How do we buy shares for our three-year-old godson?

My husband and I have no children, but we have a three-year-old godson, and we were thinking of opening a trust account so we could buy shares, with him as the beneficiary when he comes of age. Is this the best option? The other option is opening a bank account in his name, but it will grow very little over the years. Can you advise on the best way to invest money every year to get the best return when he turns 25? We believe 18 is too young to access a large sum of money.

The problem with investing for children is the punitive tax rules. If the money is held in the child’s name or in trust, income over $416 per year can be taxed as high as 66 per cent.

If you’re planning to put money aside for a child or godchild, there’s one investment option that makes the most sense.Credit: Simon Letch

If held in the name of a parent or grandparent, it could be taxed in their name, and a growing balance might affect their age pension. There’s also capital gains tax if growth assets are involved, which as you say are the best assets to hold long-term.

The solution I’ve often recommended is to invest in insurance bonds. The investment earnings are tax-paid within the bond at 30 per cent, meaning there’s no further tax to include on your annual tax return, and the funds can be transferred free of CGT to the godson at a time of your choosing.

You have a wide choice of asset selection, just like superannuation, so make sure you take advice.

When you receive questions about market volatility, you typically advise staying invested for the long term while keeping at least three years’ expenses in cash. Does this mean simply holding it in a savings account?

The idea is to avoid being forced to sell growth assets during an inevitable market downturn. Keeping three years’ expenses in cash is shorthand for reviewing your portfolio and budget to ensure the next three years’ planned expenses are covered.

If you’re in superannuation, part of your fund may already be in a cash-type option. If you’re a personal investor, you could hold cash in a bank account. You should also consider regular income sources like rental income and share dividends. The key is to never be caught short.

I am 71, with a superannuation pension account balance of just over $1.7 million and an accumulation account exceeding $100,000. I work part-time, earning around $40,000 annually, which covers most of my expenses. I currently withdraw only the minimum required amount from my pension account. Given my circumstances, is there any advantage to keeping the accumulation account?

Your accumulation account is taxed at a flat rate of 15 per cent, which is marginally lower than the 16 per cent marginal tax rate (plus 2 per cent Medicare levy) on your $40,000 income. It may be beneficial to keep the funds in accumulation until you stop earning an income.

You have written previously about bring-forward non-concessional superannuation contributions which this year has a cap of $360,000 for eligible contributors. Does the contribution need to be a single payment, or can it be staged through the year? Is there a form or notification I must provide to the ATO or my superannuation fund that I am using the bring-forward arrangement?

Mindy Ding of the Entireti Technical team tells me no notification is required to advise your super fund. After the contributions are reported to the ATO by the super fund, the ATO will automatically reconcile the amount(s) against your non-concessional contribution cap under the bring-forward rule where eligible.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.