Where would you tell a 12 year old to park his money

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Hillview
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Where would you tell a 12 year old to park his money

Post by Hillview » Mon Feb 05, 2018 7:10 pm

My son is 12 and has 1500 to invest (years of savings allowance and holiday money). He opened an etrade account years ago (in my name) and has some shares of Apple, iRobot and ShakeShack. He is ready to move onto index funds -- I just opened an account for him at Vanguard.

Where would you suggest a 12 year old parks his only $1500. He is ok not needing it for years (thinking college or after) -- we are saving for his college so this is his money not for tuition etc.

Thanks!

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brother7
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Re: Where would you tell a 12 year old to park his money

Post by brother7 » Mon Feb 05, 2018 7:23 pm

Among the Vanguard mutual funds, only LifeStrategy or STAR funds have $1000 minimums. The most aggressive of those is the LifeStrategy Growth fund with is 80% stocks 20% bonds.
Among ETFs, VOO (S&P 500 ETF) would allow him to relate his own portfolio to "the market" as reported by media outlets. That would be the best choice to keep him engaged.
If you want to encourage his investment education, have him do internet research on "factor-based investing", then let him choose among the new factor ETFs that Vanguard will issue sometime this quarter. (In my humble opinion, the US Multifactor ETF would be the safest choice)

Grt2bOutdoors
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Re: Where would you tell a 12 year old to park his money

Post by Grt2bOutdoors » Mon Feb 05, 2018 7:24 pm

Vanguard STAR fund. Alternatively purchase $1,500 of ETF in VTI.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

dekecarver
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Re: Where would you tell a 12 year old to park his money

Post by dekecarver » Mon Feb 05, 2018 7:28 pm

Honestly at his age, a mid cap fund, walk away and keep adding to it. Why, just because. Of course if it's going to a taxable account, why not Total Stk Mkt and walk away, or 50% Mid Cap and 50% Total Stk Mkt and walk away.

golfCaddy
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Re: Where would you tell a 12 year old to park his money

Post by golfCaddy » Mon Feb 05, 2018 7:36 pm

At 12, a 5-year bank CD, an intermediate term treasury fund, or an intermediate term investment grade bond fund. Unless you're paying 100% of his bills, including entertainment and dates, from now until he graduates college, he'll find a reason to spend the money sooner than you think. I would keep the money liquid.

MarvinK
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Re: Where would you tell a 12 year old to park his money

Post by MarvinK » Mon Feb 05, 2018 7:40 pm

VT and VTEB

Goals discussion; what is your son saving for.

I'm a big fan of skin in the game for college. Like putting some money in his 529 (or a separate small one that he manages). Maybe he can buy his own laptop?

The discussion of taxes. He has stock in companies, and he's not likely to sell now; does he understand capital gains? What would be an indicator to sell? When mom or dad says so? Selling is important as buying.
Capital gains is makes VTEB (muni tax exempt bonds) different, for one thing.
Also, VT and VTEB should move differently over time (which should be a valuable lesson when young).

radiowave
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Re: Where would you tell a 12 year old to park his money

Post by radiowave » Mon Feb 05, 2018 8:14 pm

How about an ETF = VTI?
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Jags4186
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Re: Where would you tell a 12 year old to park his money

Post by Jags4186 » Mon Feb 05, 2018 8:17 pm

Savings account at bank of dad where dad pays 8% interest sounds like a good idea. It lets your son see the effects of compound interest without having to deal with risk. At 12 I would not be able to understand why my $1500 turned into $750 in the event of a market crash.

At 16 he’ll want the money for a car or a stereo or something.

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whodidntante
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Re: Where would you tell a 12 year old to park his money

Post by whodidntante » Mon Feb 05, 2018 8:17 pm

We all need the goldfish experience. Buy Sears stock.

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Phineas J. Whoopee
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Re: Where would you tell a 12 year old to park his money

Post by Phineas J. Whoopee » Mon Feb 05, 2018 8:18 pm

I wouldn't. Tell, that is. I'd age-appropriately go through some options, taking our time. College funding in six years or so is good, so maybe CDs. [Sorry - missed that point.] Getting a start on an emergency fund is good, so maybe high-yield savings.

Increasing one's economic options later in life is good.

I'd let the value add be reasoning about what to do, not to obey what the person is told. Then let them go ahead and learn what happens as a result over time. Maybe even help by tracking what other options not chosen would have done, by following actual results.

Then again, I'm not you. Or him.

PJW

P.S.: Give a man a fish and he eats for a day. Teach him to fish and he sits in a boat drinking beer all day.
:wink:
Last edited by Phineas J. Whoopee on Mon Feb 05, 2018 8:28 pm, edited 1 time in total.

rkhusky
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Re: Where would you tell a 12 year old to park his money

Post by rkhusky » Mon Feb 05, 2018 8:20 pm

Vanguard Target Retirement funds have $1000 minimum. Look at TR 2060.

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badbreath
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Re: Where would you tell a 12 year old to park his money

Post by badbreath » Mon Feb 05, 2018 8:38 pm

We all need the goldfish experience. Buy Sears stock.
Dont do that. I deal with them almost every day at work and it is bad.

I would just do a target Date till its up to $3000 then move it to Total Stock.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

halfnine
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Re: Where would you tell a 12 year old to park his money

Post by halfnine » Tue Feb 06, 2018 11:41 am

100% VT. And offer to insure his losses until 18.

Big Dog
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Re: Where would you tell a 12 year old to park his money

Post by Big Dog » Tue Feb 06, 2018 11:42 am

S&P500

Longdog
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Re: Where would you tell a 12 year old to park his money

Post by Longdog » Tue Feb 06, 2018 12:45 pm

Hillview wrote:
Mon Feb 05, 2018 7:10 pm
My son is 12 and has 1500 to invest (years of savings allowance and holiday money). He opened an etrade account years ago (in my name) and has some shares of Apple, iRobot and ShakeShack. He is ready to move onto index funds -- I just opened an account for him at Vanguard.

Where would you suggest a 12 year old parks his only $1500. He is ok not needing it for years (thinking college or after) -- we are saving for his college so this is his money not for tuition etc.

Thanks!
Looking at the long term, I don't think it matters much, if at all. At 12 years old, the fact that he wants to save or invest his $1500, rather than spend it on an Xbox, a motocross bike, or any other item of consumption, means that he has already learned a critical lesson that will serve him well for his entire life! At this point in his life, what he invests in is unimportant compared to the fact that he wants to invest it for the future. That he sees value in that. There will be huge financial payoffs on this life lesson, dwarfing any earnings he might make. Nicely done.
Steve

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Toons
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Re: Where would you tell a 12 year old to park his money

Post by Toons » Tue Feb 06, 2018 12:48 pm

Grt2bOutdoors wrote:
Mon Feb 05, 2018 7:24 pm
Vanguard STAR fund. Alternatively purchase $1,500 of ETF in VTI.
Ditto :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Ged
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Re: Where would you tell a 12 year old to park his money

Post by Ged » Tue Feb 06, 2018 12:56 pm

Investing life lessons should be a model of the future. I'd put $1000 in a diversified fund and the $400 in some fixed investment. Then teach re-balancing.

winterfan
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Re: Where would you tell a 12 year old to park his money

Post by winterfan » Tue Feb 06, 2018 1:04 pm

My 9 yo has her money invested in the Vanguard Star fund. She had $1K to invest.

miamivice
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Re: Where would you tell a 12 year old to park his money

Post by miamivice » Tue Feb 06, 2018 1:09 pm

My father refused to provide guidance on what to do with my money, rather, he wanted me to figure it out.

I wouldn't tell a 12 year old to do anything with his money except I would encourage him to save rather than spend. I'd encourage him to learn about investing and help caution him when necessary, but would definitely not pick mutual funds for him.

If he loses money, even just paper profit, you'll be the one he's mad at for making a bad recommendation.

Our kids need space to make their own decisions in life, in all areas including investments. Their world is different than ours, and what worked for us may not work for them.

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siamond
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Re: Where would you tell a 12 year old to park his money

Post by siamond » Tue Feb 06, 2018 1:14 pm

brother7 wrote:
Mon Feb 05, 2018 7:23 pm
Among the Vanguard mutual funds, only LifeStrategy or STAR funds have $1000 minimums. The most aggressive of those is the LifeStrategy Growth fund with is 80% stocks 20% bonds.
I really like LifeStrategy funds. This is very simple to use, cheap, effective, and yet, if the investor develops intellectual curiosity about things, he can learn by modeling the trajectory of US stocks vs. International, stocks vs. bonds, the effect of rebalancing, and compare to what LifeStrategy is actually doing. While not making behavioral mistakes, because Vanguard actually does the management.

Given the time horizon of the investment though (e.g. college expenses, so 8 to 10 years from now), I would actually suggest using a Target Retirement fund to automate a glide path towards college. Say Vanguard Target Retirement 2025 Fund (VTTVX).

I do NOT think that Target Retirement funds are a good approach for retirement (investing life doesn't stop when you retire!), but in this precise case (college, expenses spread among a short period of time, e.g. 4 years), the mechanics would actually work pretty well. And there is the same idea of a very simple investment, yet a great learning opportunity if one gets curious about the mechanics.

NotWhoYouThink
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Re: Where would you tell a 12 year old to park his money

Post by NotWhoYouThink » Tue Feb 06, 2018 1:26 pm

Does he have spending money? Does he spend it, or do you buy him whatever he asks for?

At this age, I wouldn't encourage long term investments, I'd let him start budgeting his expenses. Give him enough allowance, or encourage him to work odd jobs, whatever, but make him responsible for paying for much of his daily expenses. A budget that includes clothing, trips out with friends, whatever. Enough for almost anything he would want, but not nearly enough for everything he would want.

If he already is doing the personal budgeting and this $1500 is what's left over, than I would encourage him to buy a life cycle fund, but if he'd rather buy stocks that he's familiar with I'd let that ride, too. The point here is learning, and losing money can be a learning experience.

His most important asset now is personal capital not allowance and birthday money. Make sure he's thinking about what kind of life he's going to build for himself. Not stressing over it, but conversations about different life choices and outcomes is always good in the car or at the dinner table.

geospatial
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Re: Where would you tell a 12 year old to park his money

Post by geospatial » Tue Feb 06, 2018 1:29 pm

Give him 3 options... one that is conservative, one with medium risk, and one more aggressive. Explain the pros and cons of each and let him decide how much he wants to pop into each option, even if he chooses all of it in one option. But if he chooses more than one, then the next few years you can watch it together and the lessons of diversification and asset allocation will be more impressionable by having skin in the game.

barnaclebob
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Re: Where would you tell a 12 year old to park his money

Post by barnaclebob » Tue Feb 06, 2018 1:45 pm

I say he can invest half in whatever he wants and half in an SP500 index fund and see which is higher by the time hes 18. This does have the possibility of backfiring.

NYC_Guy
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Re: Where would you tell a 12 year old to park his money

Post by NYC_Guy » Tue Feb 06, 2018 1:48 pm

Hillview wrote:
Mon Feb 05, 2018 7:10 pm
My son is 12 and has 1500 to invest (years of savings allowance and holiday money). He opened an etrade account years ago (in my name) and has some shares of Apple, iRobot and ShakeShack. He is ready to move onto index funds -- I just opened an account for him at Vanguard.

Where would you suggest a 12 year old parks his only $1500. He is ok not needing it for years (thinking college or after) -- we are saving for his college so this is his money not for tuition etc.

Thanks!
$1500 of IJS

Snowjob
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Re: Where would you tell a 12 year old to park his money

Post by Snowjob » Tue Feb 06, 2018 3:48 pm

Given how small the dollars are, keep him invested in individual stocks of companies he and his peers use and value -- Facebook, Amazon, Netflix, Google, Paypal, whatever car company he is interested in or fast food restaurant he likes to eat, perhaps the bank he has a small savings account at.

He will learn a ton and be engaged. Those lessons will be much more valuable than the safety and diversity of an index fund. If you were talking 15,000 or 150,000 instead of 1,500 we would be having a different discussion. In that case it would be VT and walk away. The boglehead boilerplate answer of dump it in an index does not apply in all situations, this one is a good example of that, good luck.

TheAccountant
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Re: Where would you tell a 12 year old to park his money

Post by TheAccountant » Tue Feb 06, 2018 3:52 pm

A 529 account, assuming he is going to college after high school. If not, a simple money market account will do.

Darth Xanadu
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Re: Where would you tell a 12 year old to park his money

Post by Darth Xanadu » Tue Feb 06, 2018 4:38 pm

barnaclebob wrote:
Tue Feb 06, 2018 1:45 pm
I say he can invest half in whatever he wants and half in an SP500 index fund and see which is higher by the time hes 18. This does have the possibility of backfiring.
+1 Good idea

When you say "backfiring" you mean losing the half he played with, or the kid turns out to be a stock-picking whiz :P
"A courageous teacher, failure is."

Hillview
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Re: Where would you tell a 12 year old to park his money

Post by Hillview » Tue Feb 06, 2018 4:46 pm

Thanks all! He gets allowance and he saves it all. He spends NOTHING ever on anything. His brother is always buying the next thing he wants. He is interested in index funds after hearing about the Warren Buffet bet. At this point he has no personal expenses (I pay for him when we go to the movies as a family and we buy him an ice cream once a week :D ). He is keen to invest it in something "long term." At some point -- likely when he gets his first job we will have a better discussion about helping with college (skin in the game). While he has enjoyed the single stocks he has purchased he would prefer something with risk more spread out. I really appreciate all the ideas and feedback from everyone!

remomnyc
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Re: Where would you tell a 12 year old to park his money

Post by remomnyc » Tue Feb 06, 2018 4:50 pm

Our kids started out with a VG target retirement 2065 until they had amassed enough to buy VTI ($3k min).

Captain kangaroo
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Re: Where would you tell a 12 year old to park his money

Post by Captain kangaroo » Tue Feb 06, 2018 4:54 pm

Nvidia.

In 50 years he would have either lost 1,500 dollars...or it'll be worth six figures.

StealthRabbit
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Re: Where would you tell a 12 year old to park his money

Post by StealthRabbit » Tue Feb 06, 2018 4:56 pm

Agree with previous posters recommending 12 yo be informed and SHARE in the decisions.
Started mine in Roth’s at age 12. Some bought and traded stocks, others did Mutuals. All had $16k + by age 18 in Roth’s

1) if at all possible, get that dough out of FAFSA reach (college financial aid). ANY student held assets are 100% attachable. :twisted:
2) He needs ‘earned income’ to stick it in a Roth, (do you have chores, rentals, neighbors who hire kids?)
3) FAFSA did not touch their Roth’s or their personal homes that each had built by college age.
4) they learned a lot through managing their own investments.

There is real benefit to using Roth’s as early savings, in many ways.
My kids are excellent traders and planners as a result. (Disciplined savings, that they could not touch for 5 yrs)
One kid went into the profession .... CFA. Analyst, with certs and a very good job (and savings). Nice set-up for future.

Each paid 100% for college and cars / insurance & were long gone by age 18, so early learning / savings was important.

My lessons came early too... I got paid by getting a calf for each summer’s labor.... took a few years to realize gains (literally). Then... there were the vet bills, and diseases, weather, blizzards, floods, mtn lions. that could lead to death!

‘Stock market’ is very gentle compared to the Livestock market!, keep feeding your kids. I matched 100% of their wages into thier Roth’s till age 18. They loved to work for double wages! I had to ‘plan’ their income :moneybag into my outflow. A worthwhile investment in them.

StealthRabbit
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Re: Where would you tell a 12 year old to park his money

Post by StealthRabbit » Tue Feb 06, 2018 5:07 pm

Darth Xanadu wrote:
Tue Feb 06, 2018 4:38 pm
barnaclebob wrote:
Tue Feb 06, 2018 1:45 pm
I say he can invest half in whatever he wants and half in an SP500 index fund and see which is higher by the time hes 18. This does have the possibility of backfiring.
+1 Good idea

When you say "backfiring" you mean losing the half he played with, or the kid turns out to be a stock-picking whiz :P
h

Early engagement age 12 helped mine.

They took 100% equivalent of their college loan funds and turned it into a bundle of dough by the time they graduated.
Each had also had portfolio losses / judgement errors pre-college. Netflix, AAPL, and GOOG treated them real well 2000 - 2017... They sold quite a bit in 2013 - 2017 and have largely gone to ETFs.

Legally cannot ‘invest’ college fund proceeds.... which is an interesting concept considering how risky USA college degrees are. (Time and money)

Mitchell777
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Re: Where would you tell a 12 year old to park his money

Post by Mitchell777 » Tue Feb 06, 2018 5:15 pm

Hillview wrote:
Tue Feb 06, 2018 4:46 pm
Thanks all! He gets allowance and he saves it all. He spends NOTHING ever on anything. His brother is always buying the next thing he wants. He is interested in index funds after hearing about the Warren Buffet bet. At this point he has no personal expenses (I pay for him when we go to the movies as a family and we buy him an ice cream once a week :D ). He is keen to invest it in something "long term." At some point -- likely when he gets his first job we will have a better discussion about helping with college (skin in the game). While he has enjoyed the single stocks he has purchased he would prefer something with risk more spread out. I really appreciate all the ideas and feedback from everyone!
He sounds like me 50 years ago. I recall saving my allowance in a metal band-aid box. I never spent anything other than buying an occasional sponge ball to play baseball in the neighborhood. My mother and grandmonther would buy me individual stocks which peaked my interest and later I found Vanguard and low cost index funds. I read the WSJ in high school. I'd suggest Total Stock Market Index or S&P 500 fund. He will do great because he has the right mind set, the interest, and is getting an early start. Good luck to him.

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