Investing for my kids

[QuazyQuinton]

I recently got some extra money from cashing out some PTO at work (apparently I don't hunt enough), so I'm working on setting up a custodial investment account with Charles Schwab for each of my kids, ages 12-17. It was a gift from me, then matching a contribution from them, and then additional funds of theirs if they wanted to contribute more. Their balances range from $200 to $600, so still fairly small amounts, but hopefully they can contribute again in the future. The two oldest have Roth IRAs, and the youngest has a simple brokerage account due to not being employed yet. We have established that possible goals are 1) college expenses, 2) first home purchase, and 3) retirement.

Anyway, the accounts are funded and we need to do something with the money. I'm thinking put the majority in an index mutual fund, a smaller part in a bond fund, and let them choose to invest an even smaller part with Schwab's Stock Slices if they want to pick a few individual companies. Any advice or feedback?

QQ

 

[Wildabeest]

Only advice I have is involve them in the process and let them opine on how it’s invested. It’s a great learning experience for them. Sounds like that’s already in your plan.

 

[2rocky]

Let them pick some individual stocks to get the annual reports from companies they are interested in. I relished my Caterpillar annual report as a young child even if it was just for the pictures of the Yellow iron.

 

[Deleted member 28227]

Love this idea, agree with @Wildabeast involve them in the process.

I'm in my 30s and already have worked for half a dozen companies all with their own 401k or other retirement program. Inevitably I had to set up my own IRA to roll over all my accounts as I moved from company to company. If I'm being honest it was a PIA setting up the first one and figuring it out by myself. I would have loved it if someone had guided me through the process.

I have most of my IRA in a index fund, I've yet to have any of my employer sponsored accounts get close to matching it's return, once you factor in fees.

 

[Pucky Freak]

Great question and goals. I’d focus entirely on college savings now, and once they’re through college I’d move on to the other 2 goals. Compare 529 to Coverdell to see which tax shelter is the most advantageous to your family.

I’d steer clear of bonds until you get within a couple years of needing to cash out the funds, at which point you could dial down the aggressiveness.

I agree with others above in regards to teaching kids about all different kinds of investment vehicles (stocks, bonds, futures, precious metals, REITs, mutual funds, etc.) by having them pick, and then guide them in following the price changes, dividend payments, fees, etc to learn about the process. I’d probably have a % if the total $ for them to learn with, and the rest you pick, so you don’t end up with a huge loss, having counted on those funds to pay for college.

We started a Coverdell for our daughter the year she was born and calculated a monthly contribution + interest amount that will roughly equal tuition for 2 full years of community college + 2 years at university. All of it is an S&P index fund. When my daughter is old enough to learn about investing, we’ll use a small portion of the contribution amount to do what I outlined in the previous paragraph.

 

[Wildabeest]

I’m at the point in my life where estate planning is top of mind. I’ve moved a large portion of my assets into a Trust with my kids as the beneficiaries. The Trust holds most of my real estate assets, including my primary home. I’ve also setup 3 separate brokerage accounts that are owned by the trust - one for “my” money, and one for each of my kids. This allows them to track their investments separately. Since my primary residence is owned by the Trust, I “rent” it back to myself. Thus, money moves from “my” brokerage account in the Trust into the kids’ designated brokerage accounts in the Trust on a monthly basis. I provide them quarterly income statements and balance sheets on “their” accounts. So it really shows them the power of having money work for you vs. the other way around (thus my opinions about borrowing on the New Car Purchase thread).

They then also get to have a high degree of input on how their portion is invested. My daughter is very conservative and keeps most of hers in low risk interest bearing instruments. My son is more aggressive and has his mostly in stocks and real estate. We compare returns against each other. This was an interesting year for that. Their second quarter statements made my daughter look like the better investor, but third quarter had my son back on top. I think they learned a valuable lesson that there is no RIGHT answer. It’s a matter of your goals, expectations and risk tolerance. I think it’s helped my daughter have a slightly higher tolerance for risk, and my son to realize that chasing the latest “hot” stock and not balancing his portfolio can lead to uncomfortable swings and potential losses. Overall, though, it’s a great way to induce a conversation with the kids about finances. It blows my mind how the younger generation seems to have no interest in saving, investing or even owning their home. They seem perfectly fine with flushing their money down the drain every month on rent. No equity build up, not tax deduction.

 

[Deleted member 28227]

It blows my mind how the younger generation seems to have no interest in saving, investing or even owning their home. They seem perfectly fine with flushing their money down the drain every month on rent. No equity build up, not tax deduction.

When your so far behind it's easy to be fatalistic... I definitely understand it.

A lot of blame gets thrown around and not enough listening and trying to put oneself in another shoes.

Your 25, from 0-18 society told you that college was the answer, you worked your butt off got into a great school which had been your entire goal for 4 years. At that point your parents saw the price tag and were like... whelp looks like you need to figure that out yourself. With basically no help from an adult, you took on a bunch of predatory loans from the government, because you figured hey, it's a federal loan... that can't be bad right... 9% interest rate later... now your 22, 150k in debt with a BA. It's 2010 and the market hasn't recovered, you get a job in your field with a "good company" but it only pays $16 an hour. Your choice is move in with your parents or get forbearance on your loan. Now you're 30 making 85k but that loan is now 220k at 9%. Your month payments are like 2000-3000 a month. You can barely make your loan payment + rent, there is no real way to save enough to cover the fees for buying a house let alone a down payment.

Honestly you have to buy a hell of a home to have enough of a tax deduction, I've never been close to itemizing.

This is the reality for a lot of millennials, for a lot of my friends and family. I'd say student loan debt is one of the biggest reasons why people I know don't buy a house, or start families.

Say what you will about student loans value of college versus trade school whatever, end of the day the whole thing is society/gov running a scam on kids who are just trying to work hard and do what everyone has been telling them to do their whole lives.



This isn't a speech about getting free shit, just the reality for some people. If you are willing to think about that perspective it helps understand why some people think they way they do and/or vote.

 

[roravetz]

I recently got some extra money from cashing out some PTO at work (apparently I don't hunt enough), so I'm working on setting up a custodial investment account with Charles Schwab for each of my kids, ages 12-17. It was a gift from me, then matching a contribution from them, and then additional funds of theirs if they wanted to contribute more. Their balances range from $200 to $600, so still fairly small amounts, but hopefully they can contribute again in the future. The two oldest have Roth IRAs, and the youngest has a simple brokerage account due to not being employed yet. We have established that possible goals are 1) college expenses, 2) first home purchase, and 3) retirement.

Anyway, the accounts are funded and we need to do something with the money. I'm thinking put the majority in an index mutual fund, a smaller part in a bond fund, and let them choose to invest an even smaller part with Schwab's Stock Slices if they want to pick a few individual companies. Any advice or feedback?

QQ

Any reason in particular whey you chose custodial accounts? Once they hit 18 or 21 depending on your state they have full control at that point and can use the funds on anything.... think they might choose funding spring break over retirement? I like your idea of letting them choose some investments based on their risk tolerance (stocks/bonds). They might like the idea of low cost ETFs owning hundreds of companies for a portion and a few individual stocks so they can see how stock stock specific risk might affect their money. They might even like the idea of owning sector ETFs to if one is interested in airlines or oil or tech...

 

[JoMo]

Great question and great advice so far. Having two little ones this is an interesting topic for me. Right now, we have 529's set up for them based on index funds but I love the ideas of including them for the journey and allowing them to weigh in on some of the choices as they get older. Great advice!

 

[Wildabeest]

@wllm1313, apologies for making that sound more harsh than intended. I should have clarified that I've seen a lot of instances where younger folks are paying exorbitant amounts on monthly rent where they could own for the same money. And they had the ability to come up with a down payment and qualify for a mortgage, but just chose to keep paying rent. These were kids who had their college 100% paid for by their parents, so weren't already saddled with debt. Anyway, I agree that I should no be so judgmental about it. Each person needs to make their own decisions.

The other thing our kids are bombarded with from 0-18 (and their entire life) is the false impression that they "deserve" to have everything and have it now. The entire advertising industry is centered around convincing people of that, and the finance industry is more than happy to lend them money so they can have it all NOW. That also tends to put them into a snowballing debt hole that they can't dig themselves out of.

I've got one recent college grad and one in her third year, so I certainly understand how tough it is for kids coming out college right now. As @ElkFever2 is doing, we started savings funds for the kids when they were born, so between that and scholarships they earned, they will both graduate with no student loan debt. I realize that they are in the minority in that regard, but for those parents who are able, starting to put that money aside the day they are born is a great way to help them not be socked with so much debt right out of the gate.

 

[RobG]

I'm putting my daughter through college now so I'm getting an education on FAFSA. The kid's assets are a big mark against them getting financial aid. A Roth won't count against them. Also, there is no penalty for early withdrawal from a Roth if used for a house down payment if you are first time homebuyer.

 

[Happy Myles]

I thought when I got my kids through college i would be through. Wrong! Now I am putting my grandchildren through college. Actually, glad I am able to do it.

 

[Deleted member 28227]

@wllm1313, apologies for making that sound more harsh than intended. I should have clarified that I've seen a lot of instances where younger folks are paying exorbitant amounts on monthly rent where they could own for the same money. And they had the ability to come up with a down payment and qualify for a mortgage, but just chose to keep paying rent. These were kids who had their college 100% paid for by their parents, so weren't already saddled with debt. Anyway, I agree that I should no be so judgmental about it. Each person needs to make their own decisions.

The other thing our kids are bombarded with from 0-18 (and their entire life) is the false impression that they "deserve" to have everything and have it now. The entire advertising industry is centered around convincing people of that, and the finance industry is more than happy to lend them money so they can have it all NOW. That also tends to put them into a snowballing debt hole that they can't dig themselves out of.

I've got one recent college grad and one in her third year, so I certainly understand how tough it is for kids coming out college right now. As @ElkFever2 is doing, we started savings funds for the kids when they were born, so between that and scholarships they earned, they will both graduate with no student loan debt. I realize that they are in the minority in that regard, but for those parents who are able, starting to put that money aside the day they are born is a great way to help them not be socked with so much debt right out of the gate.

I didn't think you were being harsh at all, I was just trying to provide an honest response to a reasonable question.

I 100% agree with you keeping up with the Joneses/entitlement/debt.

I had great parents like yourself and their help + scholarships didn't have any debt. My spouse not so much, some of my friends... yikes.

I just keep trying to think of any other arena where there shit that occurs with student loans would be legal? I mean to get into good schools you basically have to kill yourself from age 15-18. Then at that point, someone says oh well that's all for not unless you sign for this massive loan? It's not like kids are told at age 15, hey you might consider this other road where you wont be paying 50+% of your paycheck in loans.

So basically the fed + private lenders have you in a position a 18, barely an adult, where you can't really refuse the loan or feel like you can't. Then you add in a crazy interest rate... the fact that I can buy a house with nothing down for 3% less than a federal student loan blow my mind.

Further your FAFSA, so student aid, types of loans/scholarships you qualify for depends 100% on your parents assets regardless of whether they are helping you or not... WTF. I have a friend whose mom died and dad walked out on her. She was raised by her grandparents, but he was on her FAFSA even though he hadn't contributed a cent towards raising her... just nuts...

And then a loan that you can't get rid of via bankruptcy? WTF again how is this a thing? Also a fair number of loans don't discharge when you die... so your parents could be on the hook if you die if they were your cosigners... again WTF, is there any other type of debt like that, definitely not credit cards.

Anyway whole cart of apples.

Also some times life is complicated and your moving a lot, renting is nice and a better financial call if you have to be flexible.

To the OP, sorry for the side track, sounds like you are really helping financially educate your kids which is awesome. I think the amount of money in the accounts isn't as important as helping them understand the mechanics and the reasoning.

I wish I had some like @ElkFever2 or @Wildabeast when I was younger, great advice.

 

[Deleted member 28227]

I'm putting my daughter through college now so I'm getting an education on FAFSA. The kid's assets are a big mark against them getting financial aid. A Roth won't count against them. Also, there is no penalty for early withdrawal from a Roth if used for a house down payment if you are first time homebuyer.

My wife and I did it 10 years in a row... so glad I don't have to logon to that website for at least a couple of decades.

 

[Irrelevant]

brokerage account, vanguard growth ETF.

 

[LuketheDog]

When your so far behind it's easy to be fatalistic... I definitely understand it.

A lot of blame gets thrown around and not enough listening and trying to put oneself in another shoes.

Your 25, from 0-18 society told you that college was the answer, you worked your butt off got into a great school which had been your entire goal for 4 years. At that point your parents saw the price tag and were like... whelp looks like you need to figure that out yourself. With basically no help from an adult, you took on a bunch of predatory loans from the government, because you figured hey, it's a federal loan... that can't be bad right... 9% interest rate later... now your 22, 150k in debt with a BA. It's 2010 and the market hasn't recovered, you get a job in your field with a "good company" but it only pays $16 an hour. Your choice is move in with your parents or get forbearance on your loan. Now you're 30 making 85k but that loan is now 220k at 9%. Your month payments are like 2000-3000 a month. You can barely make your loan payment + rent, there is no real way to save enough to cover the fees for buying a house let alone a down payment.

Honestly you have to buy a hell of a home to have enough of a tax deduction, I've never been close to itemizing.

This is the reality for a lot of millennials, for a lot of my friends and family. I'd say student loan debt is one of the biggest reasons why people I know don't buy a house, or start families.

Say what you will about student loans value of college versus trade school whatever, end of the day the whole thing is society/gov running a scam on kids who are just trying to work hard and do what everyone has been telling them to do their whole lives.



This isn't a speech about getting free shit, just the reality for some people. If you are willing to think about that perspective it helps understand why some people think they way they do and/or vote.

...and then you marry a nice young lady who has plans to be a doctor, when it rains it pours...

 

[Deleted member 28227]

...and then you marry a nice young lady who has plans to be a doctor, when it rains it pours...

 

[SAJ-99]

I didn't think you were being harsh at all, I was just trying to provide an honest response to a reasonable question.

I 100% agree with you keeping up with the Joneses/entitlement/debt.

I had great parents like yourself and their help + scholarships didn't have any debt. My spouse not so much, some of my friends... yikes.

I just keep trying to think of any other arena where there shit that occurs with student loans would be legal? I mean to get into good schools you basically have to kill yourself from age 15-18. Then at that point, someone says oh well that's all for not unless you sign for this massive loan? It's not like kids are told at age 15, hey you might consider this other road where you wont be paying 50+% of your paycheck in loans.

So basically the fed + private lenders have you in a position a 18, barely an adult, where you can't really refuse the loan or feel like you can't. Then you add in a crazy interest rate... the fact that I can buy a house with nothing down for 3% less than a federal student loan blow my mind.

Further your FAFSA, so student aid, types of loans/scholarships you qualify for depends 100% on your parents assets regardless of whether they are helping you or not... WTF. I have a friend whose mom died and dad walked out on her. She was raised by her grandparents, but he was on her FAFSA even though he hadn't contributed a cent towards raising her... just nuts...

And then a loan that you can't get rid of via bankruptcy? WTF again how is this a thing? Also a fair number of loans don't discharge when you die... so your parents could be on the hook if you die if they were your cosigners... again WTF, is there any other type of debt like that, definitely not credit cards.

Anyway whole cart of apples.

Federal student loans have a rate of 3% or so. Not crazy. Of course they don't cover the total cost of college, so you have to borrow from Sallie Mae or a bank. Those rates are higher. Sallie Mae went totally private (no government backing) in early 2000's and changed everything. Rates when up to account for defaults. Congress also made rules on clearing that debt via bankruptcy because people would graduate and then immediately file for bankruptcy to clear the debt. It was a pretty common thing, obviously. Bankruptcy can still clear the debt, but you have to prove the loan is onerous (or some legal definition beyond a simple pain in the ass).

I think a bank should tell a lot of students 'No'. If you are going out of state or getting a degree in education or art history, the bank shouldn't let you borrow $100k to do that. The core of the problem is we are still trying to run a 20th century economy in the 21st century. If you graduate with a degree in computer programming you can get a good paying job pretty fast. Shortage of those workers. If you you want to be a teacher, jobs are available, but the pay sucks (Common theme- Teachers asks for more money and citizens will vote down the tax increase and complain that you make too much- America at its finest). Art, history, political science, english majors? Good luck. You need to be in top 10% of your class and/or have strong network of connections to get that job.

Today's graduates have a few problems 1) they often chose the wrong majors 2) they don't want to move to a new city where the jobs are, and 3) too many lose initiative to keep learning throughout their life in order to keep pace with changes. Like I said in a previous post, 25% of the workforce is waiters, bartender, cleaning people, shelf stocker, etc. That is a crappy alternative. Go to school.

 

[Deleted member 28227]

Federal student loans have a rate of 3% or so.

Currently, rates fluctuate.

I think a bank should tell a lot of students 'No'. If you are going out of state or getting a degree in education or art history, the bank shouldn't let you borrow $100k to do that. The core of the problem is we are still trying to run a 20th century economy in the 21st century. If you graduate with a degree in computer programming you can get a good paying job pretty fast. Shortage of those workers. If you you want to be a teacher, jobs are available, but the pay sucks (Common theme- Teachers asks for more money and citizens will vote down the tax increase and complain that you make too much- America at its finest). Art, history, political science, english majors? Good luck. You need to be in top 10% of your class and/or have strong network of connections to get that job.

Today's graduates have a few problems 1) they often chose the wrong majors 2) they don't want to move to a new city where the jobs are, and 3) too many lose initiative to keep learning throughout their life in order to keep pace with changes. Like I said in a previous post, 25% of the workforce is waiters, bartender, cleaning people, shelf stocker, etc. That is a crappy alternative. Go to school.

Disagree, but it doesn't really matter, I don't think anyone can really "know" how to fix this problem.

 

[Pucky Freak]

There are a lot of flaws with the higher education system in the US. Walk on just about any campus and you’ll find poorly compensated instructors, and a ton of shiny new buildings, and more under construction. This is financed by accelerating tuition costs. We dole out twice as many 4-year degrees as there are jobs to fill them. Institutions are competing for federal loan dollars by creating the sexiest-looking campus loaded with things that appeal to the eyes of 17-year-olds, who are then told to sign on the dotted line in what is likely one of the most impactful decisions of their life. Kids can even get extra $ for living expenses, and it’s liberally spent because it doesn’t feel real. Parents feel bad because they can’t pay for the massively over-inflated tuition and let the line be signed. Money is not invested by institutions in components that translate into good careers for graduates. Millions of students are deeply in debt and don’t or can’t complete their degree. Marriage and home-buying are delayed due to huge loan balances, and the young adult has no escape. American taxpayers are on the hook for defaulted loans, on the order of $155 billion. Then with COVID it’s a crisis when we can’t feed the monster we created with in-person instruction.

So how did we get here? Not too long ago you went to college if you could pay for it. Lenders didn’t issue unsecured loans to students because the likelihood of being repaid was too slim.

But then we didn’t want students from poor families to miss out on getting a higher education. A valid point, except we really fumbled the execution of creating opportunities for this subset of the population.

A dramatic overhaul:
1. Issue government grants instead of loans to students whose parents who can’t pay for their kids’ higher education.
2. The grants are only valid for expenses that translate directly to necessary job skills for industries currently in need of domestic workers.
3. Raise the age of signing for a non-government backed unsecured loan to 25, and allow the debt to be forgiven in bankruptcy.

Basically, some legal protections for kids so they can’t ruin their future financial lives, take the mostly useless universities off of unsecured loan welfare, create educational opportunities of value for families that couldn’t otherwise afford them, and allow the industry to self-correct in favoring efficient, industry-relevant education programs.