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It’s Never Too Early To Get Your Kid Saving For Retirement. Here’s How.
FYI: When Michelle Brownstein started a summer job at an apparel retailer in the late 1990s, her father made the then-teenager a deal: If she agreed to save a portion of her earnings in a Roth IRA, he would match her contributions.
I started my grand daughter investing at age 1 month. I told my son the quicker you get her a ss# the quicker I'll open a custodial account for her. He had her ss card within three weeks of birth.
Today she owns four funds. They are AMECX, ANCFX, CAIBX & SMCWX. According to Xray this portfolio bubbles at 5% cash, 15% bonds and 80% stocks. Within stocks it is about 65% domestic and 35% foreign with a growth tilt. From a style perspective it is about 70% large and 30% small/mid.
I started my grand daughter investing at age 1 month. I told my son the quicker you get her a ss# the quicker I'll open a custodial account for her. He had her ss card within three weeks of birth.
Today she owns four funds. They are AMECX, ANCFX, CAIBX & SMCWX. According to Xray this portfolio bubbles at 5% cash, 15% bonds and 80% stocks. Within stocks it is about 65% domestic and 35% foreign with a growth tilt. From a style perspective it is about 70% large and 30% small/mid.
Great way to do it. Best approach is to do this and do it via 529.
Why 529? Custodial account gives more flexibility! Here's my thinking. Once grand child becomes old enough to work summer and part time jobs move money (to what has been earned) from custodial account to Roth Ira. In this way, it will grow tax free. In addition custodial money can be used in any fashion that benefits the child while 529 money has to be used for education only.
“If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.” - Ben Franklin
I don’t see Ol’Skeet’s view and yours as mutually exclusive. When I saw his post earlier today my first thought was the educational value in getting a youngster started in investing. Once you have “skin in the game” as an investor you start to pay close attention to all the different aspects of the game. A child so motivated will sharpen many skills beyond money related: critical thinking, compare and contrast (a subset of critical thinking), math, reading, etc. Love the idea.
Don’t know which type of investment plan or goal works best. I’d say the one that most interests the child should be best. Motivation is the key here IMHO.
For a very young child, couldn't one just invest in a small cap value index fund and let it grow for around 65 years? I suppose it could be diversified at some point but why bother with bonds to begin with?
There are two school of thoughts on this. Now that we are at (or towards) a market top ... Well, I'm thinking ... In holding a capital appreciation fund there is no dividend or income generation that can be used to buy more shares should the market tank. In the route I went, with three growth & income funds plus one growth fund, there is dividend generation that gives the portfolio some buying power should the market pull back. Needless to say, I'm looking for a pull back in the stock market since I went the second route with some dividend generation with the opening positions.
In addition, as additional gifts are made to the custodial account this money can be positioned accordingly. By using American Funds A shares they have a nav exchange program where an investor can make nav exchanges between their A share funds commission free. So, just because the portfolio started in this configuration does not mean it will always be this way.
Also, there are no wrap fees on this account and Morningstar estimates the total expense ratio on this portfolio at 0.69%. In back testing this portfolio it had a three year total return of 12.67% and a ten year total return of 12.2%. While this is back of the returns of a S&P 500 Index fund that I sometime use I am happy with what is projected for this portfolio in its current configuration which offers greater global exposure than the 500 Index fund.
Comments
Today she owns four funds. They are AMECX, ANCFX, CAIBX & SMCWX. According to Xray this portfolio bubbles at 5% cash, 15% bonds and 80% stocks. Within stocks it is about 65% domestic and 35% foreign with a growth tilt. From a style perspective it is about 70% large and 30% small/mid.
“If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.” - Ben Franklin
I don’t see Ol’Skeet’s view and yours as mutually exclusive. When I saw his post earlier today my first thought was the educational value in getting a youngster started in investing. Once you have “skin in the game” as an investor you start to pay close attention to all the different aspects of the game. A child so motivated will sharpen many skills beyond money related: critical thinking, compare and contrast (a subset of critical thinking), math, reading, etc. Love the idea.
Don’t know which type of investment plan or goal works best. I’d say the one that most interests the child should be best. Motivation is the key here IMHO.
There are two school of thoughts on this. Now that we are at (or towards) a market top ... Well, I'm thinking ... In holding a capital appreciation fund there is no dividend or income generation that can be used to buy more shares should the market tank. In the route I went, with three growth & income funds plus one growth fund, there is dividend generation that gives the portfolio some buying power should the market pull back. Needless to say, I'm looking for a pull back in the stock market since I went the second route with some dividend generation with the opening positions.
In addition, as additional gifts are made to the custodial account this money can be positioned accordingly. By using American Funds A shares they have a nav exchange program where an investor can make nav exchanges between their A share funds commission free. So, just because the portfolio started in this configuration does not mean it will always be this way.
Also, there are no wrap fees on this account and Morningstar estimates the total expense ratio on this portfolio at 0.69%. In back testing this portfolio it had a three year total return of 12.67% and a ten year total return of 12.2%. While this is back of the returns of a S&P 500 Index fund that I sometime use I am happy with what is projected for this portfolio in its current configuration which offers greater global exposure than the 500 Index fund.