Need Advice for Newbie Investor-18 Year Old Son

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Need Advice for Newbie Investor-18 Year Old Son

Postby boglesmkcents » Sun Jun 30, 2013 1:51 pm

My son just turned 18, is motivated to learn about investing, and I want to help him get started. He has about $6K in a bank MM, so I'll encourage him to invest ~$4K....he has 4+ years of college ahead of him and should not need the assets in the short term.

I'd like him to learn mutual funds vs ETFs, about MM vs bond funds vs bonds vs stock MF & ETFs vs individual stocks, etc. I am pretty comfortable explaining the concepts, but not familiar with how an 18 year old with invest-able assets of $3-5K can do so easily, with minimal costs, and good flexibility, keep taxes simple, etc. Will generall want to stick w. Vanguard funds and individual stocks.

I am thinking that a brokerage acct is better than straight Vanguard MFs, but not sure what brokerages are friendly towards small balances and small purchases...for now, just interested in the mechanics....may have a some simple asset class questions once we figure out the mechanics. I will try to get him to get his own Bogleheads acct, but for now, just trying to point him on the right direction...any general directional advice appreciated.
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby pennstater2005 » Sun Jun 30, 2013 2:00 pm

I would think a good book from Taylors Gems would be a good start http://www.bogleheads.org/wiki/Taylor_L ... tment_Gems If he has 4k to invest he could easily use a Lifestrategy fund or a Target Date fund http://www.bogleheads.org/wiki/LifeStra ... ment_Funds You want him to invest in individual stocks as well. Why?
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby livesoft » Sun Jun 30, 2013 2:05 pm

What does your son want to do?

I have a 21-year-old that I helped get going a few years ago and a 17-year-old who is quite different.

The older young adult started with less than $500 that was contributed to a Roth IRA. I told her to drive over to the Fidelity office and open a Roth IRA. This was simple because the Fidelity rep could guide her through the forms and I didn't have to bother. OTOH, the Fidelity rep cannot spell simple names correctly. I mean, how can you misspell "Sam" or "Bob". So when my daughter got the subsequent account statement, she had to go back over to the office to get it straightened out. That's a life lesson there.

She probably could've opened an account across the street at TDAmeritrade as well. Her parents have accounts at both places.

Books to read: This is the hard one. Kids don't like to read. My daughter hasn't read anything. She just does what I tell her and forgets that she has a Roth IRA.

Stocks? Are you crazy? There is no need to invest in anything but index funds whether ETFs or mutual funds. My daughter is in no-commission ETFs that I picked for her. She will sell all and put the money in FFNOX which is the Fidelity 4-in-1 fund of index funds some time later this summer.

As for taxes, I make my daughter do her own tax returns. She has to read up about her own state taxes, etc. To make things complicated, I gift her shares that she has to sell for a capital gain and figure out how to report that on her taxes. The universal response is usually, "Ugh!"
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby boglesmkcents » Sun Jun 30, 2013 2:14 pm

Thanks, livesoft...I agree with you and PS, and likewise told my son to stay away from individual stocks.

Best case would be some sort of brokerage with very low minimums and ability to buy MFs/ETFs with very low costs, minimums and transaction fees. I want him to get some experiences with different asset classes, and I want the process to be simle so he does not get turned off.
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby Grt2bOutdoors » Sun Jun 30, 2013 2:14 pm

Is your son majoring in accounting or finance? If no, then there is no need to learn about individual equities. If you are trying to teach your son a lesson, there are less costly ways to do so. I'm serious - I own a large cap value individual equity portfolio, it takes a lot of time to monitor, but I happen to enjoy it and reading and interpreting financial statements. Stick with a broad based index fund, as an 18 year old freshman he will find better things to do with his time.
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby livesoft » Sun Jun 30, 2013 2:17 pm

boglesmkcents wrote:Best case would be some sort of brokerage with very low minimums and ability to buy MFs/ETFs with very low costs, minimums and transaction fees. I want him to get some experiences with different asset classes, and I want the process to be simle so he does not get turned off.


Fidelity, TDAmeritrade, Vanguard, Schwab all fit the bill. One should not have to pay any commissions or fees at any of these brokers. I am not familiar with Schwab, but of the others, Vanguard is the least simple and most turn-offable to me.
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby boglesmkcents » Sun Jun 30, 2013 2:23 pm

Thx Grt2BOutdoors...turns out he is doing a double major, one of which is Business/Econ...so that is part of my motivation (and his).

I am a big fan of index fund investing (we have almost our entire portfolio in Vanguard low cost index funds) but I really want him to learn at least a little about how the underlying instruments/mechanics work, how bonds and stocks work together in a portfolio, etc...

Net-net, I think we need a brokerage acct which is friendly to low cost/low minimum index mutual funds and ETFs.
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby boglesmkcents » Sun Jun 30, 2013 2:25 pm

Thanks livesoft... I had read some other threads where TDAmeritrade seemed to be popular. Seems like Scottrade and Fidelity also float to the top.

Anyone else with votes on good brokerage accts for our son? Simple flexible, low costs for MFs and ETFs, etc...?
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby grabiner » Sun Jun 30, 2013 10:27 pm

boglesmkcents wrote:My son just turned 18, is motivated to learn about investing, and I want to help him get started. He has about $6K in a bank MM, so I'll encourage him to invest ~$4K....he has 4+ years of college ahead of him and should not need the assets in the short term.


Does he have a summer job? If so, he can invest an amount equal to his salary in a Roth IRA, which will grow tax-free for years. With $1000, he can start a Roth IRA with Vanguard Target Retirement 2060, which is invested in almost everything you can invest in. (He should be in Target Retirement 2065, which Vanguard has not yet created, but all the Target Retirement funds from 2040 to 2060 have identical investments.) This is the ideal fund for getting started.

Another advantage of the Roth IRA is that Roth IRA investments are not counted as student assets for college financial aid.
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby Hastibe » Sun Jun 30, 2013 11:13 pm

boglesmkcents wrote:Anyone else with votes on good brokerage accts for our son? Simple flexible, low costs for MFs and ETFs, etc...?

I have accounts with TD Ameritrade, and I've been very pleased with their customer service and online interface (and the fact that they have no account fees or minimum balances). They have about 100 commission-free ETFs (including almost all of the major Vanguard index funds), but beyond that, I believe their commissions are considered higher than the norm ($10 for stocks and all other ETFs and $50 for no-load mutual funds).
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby boglesmkcents » Mon Jul 01, 2013 12:08 am

grabiner, good idea re: the IRA, not sure if he'll have summer income yet...we had just discussed this with him this evening, but we'll need to see how his summer shakes out.

Hastibe, thanks...I have also been leaning towards TDAmeritrade...I like the 100 no commission ETFs as well, and TDA seems to get good reviews.
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby livesoft » Mon Jul 01, 2013 6:21 am

Since you wrote about having index mutual funds, then that means you should not use TDAmeritrade which is good when one wants to use ETFs only.

If you want ETFs plus index mutual funds with no fees, then you are left with Fidelity, Schwab, and Vanguard for choices. All of these have house index mutual funds. That is, Fidelity has Fidelity index funds, Schwab has Schwab index funds and Vanguard has Vanguard index funds. Schwab and Vanguard have house ETFs. Fidelity has iShares ETFs.

As a side note WellsTrade has everything free for customers who started a while ago: Vanguard, Schwab, Fidelity, iShares, both index mutual funds and ETFs.
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Re: Need Advice for Newbie Investor-18 Year Old Son

Postby boglesmkcents » Mon Jul 01, 2013 11:59 pm

Thanks, livesoft...will probably also suggest he give Vanguard and FIdelity a look...good opportunity for him to learn by comparing a few brokerage alternatives.
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