14yr old son wants to invest

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P3Sooner
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14yr old son wants to invest

Post by P3Sooner »

My 14yr old son has $1000 and wants to start investing. Looking for any advice. Index fund vs ETF vs Berkshire B stock. I know BRKB isn't an index fund but he is enamored with Warren Buffett (not a bad investment role model). Thanks
mega317
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Re: 14yr old son wants to invest

Post by mega317 »

Well a good first lesson is not to buy individual stocks because you're enamored.

I think an important point is to teach him about investment goals and time horizons. Is it possible he'll want to use this money towards buying a car, or a school trip, or Legos or whatever within a few years?
magicrat
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Re: 14yr old son wants to invest

Post by magicrat »

Ask him to first set some goals for the money, then develop 2-3 investment plans that he thinks might work, with pros and cons for each, and have a discussion with him. Provide him with resources to support his research. If he does his homework, and picks an approach you might not like, let him do it and make mistakes. Check in with him regularly on how it's going.
BogleMelon
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Re: 14yr old son wants to invest

Post by BogleMelon »

The only advice I know in this situation is that he can not legally invest at that age. He has to be 18 yrs at least.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
NYC_Guy
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Re: 14yr old son wants to invest

Post by NYC_Guy »

BogleMelon wrote: Tue Mar 06, 2018 7:34 am The only advice I know in this situation is that he can not legally invest at that age. He has to be 18 yrs at least.
This is not true. Why would you think that? The account may need to have guardian, but he can have an account...
mortfree
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Re: 14yr old son wants to invest

Post by mortfree »

VTI (Total US Stock) = ITOT (fidelity version) = SCHB (schwab version)

or just do BRKB

any of those would be a great start
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stan1
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Re: 14yr old son wants to invest

Post by stan1 »

NYC_Guy wrote: Tue Mar 06, 2018 7:36 am
BogleMelon wrote: Tue Mar 06, 2018 7:34 am The only advice I know in this situation is that he can not legally invest at that age. He has to be 18 yrs at least.
This is not true. Why would you think that? The account may need to have guardian, but he can have an account...
Just open a UTMA account. No laws are broken if the child invests his own money or if the parent puts $1000 into the account and the child reimburses the parent $1000. To be honest as a parent I'd probably match the gift to encourage good behavior.

If he admires Warren Buffet I'd think BRK.B would be a great choice. Having some skin in the game (something he is interested in) always helps. Have him read the 10-K filing before investing so he knows what he's getting. Use it as an educational opportunity especially if he has an interest in business. You could put his $1000 into BRK.B and you could put $1000 into Total World Market (VT) and let him see how they perform side by side.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
BogleMelon
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Re: 14yr old son wants to invest

Post by BogleMelon »

NYC_Guy wrote: Tue Mar 06, 2018 7:36 am
BogleMelon wrote: Tue Mar 06, 2018 7:34 am The only advice I know in this situation is that he can not legally invest at that age. He has to be 18 yrs at least.
This is not true. Why would you think that? The account may need to have guardian, but he can have an account...
I didn't say he couldn't have an account. But a custodian account can only be managed and opened by parents (or adults who are in charge), so he still can not legally invest on his own.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
Fallible
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Re: 14yr old son wants to invest

Post by Fallible »

P3Sooner wrote: Tue Mar 06, 2018 1:22 am My 14yr old son has $1000 and wants to start investing. Looking for any advice. Index fund vs ETF vs Berkshire B stock. I know BRKB isn't an index fund but he is enamored with Warren Buffett (not a bad investment role model). Thanks
Buffett can be a good role model, assuming it's for the right reasons. Your son might be interested in a book by Boglehead pro Larry Swedroe, Think, Act, and Invest Like Warren Buffett. It's about learning what those right reasons are.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
GLState
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Re: 14yr old son wants to invest

Post by GLState »

Vanguard's Target Retirement 2060 fund would be a good choice for a long-term investment. It is 90% stock and 10% bond. The whole $1000 could be invested. But, a 14 year old is not going to find a Target "Retirement" fund very interesting. A Total Market or S&P 500 ETF would also be good choices for your son. Buffett has said that the average investor should buy an S&P 500 fund. He choose Vanguard's S&P 500 fund in his $1 million bet vs a basket of hedge funds.

If your son's wants to invest in BRKb because of Warren Buffett, he had better do it now. Warren is 87 and Charlie Munger is 94. They won't be around forever.
Last edited by GLState on Tue Mar 06, 2018 8:16 am, edited 1 time in total.
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Alexa9
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Re: 14yr old son wants to invest

Post by Alexa9 »

I would have him wait until he gets his first summer job and then use a Roth IRA.
Spedward
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Re: 14yr old son wants to invest

Post by Spedward »

stan1 wrote: Tue Mar 06, 2018 7:46 am
NYC_Guy wrote: Tue Mar 06, 2018 7:36 am
BogleMelon wrote: Tue Mar 06, 2018 7:34 am The only advice I know in this situation is that he can not legally invest at that age. He has to be 18 yrs at least.
This is not true. Why would you think that? The account may need to have guardian, but he can have an account...
Just open a UTMA account. No laws are broken if the child invests his own money or if the parent puts $1000 into the account and the child reimburses the parent $1000. To be honest as a parent I'd probably match the gift to encourage good behavior.

If he admires Warren Buffet I'd think BRK.B would be a great choice. Having some skin in the game (something he is interested in) always helps. Have him read the 10-K filing before investing so he knows what he's getting. Use it as an educational opportunity especially if he has an interest in business. You could put his $1000 into BRK.B and you could put $1000 into Total World Market (VT) and let him see how they perform side by side.
I think this is a great idea.
wolf359
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Re: 14yr old son wants to invest

Post by wolf359 »

Although Berkshire is technically an individual stock, it's actually a portfolio of stocks. If he wants to pick an individual stock instead of an index, that's not a bad choice.

Things for him to consider:
1) Why is he buying this specific investment? This isn't to challenge the choice, it's to articulate in writing the exact reasons that is causing him to make this choice. That way he can review in the future if those reasons are still true. How long does he intend to hold it? What would be an acceptable reason to sell it? (If it starts losing money isn't a good reason.)
2) What will happen when (not if) Warren Buffet dies? He's very old. Will the stock go up, go down, or maintain the same performance while he's holding it? Is Buffet one of the reasons for buying it? If so, what's his plan for the inevitable?
3) Analyze the book to price ratio. The price of the market capitalization exceeds the cost of the underlying assets. (In plain English, it means he's going to be paying more for the stock than the company is worth on paper. That's generally considered the Buffet premium.) Is he okay with that? Is it too much?

I'd let him make his own choices, and live with his own consequences. He could be right, and he could be wrong. $1,000 of his own money puts skin in the game, and gives him an invaluable learning experience. It will lock in his education much more than him reading it on a website, or you telling him. And if he buys Berkshire, he'll get to say that he owned it while Buffet was alive.

Starting early, investing often, and having the mindset to live below your means (and investing the savings) is much more important than picking index funds. A high savings rate would even overcome him investing in a mediocre actively traded fund. But Berkshire is a much better selection than a tech stock or other individual stock, or an actively traded fund.

So I'd let him read something aimed at beginning investors (like the free ebook "If You Can"), set up the UTMA/UGMA account, and let him free to make his own choices.

If he's doing anything that remotely counts as earned income, file taxes for him, and use a Roth IRA. Have him research the benefits of that, so he can do something that qualifies him to use that type of tax-free account. Paper routes, yard work for the neighbors, pet sitting, writing apps or e-books, and of course part time work all count as earned income.
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P3Sooner
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Re: 14yr old son wants to invest

Post by P3Sooner »

Thank you for the continue advise/insights. All good stuff. I looked into a UTMA with USAA (where we have our accounts). I was disheartened by the lack of funds available to him with a min investment of $1000 or less. Plus all the expense ratios are well north of 1% on most.

So looking at other options:
1) Open UTMA with Vanguard or Schwab or other but haven't research enough yet on the viability and options available to him.
2) Add his $1000 to our portfolio. Pro - its easy to do. Con - I want him to see that he has 'skin in the game' and to track and understand the ups/downs and benefits of long term investing.
3) Front him $2000 so he has greater option in which to invest with a USAA UTMA. Again, it wouldn't seem like completely his money.
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Helo80
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Re: 14yr old son wants to invest

Post by Helo80 »

P3Sooner wrote: Tue Mar 06, 2018 1:22 am My 14yr old son has $1000 and wants to start investing. Looking for any advice. Index fund vs ETF vs Berkshire B stock. I know BRKB isn't an index fund but he is enamored with Warren Buffett (not a bad investment role model). Thanks

I would show him Warren Buffet's investing advice on low-cost S&P500 index funds and see if he gets excited about that. Show him the 10-year bet Buffett made with a hedge-fund manager.
Thank God for Wall Street Bets.
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Helo80
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Re: 14yr old son wants to invest

Post by Helo80 »

P3Sooner wrote: Tue Mar 06, 2018 4:31 pm Thank you for the continue advise/insights. All good stuff. I looked into a UTMA with USAA (where we have our accounts). I was disheartened by the lack of funds available to him with a min investment of $1000 or less. Plus all the expense ratios are well north of 1% on most.

USAA is fine for some things, but their IMCO (Investment Management Co) lineup is generally terrible. I have my individual stock ownership at USAA, but that's it.

I'll put it to you this way, USAA generally does right to the customer, but they have one of the finest HQ I've been to, and it's on par with big oil, IMHO.
Thank God for Wall Street Bets.
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oldcomputerguy
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Re: 14yr old son wants to invest

Post by oldcomputerguy »

P3Sooner wrote: Tue Mar 06, 2018 1:22 am My 14yr old son has $1000 and wants to start investing. Looking for any advice. Index fund vs ETF vs Berkshire B stock. I know BRKB isn't an index fund but he is enamored with Warren Buffett (not a bad investment role model). Thanks
If he's enamored with Warren Buffett, show him this:
"Consistently buy an S&P 500 low-cost index fund," Warren Buffett told CNBC's On The Money in an interview recently. "I think it's the thing that makes the most sense practically all of the time."
Or this:
Warren Buffett’s recommended portfolio is actually extremely simple. In fact, there are only two holdings: the S&P 500 and a short-term US government bonds fund. Depending on how young you are when you start investing, it may just be the S&P 500 (more on allocation below).
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
mega317
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Re: 14yr old son wants to invest

Post by mega317 »

I'm happy with my Vanguard UTMAs. They have all the investment options I could ever want. (A cheap total stock market index ETF for no commission.)

I don't think your son seeing the daily ups and downs is a good thing. JMO.
Elysium
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Re: 14yr old son wants to invest

Post by Elysium »

My son had $1000 to invest on his 13th birthday, and he came up with idea of buying AAPL stock because he had a Mac and liked the iPhone. I suggested buying the broad market / 500 index and we discussed little bit about single company risk vs. market risk. After all that he wanted to put his money in AAPL, and we looked at the fundamentals at that point which showed a low P/E, high cash flow, high cash reserves etc. He went ahead and bought it, and I matched his money but with condition it will go into the broad market ETF which it did. Soon after that Buffett made a big bet on AAPL, indicating something about the decision to buy AAPL was right. Anyway, we are still tracking both investments originally made with identical amounts, and at this time they are both more or less same. He doesn't bother very much with his investments on a daily or even monthly basis, in fact he barely checks except when there is some big news on AAPL. I think it was a good idea to let him learn by doing it himself with his own idea.
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fortfun
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Re: 14yr old son wants to invest

Post by fortfun »

You migh want to check out Mr. Money Mustache's blog on kids investing:
http://www.mrmoneymustache.com/2015/05/ ... out-money/

He has a forum devoted to kids investing.
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topper1296
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Re: 14yr old son wants to invest

Post by topper1296 »

Buy one share of a physical stock certificate to frame and hang on the wall in his room and put the rest in an index fund.
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