Which stock index fund for gift to grandchildren

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DenverWoman
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Which stock index fund for gift to grandchildren

Post by DenverWoman » Fri Jan 06, 2017 8:57 am

I would like give each of my three grandsons $3000 in the form of a Vanguard stock index fund under the UGMA. I realize this will be a taxable account, but their parents have already assured their college funding and I would like this gift to be unrestricted in the hopes that they can use this as an investment learning experience, long term savings and future nest egg. The boys are 13, 10 and 6. Their Dad will be custodian until they reach majority.
My first thought is to invest the funds in the Vanguard Total International Stock Fund for long term growth, but I wonder if that is too volatile and if i should use the Total Stock Index or even the 500 Index fund, instead.
Your thoughts would be appreciated.
Thanks,
DenverWoman

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whodidntante
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Re: Which stock index fund for gift to grandchildren

Post by whodidntante » Fri Jan 06, 2017 3:06 pm

It's stock and it's going to be volatile. All of the indexes you mentioned are fine. Pick the one that you would like to give. There is no way to know which will outperform.

DenverWoman
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Re: Which stock index fund for gift to grandchildren

Post by DenverWoman » Fri Jan 06, 2017 3:35 pm

Thanks. I realize they will be volatile, just trying to decide if one might be more appropriate in this situation. I was leaning towards the the international one but having trouble making up my mind.

ralph124cf
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Re: Which stock index fund for gift to grandchildren

Post by ralph124cf » Fri Jan 06, 2017 4:59 pm

I happen to agree with you on the international, as it seems to me that international MAY be undervalued currently, and might outperform over a decade or so. That said, any of the mentioned funds would be fine.

Ralph

lgs88
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Re: Which stock index fund for gift to grandchildren

Post by lgs88 » Fri Jan 06, 2017 5:02 pm

If you're looking to model Boglehead-type behavior, you ought to consider either a total US market fund (VTSMX) or a total world stock fund (VT or VTWSX), which would include both US and international stocks at market right. A 100% international portfolio (e.g. VGTSX, total int'l market) would be an odd start for a US-based investor.
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Peter Foley
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Re: Which stock index fund for gift to grandchildren

Post by Peter Foley » Fri Jan 06, 2017 5:05 pm

While the amount is relatively small now, you may want to choose a fund that does not have capital gains every year. At certain investment income levels a child's tax return become taxable at the parents' rate. You are a long way from that, but still, if there are other gifts and earning from other investments you don't want to reduce their total return by having it taxed. Vanguard Total Stock Market does not have much, if any, annual capital gains so that would be a good choice.

livesoft
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Re: Which stock index fund for gift to grandchildren

Post by livesoft » Fri Jan 06, 2017 5:05 pm

Are you giving shares? Or are you giving cash which the account will purchase shares? I ask because the tax treatment in the first year could be different.

For instance, I gave my son $3,000 worth of shares of a Vanguard fund and insisted that he sell it right away and invest in something else. He did and did not have to pay any capital gains taxes that I would have had to pay if I had cashed them out and given him cash instead. That saved us a couple hundred dollars in taxes at the time.

With a parent as the custodian, the accounts could be tax-gain harvested in many years without paying taxes I would think.

I'd pick a fund that would probably have 100% qualified dividends, so that would rule out Total Int'l.
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BL
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Re: Which stock index fund for gift to grandchildren

Post by BL » Fri Jan 06, 2017 5:10 pm

lgs88 wrote:If you're looking to model Boglehead-type behavior, you ought to consider either a total US market fund (VTSMX) or a total world stock fund (VT or VTWSX), which would include both US and international stocks at market right. A 100% international portfolio (e.g. VGTSX, total int'l market) would be an odd start for a US-based investor.
+1
I like this, or would also consider S&P 500. Any of them would do as there is no way to know which would do better. Another possibility might be one of the Target Date funds.

qwertyjazz
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Re: Which stock index fund for gift to grandchildren

Post by qwertyjazz » Fri Jan 06, 2017 5:39 pm

Sounds like a great teaching opportunity
Let the grandkids decide amongst the 3 choices. As there are no bad choices a priori, all are good choices
You can explain it to them at their various levelsfrom do you want to own a bit of everything here or everything in far away countries upto this is how you can read on Bogleheads forum about them. They can then follow them over the years if they are interested.
G.E. Box "All models are wrong, but some are useful."

dbr
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Re: Which stock index fund for gift to grandchildren

Post by dbr » Fri Jan 06, 2017 5:42 pm

DenverWoman wrote:Thanks. I realize they will be volatile, just trying to decide if one might be more appropriate in this situation. I was leaning towards the the international one but having trouble making up my mind.
This is trying to make a choice among things that are all perfectly suitable. Thus, it is a matter of taste. If it were me I would be enamored of the world stock fund because it is an investment in everything and that is a cool idea. For this amount of money for young children, why not?

The only likely alternative I would imagine would be someone thinking they wanted exactly the money involved to really be there when the child reached maturity relative to the UGMA. In that case buying a TIPS maturing at that date would realize this rather opposite idea of what to do. That would be a difference that would be different.

dbr
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Re: Which stock index fund for gift to grandchildren

Post by dbr » Fri Jan 06, 2017 5:43 pm

qwertyjazz wrote:Sounds like a great teaching opportunity
Let the grandkids decide amongst the 3 choices. As there are no bad choices a priori, all are good choices
You can explain it to them at their various levelsfrom do you want to own a bit of everything here or everything in far away countries upto this is how you can read on Bogleheads forum about them. They can then follow them over the years if they are interested.
Maybe from that point of view they should be given half in any of the stock funds and half in a TIPS. Then there would be something to see.

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FelixTheCat
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Re: Which stock index fund for gift to grandchildren

Post by FelixTheCat » Fri Jan 06, 2017 5:52 pm

Vanguard Balanced Index Fund (VBINX)

Mr. Bogle uses this fund for his grandchildren. Article is old so he may have changed his position http://www.reuters.com/article/us-colum ... LI20120911
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DenverWoman
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Re: Which stock index fund for gift to grandchildren

Post by DenverWoman » Sat Jan 07, 2017 1:11 pm

Thank you so much, everyone. I'm leaning towards the Total World Stock Index after reading all your responses. Thanks again.

letsgobobby
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Re: Which stock index fund for gift to grandchildren

Post by letsgobobby » Sat Jan 07, 2017 1:32 pm

My children (7 and 9) invest exclusively in the Vanguard Target Retirement 2060 fund. It has domestic and international stocks and bonds and that should somewhat mitigate distributions over the years. In my eyes it is a 'set it and forget it' choice.

Trev H
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Re: Which stock index fund for gift to grandchildren

Post by Trev H » Sat Jan 07, 2017 2:16 pm

Looking at one fund diversified/balanced options at Vanguard...

Listed by 10 year average annual return

6.89 Wellington
6.66 Wellesley
6.40 Balanced Index
5.27 TR 2050
5.27 TR 2045
5.26 TR 2040
4.69 LSMG
4.65 LSG
4.39 LSCG

The past 10 years - a LOT happened, up's and downs, crashes, sideways, some progress... probably at least somewhat representative of what will happen in the future.

W & W ---- while not often recommended by the die hard got to index everything bogelhead... are sure hard to beat !

Trev H

Yankuba
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Re: Which stock index fund for gift to grandchildren

Post by Yankuba » Sat Jan 07, 2017 2:57 pm

letsgobobby wrote:My children (7 and 9) invest exclusively in the Vanguard Target Retirement 2060 fund. It has domestic and international stocks and bonds and that should somewhat mitigate distributions over the years. In my eyes it is a 'set it and forget it' choice.
+1

I would select a target retirement fund

DenverWoman
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Re: Which stock index fund for gift to grandchildren

Post by DenverWoman » Thu Jan 12, 2017 12:16 pm

Thanks again for all the suggestions. I had not originally considered the target date funds, just thinking of the fees, but for really long term investing it might makes sense. Since my grandson and his dad (my son) live in Virginia and I'm in Colorado, the three of us are going to have a phone conversation about this in the next few days. I will forward this thread to my son ahead of time so he can see all the responses.

Thanks again. I really appreciate folks taking the time to pass on what they've learned over the years.
DenverWoman

inbox788
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Re: Which stock index fund for gift to grandchildren

Post by inbox788 » Sat Jan 14, 2017 5:18 am

Is dad a BH? I'm not sure many children will appreciate the BH philosophy. Many adults visit here and leave or ignore the advice, and the attention from children I expect is far less. And a 1 or 3 fund portfolio is about as exciting as watching paint dry. Not that there's not any volatility to watch, but there's nothing to do, just stay the course. Unless you want them to do something, which would pretty much be the opposite of the lesson you're trying to teach. IMO, transferring funds is ok, and if you want to do it tax efficiently, all the better, but it's going to take a little bit of work, but as far as educating children, I'm not so sure it's worth the effort.

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stemikger
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Re: Which stock index fund for gift to grandchildren

Post by stemikger » Sat Jan 14, 2017 6:09 am

Here is what John Bogle does:

https://www.youtube.com/watch?v=y_tHhGtX-lA
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

lostdog
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Re: Which stock index fund for gift to grandchildren

Post by lostdog » Sat Jan 14, 2017 8:35 am

https://www.stockpile.com

Check out this site. They sell VTSAX as a gift card.

stupidkid
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Re: Which stock index fund for gift to grandchildren

Post by stupidkid » Sat Jan 14, 2017 10:19 am

I've bought $500 (about) of an sp500 fund (ivv) for every child born to a family member (that I like) or friend. My plan is to write a check for its equivalent value when they graduate high school. Maybe I'll still the stock to convert the check or from my cash allocation to avoid gains, depends on my tax position at the time. Some of those lots are over a grand or two now and should be quite a bit in six to seven years when the first kids graduate. I know I'm paying tax on it but I couldn't figure out a better way to structure the gift for non relatives, and not give the shares to the parents.

Fclevz
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Re: Which stock index fund for gift to grandchildren

Post by Fclevz » Sat Jan 14, 2017 10:47 am

Another vote for Total World Stock Index.
Then, someday, when they're older and closer to retirement, they can start adding in some Total Bond Index for a nice two-fund portfolio.

carguyny
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Re: Which stock index fund for gift to grandchildren

Post by carguyny » Sat Jan 14, 2017 10:58 am

I don't know if you plan on doing it every year? I have a portfolio made up of 5 ETFs (4 at the moment). I went with ETFs as it is easy to move anywhere. He's only 3, but as he gets older I'm going to educate him on portfolio construction, re-balancing, tilts, having a small fun allocation etc.

His portfolio is now six figures (we do the gift limit each year and he made 13.8% last year) - Initially it was just a S&P 500 fund, then I added a small-cap & mid-cap fund and this year I added international with the 2017 gift. Bonds will probably be added when he turns 5 or 6 and then it'll be at 5 funds.

inbox788
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Re: Which stock index fund for gift to grandchildren

Post by inbox788 » Sat Jan 14, 2017 1:50 pm

lostdog wrote:https://www.stockpile.com

Check out this site. They sell VTSAX as a gift card.
Most of these are gimmicks from what I have seen. I thought there was a company named oneshare that gave you a stock certificate, but couldn't find it, instead finding http://www.giveashare.com/
#1 Disney
#2 Harley
#3 Apple
#4 Manchester United
#5 Coca-Cola
#6 Starbucks
#7 Ford
#8 Under Armour
#9 Nintendo
#10 Atlanta (Liberty) Braves
I was a little surprised by #2, but kind of makes sense if you think about favorite adult toys (adult radio kind). #4 was very surprising (soccer team) as was #8. And #10 is an interesting play if you want to own a part that owns a part of a major league baseball team. Not a lot of ways to own a piece of a major sports team without the big bucks.

http://ftw.usatoday.com/2014/08/steve-b ... n-clippers

FWIW, I think the fees makes these poor investments, and you're probably better off with a low cost brokerage account.
Voluntary/post actionable reorg $50 per CUSIP
https://www.stockpile.com/fees

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celia
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Re: Which stock index fund for gift to grandchildren

Post by celia » Sat Jan 14, 2017 2:49 pm

Do the parents acknowledge they are willing to pay taxes on the dividends each year?

brad.clarkston
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Re: Which stock index fund for gift to grandchildren

Post by brad.clarkston » Sat Jan 14, 2017 2:56 pm

I would just do a VG Target Date Fund 2060 and be done with it. BH's love to over complicate things.

A target date fund gives you US-Stock/non-US-Stock/Bonds and the kid(s) can use that one fund all the way to there 40's without re-balancing before taking serious looks at it.

Once the kid is past Christmas gift's I would make a contribution the gift (barring a extra $50/$100 gift card) to the Target Fund every year. That or a 529 plan donation.

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