to lots of customer data, helping improve the cross-selling of products and tours through personalised customer experiences.
The valuation sits toward the bottom of the peer group, which means it could be an attractive entry point for potential long-term investors. Demand shocks are still one of the risks though, and it could be a while before public feeling around this holiday maker improves.
A member of the Equity Research team holds shares in TUI.
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
