13 year old with $2000 to invest

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budgiegirl
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13 year old with $2000 to invest

Post by budgiegirl » Wed Jul 12, 2017 11:32 am

My 13 year old daughter has earned over $2000 doing odd jobs. Right now the money is earning 1.15% in Ally Savings. She doesn't need the money any time soon, and she is a reasonable spender. When she is 16 we will ask her for $1000 to go toward a used car that we get for her. My question is what should she do with her money? I don't really see that she has a need for it for at least a few years. She will probably continue to save another $1000-2000 per year. My husband and I will be paying for college and associated expenses. Thoughts?

mhalley
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Re: 13 year old with $2000 to invest

Post by mhalley » Wed Jul 12, 2017 11:51 am

In general, money needed within five years should be saved, not invested. That means the high yield savings, or a cd ladder. If you were to put part of the money at risk, you could conceivably lose half of it. Schwab has a better system for investing small sums than vanguard if you did decide to put say 30% at risk and save the rest.
http://www.schwab.com/public/schwab/inv ... al_account
http://www.schwabmoneywise.com/public/m ... fe_lessons

dbltrbl
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Re: 13 year old with $2000 to invest

Post by dbltrbl » Wed Jul 12, 2017 11:55 am

Put it in a Roth IRA for her if she earned it in one year. You spring for 1000 dollars at car time. Or loan her 1000.

CppCoder
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Re: 13 year old with $2000 to invest

Post by CppCoder » Wed Jul 12, 2017 11:57 am

If the odd jobs meet the IRS definition for taxable compensation, I would recommend opening a Roth IRA for the portion of the money not needed in the immediate future. As mhalley listed above, Schwab is a good place for low minimum funds, or she could use Fidelity or Vanguard and go with ETFs instead of funds.

coupleofcents
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Re: 13 year old with $2000 to invest

Post by coupleofcents » Wed Jul 12, 2017 12:03 pm

I'd try to open a Roth IRA with Vanguard and put $1000.00 in the STAR fund. Keep the other $1000 in the Ally CD. Additional earnings can be split between the Ally savings and the Roth IRA. You can check out this link for eligibility requirements http://www.rothira.com/roth-iras-for-kids.

More than likely she is going to want to use that cash at some point but getting her retirement started early can get her on the right path once she starts working as an adult.
Last edited by coupleofcents on Wed Jul 12, 2017 12:04 pm, edited 1 time in total.

mhalley
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Re: 13 year old with $2000 to invest

Post by mhalley » Wed Jul 12, 2017 12:03 pm

A kid Roth is a wonderful idea.
http://irakids.com/

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grabiner
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Re: 13 year old with $2000 to invest

Post by grabiner » Wed Jul 12, 2017 8:53 pm

coupleofcents wrote:I'd try to open a Roth IRA with Vanguard and put $1000.00 in the STAR fund.
Rather than STAR, you can use the longest-dated Target Retirement fund Vanguard offers; this also has a $1000 minimum. Vanguard doesn't yet have a 2070 fund, but all the funds more than 20 years out have the same allocation, so she can switch to the 2070 fund when it opens.
Wiki David Grabiner

retireearly
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Re: 13 year old with $2000 to invest

Post by retireearly » Wed Jul 12, 2017 8:57 pm

dbltrbl wrote:Put it in a Roth IRA for her if she earned it in one year. You spring for 1000 dollars at car time. Or loan her 1000.
+1

If she doesn't put the 2K in a roth this year, she will always have missed out on that pool of money. The extra 1K in her roth right now will mean tens of thousands down the road for her but only 1K to you! Personally, I'd put it in VBR (van small cap etf) or VWO (van emerging market) but it cannot hurt just to buy VTI. Once she has 10k down the road, move it to an admiral vanguard fund!
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

chinto
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Re: 13 year old with $2000 to invest

Post by chinto » Thu Jul 13, 2017 1:22 am

CppCoder wrote:If the odd jobs meet the IRS definition for taxable compensation, I would recommend opening a Roth IRA for the portion of the money not needed in the immediate future. As mhalley listed above, Schwab is a good place for low minimum funds, or she could use Fidelity or Vanguard and go with ETFs instead of funds.
Would she not then be responsible for paying SS taxes?

harvestbook
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Re: 13 year old with $2000 to invest

Post by harvestbook » Thu Jul 13, 2017 6:58 am

There's also the psychological benefit of her seeing the money grow and perhaps turn into the type of responsible investor/saver society needs. That seems at least as valuable to me as putting it in a CD that earns $5 a year.

I'd go with the Roth if the money is reported as taxable. I did that for my daughter and it feels like the best investment I've ever made.
I'm not smart enough to know, and I can't afford to guess.

coupleofcents
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Re: 13 year old with $2000 to invest

Post by coupleofcents » Thu Jul 13, 2017 7:50 am

grabiner wrote:
coupleofcents wrote:I'd try to open a Roth IRA with Vanguard and put $1000.00 in the STAR fund.
Rather than STAR, you can use the longest-dated Target Retirement fund Vanguard offers; this also has a $1000 minimum. Vanguard doesn't yet have a 2070 fund, but all the funds more than 20 years out have the same allocation, so she can switch to the 2070 fund when it opens.
That's a good point. I forgot that the Target Funds only require a $1000.00 minimum. My parents opened a STAR fund for me back when I was teen. Just having that there got me on the path to using Vanguard (low cost) decades before I even knew that was a good idea.

NotWhoYouThink
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Re: 13 year old with $2000 to invest

Post by NotWhoYouThink » Thu Jul 13, 2017 8:08 am

Wow, I'm feeling a little curmudgeonly, but really, just let her keep it in an account that earns interest and spend it as she chooses. Let her spend it in ways you dislike and disapprove of, as long as it's safe. Concerts, handbags, art supplies, electronics, cosmetics - ok. Motorcycles, ATVs and weapons, maybe not without your supervision.

In my view learning to make good decisions about spending is more important at this age than learning to invest. You can talk to her about your investments and policies, but I wouldn't force or pressure her to segregate money for retirement at this age. In the long run, her financial security will be improved as her decision making about spending vs. saving improves, and practice is the best way to achieve that.

But she's your kid so you'll do what you want.

letsgobobby
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Re: 13 year old with $2000 to invest

Post by letsgobobby » Thu Jul 13, 2017 8:45 am

I earned my first $1000+ at that age, working a paper route. My father suggested I contribute $500 to an IRA, which he matched 100%. We opened an account together, picked an investment together, and watched it over many years. When Roth IRAs became available we converted my small account. Perhaps it's no coincidence that I've been a saver and investor ever since.

wolf359
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Re: 13 year old with $2000 to invest

Post by wolf359 » Thu Jul 13, 2017 8:57 am

chinto wrote:
CppCoder wrote:If the odd jobs meet the IRS definition for taxable compensation, I would recommend opening a Roth IRA for the portion of the money not needed in the immediate future. As mhalley listed above, Schwab is a good place for low minimum funds, or she could use Fidelity or Vanguard and go with ETFs instead of funds.
Would she not then be responsible for paying SS taxes?
If she's working a regular W-2 job, then social security is probably already being pulled out automatically.

There are several exceptions to kids paying social security taxes (with some limitations on their age and amount they earn, I believe). Off the top of my head (may be inaccurate), they are:
- Working in the family business
- Delivering newspapers
- Working as a domestic servant (e.g. babysitter, mowing lawns, etc.)

amateurnovice
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Re: 13 year old with $2000 to invest

Post by amateurnovice » Thu Jul 13, 2017 10:37 am

I saved about $1250 my first summer working (lifeguarding) after buying dumb t-shirts, cheap gas, and whatever else sixteen year old boys buy. With that $1250, I was able to go on my senior trip. I wouldn't be trying to invest in retirement at that age. I'd be trying to save money, especially if college will be paid for, for things to do with my friends that may cost more than the usual weekend outing to the movies or camping. Savings account at 1.15% at Synchrony would be ideal.

If there's anything left after college, that'd be a nice jump on getting moved to where a job offer might be, an apartment, a down payment on a car, but it's not going to be something that contributes directly to retirement but more indirectly by allowing future income to be put towards retirement.

db1216
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Re: 13 year old with $2000 to invest

Post by db1216 » Thu Jul 13, 2017 11:50 am

letsgobobby wrote:I earned my first $1000+ at that age, working a paper route. My father suggested I contribute $500 to an IRA, which he matched 100%. We opened an account together, picked an investment together, and watched it over many years. When Roth IRAs became available we converted my small account. Perhaps it's no coincidence that I've been a saver and investor ever since.
This whole heartedly. When I was 13, I opened my first Ameritrade account. My parents knew very little about investing and so I did the research on my own. Rather than contributing the whole amount to an IRA however, I took $500 and played individual stocks. I won some (Woohoo Krispy Kreme Doughnuts), I lost some, but it not only helped me learn how quickly money goes in the market, but it also helped me understands how it all works. She may, and likely will, lose the money in the market but I really believe that experience helped me immensely in personal and financial growth.

Disclaimer: I am well behind most of the forum members here in my finances and don't attest to be any sort of expert on any of this (parenting included). Just wanted to drop my experience as a kid.
:sharebeer

indexonlyplease
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Re: 13 year old with $2000 to invest

Post by indexonlyplease » Thu Jul 13, 2017 12:46 pm

She will be driving in 3-4 year and will probally want a better used car then the one you buy with her $1000 and the money you put in. I would have her save the money as a car fund and add to it each year. When she is ready to purchase the car you can do a 50/50 split. Putting in equal amount of money.

This is what I did with my son when he turned 17. Instead of the car a was going to puchase he got the used mustang he wanted for $12,0000. That was 6k each. Good deal for both. I did pay more because of tax, tag, and insurance.

But this was a motivator to work and save.

At 19 when he starting working part time while full time in college, we did a match monthly to his Roth IRA

whomever
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Re: 13 year old with $2000 to invest

Post by whomever » Thu Jul 13, 2017 1:12 pm

I'd explain the options and let her decide.

FWIW, I'd advise the IRA if possible. If she socks away $1000 every year until 18, at 5% she'd have 60 some thousand when it's time to retire. That's retiring a year early.

My wife and I adopted a 50% policy for 'found money' - tax refunds, gifts, bonuses, etc. If at all possible we'd put 50% towards retirement and spend the other half, sometimes on vacations, sometimes on new tires or whatever. To us, it was easy to do - since we could splurge with half, we didn't feel deprived by saving half. 'Paying yourself first' isn't the worst habit you can acquire as a teen :-)

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midareff
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Re: 13 year old with $2000 to invest

Post by midareff » Thu Jul 13, 2017 1:15 pm

budgiegirl wrote:My 13 year old daughter has earned over $2000 doing odd jobs. Right now the money is earning 1.15% in Ally Savings. She doesn't need the money any time soon, and she is a reasonable spender. When she is 16 we will ask her for $1000 to go toward a used car that we get for her. My question is what should she do with her money? I don't really see that she has a need for it for at least a few years. She will probably continue to save another $1000-2000 per year. My husband and I will be paying for college and associated expenses. Thoughts?
A five year CD takes her to 18.

jadedfalcons
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Re: 13 year old with $2000 to invest

Post by jadedfalcons » Thu Jul 13, 2017 2:43 pm

I started investing at the age of 10 in taxable accounts. In retrospect, I wish I had done more IRA investing when the option presented itself to me when I was a kid. I'll turn 36 in ten days, and my tax deferred accounts are less than 30% of my overall portfolio. Not a huge deal, but more tax liabilities than I'd like. I'd def encourage her to put away at least half in a ROTH. She'll be thankful later, especially if she starts saving up 25% of her income into it.

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Meg77
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Re: 13 year old with $2000 to invest

Post by Meg77 » Thu Jul 13, 2017 3:07 pm

I opened my first brokerage account at 13! I was so excited, although intimidated because my (stockbroker) father surprised me by making me do it all by myself - filling out the application, picking my first investments, etc. I recommend getting her a basic book about personal finance and investing and letting her open her first account. I found one in my grandfather's car (it was one of The Motley Fool books) and read it and was amazed by the compound interest charts I saw.

A Roth IRA is a wonderful idea, but unless she is very immature I'd involve her in the process and even let her pick her first investments. Whatever she picks - Disney stock, an active mutual fund, whatever - let her do it. She's got plenty of time to figure out the "hard way" and on a relatively small balance to avoid active trading and select low cost index funds. Teach her over time about what's going on as her investments fluctuate in value, how to read her account statements, etc.

Since you say she'll continue to earn money, she can still save up separately for a car or other short term goals.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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