Bar Mitzvah Money Investing Ideas

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sruliz
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Bar Mitzvah Money Investing Ideas

Post by sruliz » Wed Jun 20, 2018 11:46 pm

Hello all. My son (now 15) has about 35k in Bar Mitzvah money to invest. I initially opened an account with Fidelity and we picked 6 stocks (Disney, Nike, Apple, GE, etc..) and had a decent run but I've been thinking that this is probably not the smartest way to teach him about investing for the long run. So I'd like to ask for your help on where you think I could have him invest? I like the Betterment model (roboinvesting) since they would automatically rebalance and TLH but they don't offer accounts for minors.

Thinking long-term investing here. He wouldn't need the money until about age 30-35.

Any ideas?

Thanks.
Last edited by sruliz on Thu Jun 21, 2018 12:40 am, edited 1 time in total.

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Pajamas
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Re: Bar Mitzvah Money Investing Ideas

Post by Pajamas » Thu Jun 21, 2018 12:32 am

Invest for what goal or purpose? Paying for college in 2 to 3 years, buying a house in 8 to 12 years, or retirement in 40 to 55 years?

sruliz
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Re: Bar Mitzvah Money Investing Ideas

Post by sruliz » Thu Jun 21, 2018 12:38 am

Long term. He wouldn't need the money for at least 10-15 years. Thanks.

MotoTrojan
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Re: Bar Mitzvah Money Investing Ideas

Post by MotoTrojan » Thu Jun 21, 2018 1:00 am

Does he have earned income? If so, max out a Roth.

I'd consider a 90/10 3-fund portfolio. He doesn't really need the bonds IMHO (I'd put this money towards retirement personally, and he can use cashflow in 10-15 years for whatever this could possibly buy) but it'll help teach about rebalancing more so than just a US/Int portfolio.

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mlebuf
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Re: Bar Mitzvah Money Investing Ideas

Post by mlebuf » Thu Jun 21, 2018 3:05 am

Hi Sruliz,

You are doing a wonderful thing by teaching your son the basics of investing at such an early age. At his very young age he has so much time to compound that $15,000 into an enormous sum of money.

The first thing I would do is introduce him to an online compound interest calculator such as this one:
https://www.bankrate.com/calculators/sa ... -tool.aspx

Then, I would tell him that a low cost stock index fund will likely return about 10 percent per year on average. Source: https://personal.vanguard.com/us/insigh ... llocations

Stress the importance of keeping investment costs low. Stress that it's not timing the market but regularly investing a part of each paycheck, coupled with time in the market that will make him rich. Then, let him enter that $15,000 into the compound interest calculator, with a 10 percent rate of return and see for himself how much it will likely grow into over 10, 15, 20, 30, 40 and 50 years. That way he will learn about the importance of saving and investing. After that you can teach him the finer points of asset allocation, IRA's, Roth IRA's, etc.

One final thing you may want to share with him is this column from Morgan Housel, one of the brightest young financial writers out there: https://www.fool.com/investing/general/ ... ge-30.aspx

If more parents had taught what you are teaching your son, there would be many more people with fewer money worries.
Best wishes, | Michael | | Invest your time actively and your money passively.

david
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Re: Bar Mitzvah Money Investing Ideas

Post by david » Thu Jun 21, 2018 5:41 am

MotoTrojan wrote:
Thu Jun 21, 2018 1:00 am
Does he have earned income? If so, max out a Roth.

I'd consider a 90/10 3-fund portfolio. He doesn't really need the bonds IMHO (I'd put this money towards retirement personally, and he can use cashflow in 10-15 years for whatever this could possibly buy) but it'll help teach about rebalancing more so than just a US/Int portfolio.
To add to this, basically when your son gets a job open up a ROTH IRA and whatever the maximum value of his earnings or $5500, put that money in a ROTH IRA. Every year he could pull from the non-IRA funds and move them slowly into the ROTH. This will allow that money to grow tax free for many many years. ROTH IRAs also allow the contributions to be taken out for any reason after 5 years if he needs it, otherwise he could let this be the beginnings of a retirement account. What's nice about the IRA is that in the future if he wants to change around the investments he could do so without having to pay taxes on any gains.

As to what to invest in, I'd keep it simple and pick a target date or a vanguard lifestrategy(R) fund. A single fund portfolio will auto-rebalance like a robo-investor and is typically cheaper. The target date funds are geared towards retirement, while the life strategy fund can be selected based on overall appetite for risk.

That will make his portfolio even simpler -- 1 fund. But, he would have to have a few accounts (though, both accounts can be with a single company) if he wants to use the ROTH IRA, as there are limits on what one can contribute (as defined above).

Valuethinker
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Re: Bar Mitzvah Money Investing Ideas

Post by Valuethinker » Thu Jun 21, 2018 5:46 am

sruliz wrote:
Wed Jun 20, 2018 11:46 pm
Hello all. My son (now 15) has about 35k in Bar Mitzvah money to invest. I initially opened an account with Fidelity and we picked 6 stocks (Disney, Nike, Apple, GE, etc..) and had a decent run but I've been thinking that this is probably not the smartest way to teach him about investing for the long run. So I'd like to ask for your help on where you think I could have him invest? I like the Betterment model (roboinvesting) since they would automatically rebalance and TLH but they don't offer accounts for minors.

Thinking long-term investing here. He wouldn't need the money until about age 30-35.

Any ideas?

Thanks.
Vanguard Total Stock Market fund

If you need a second, Vanguard Total International (50/50 or 55/ 45 US/ International).

If we are feeling really racy, 40% Vanguard Total Stock Market, 20% Vanguard Small Cap Value (US), 40% Vanguard International

All 3 strategies are about going to the casino and putting the money on red. But with a (reasonable) bet that the odds are with him - say 2 chances out of 3.

Valuethinker
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Re: Bar Mitzvah Money Investing Ideas

Post by Valuethinker » Thu Jun 21, 2018 5:58 am

mlebuf wrote:
Thu Jun 21, 2018 3:05 am


Then, I would tell him that a low cost stock index fund will likely return about 10 percent per year on average. Source: https://personal.vanguard.com/us/insigh ... llocations
ries.
10% pa is a very generous assumption. I don't think one would be doing anyone any favours by steering them towards 10% returns -- it just risks risky investing behaviour when returns "disappoint" expectations which were set far too high.

Those numbers were calculated with 2 unique factors:

- inflation late mid century was much higher than historic or since (so nominal returns were inflated). The process of disinflation from 1981 caused a significant increase in returns as they "caught up to" the long run averages. Disinflation from here is unlikely and, given the Japanese evidence, would not be good for stock markets

- there's survivor bias. The US "won" the 20th century in stock returns. If you take a global average of stock market returns (which still has significant survivor bias) they are significantly lower

7% is a better bet, going forward, and, in fact, it's likely too optimistic on say a 10 year view, although on a 20-30 may be justified (basically I am saying 3-5% real return, assuming 2% inflation).

https://www.mckinsey.com/~/media/McKins ... -2016.ashx

takes the argument in far more detail than I could.

mega317
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Re: Bar Mitzvah Money Investing Ideas

Post by mega317 » Thu Jun 21, 2018 9:01 am

sruliz wrote:
Thu Jun 21, 2018 12:38 am
Long term. He wouldn't need the money for at least 10-15 years. Thanks.
Are you sure? There is no chance within 10-15 years he'll buy a car, engagement ring, house, fund a backpacking trip? College and grad school are covered?

sruliz
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Re: Bar Mitzvah Money Investing Ideas

Post by sruliz » Thu Jun 21, 2018 9:08 am

He has other monies that I put away for college, engagement ring...

aristotelian
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Re: Bar Mitzvah Money Investing Ideas

Post by aristotelian » Thu Jun 21, 2018 9:10 am

Showing him what happened to his GE stock could be a great lesson.

sruliz
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Re: Bar Mitzvah Money Investing Ideas

Post by sruliz » Thu Jun 21, 2018 9:25 am

Totally agree. Proves the point of diversification in funds.

protagonist
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Re: Bar Mitzvah Money Investing Ideas

Post by protagonist » Thu Jun 21, 2018 10:12 am

My contrarian view on this:

1. It is his money, not yours.
2. When he goes to college, and in the lean years , while he is being educated and early in his career after graduation, he may want to use it. For example, he may want to buy a car in a few years, or travel, or ??.
3. I assume he won't be earning a lot of money for some years to come. Why do you assume he won't need it, or WANT it, before age 30-35?

Therefore, you need to give him flexibility with the funds that are rightly his. Until he graduates HS you can maintain control, and hopefully educate him well regarding saving and investing. After that, unless he wants you to manage it, or unless you have specifically agreed with him to use it for tuition, it is his.

If you put it in the stock market, and the market crashes when he wants or needs the money, he will (rightfully, IMHO) blame you.

I say put most of it in CDs maturing around when he graduates high school. Discuss this with him so he understands why. Maintain a dialogue with him about investing. When he graduates HS, it is up to him what to do with it. He may screw up, but hopefully if he does he will learn from his screw-ups. Remember, unless it was given to him in a trust fund for you to manage, it is his money, not yours, and you have no right to decide that he does not need to touch it until he turns 30-35.

sruliz
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Re: Bar Mitzvah Money Investing Ideas

Post by sruliz » Thu Jun 21, 2018 10:28 am

Excellent. Thank you.

Grt2bOutdoors
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Re: Bar Mitzvah Money Investing Ideas

Post by Grt2bOutdoors » Thu Jun 21, 2018 6:05 pm

Valuethinker wrote:
Thu Jun 21, 2018 5:46 am
sruliz wrote:
Wed Jun 20, 2018 11:46 pm
Hello all. My son (now 15) has about 35k in Bar Mitzvah money to invest. I initially opened an account with Fidelity and we picked 6 stocks (Disney, Nike, Apple, GE, etc..) and had a decent run but I've been thinking that this is probably not the smartest way to teach him about investing for the long run. So I'd like to ask for your help on where you think I could have him invest? I like the Betterment model (roboinvesting) since they would automatically rebalance and TLH but they don't offer accounts for minors.

Thinking long-term investing here. He wouldn't need the money until about age 30-35.

Any ideas?

Thanks.
Vanguard Total Stock Market fund

If you need a second, Vanguard Total International (50/50 or 55/ 45 US/ International).

If we are feeling really racy, 40% Vanguard Total Stock Market, 20% Vanguard Small Cap Value (US), 40% Vanguard International

All 3 strategies are about going to the casino and putting the money on red. But with a (reasonable) bet that the odds are with him - say 2 chances out of 3.
^ This. Or 90% S&P 500 and 10% US Treasuries.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

blastoff
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Re: Bar Mitzvah Money Investing Ideas

Post by blastoff » Thu Jun 21, 2018 8:22 pm

What is tax loss harvesting going to do?

Grt2bOutdoors
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Re: Bar Mitzvah Money Investing Ideas

Post by Grt2bOutdoors » Thu Jun 21, 2018 10:07 pm

blastoff wrote:
Thu Jun 21, 2018 8:22 pm
What is tax loss harvesting going to do?
Lower tax basis.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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msi
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Re: Bar Mitzvah Money Investing Ideas

Post by msi » Fri Jun 22, 2018 3:33 am

Fidelity has FFNOX, which is their very inexpensive, automatically rebalanced four-in-one index fund. https://fundresearch.fidelity.com/mutua ... /31634R109 That fund is 15% bonds, 85% equities.

If you decide you don't want bonds at all (not really necessary for a 15-year-old with other money set aside), and you don't want international (all the stocks you mentioned were American), go with VTI or ITOT and leave it at that.

Valuethinker
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Re: Bar Mitzvah Money Investing Ideas

Post by Valuethinker » Fri Jun 22, 2018 4:02 am

Grt2bOutdoors wrote:
Thu Jun 21, 2018 6:05 pm
Valuethinker wrote:
Thu Jun 21, 2018 5:46 am
sruliz wrote:
Wed Jun 20, 2018 11:46 pm
Hello all. My son (now 15) has about 35k in Bar Mitzvah money to invest. I initially opened an account with Fidelity and we picked 6 stocks (Disney, Nike, Apple, GE, etc..) and had a decent run but I've been thinking that this is probably not the smartest way to teach him about investing for the long run. So I'd like to ask for your help on where you think I could have him invest? I like the Betterment model (roboinvesting) since they would automatically rebalance and TLH but they don't offer accounts for minors.

Thinking long-term investing here. He wouldn't need the money until about age 30-35.

Any ideas?

Thanks.
Vanguard Total Stock Market fund

If you need a second, Vanguard Total International (50/50 or 55/ 45 US/ International).

If we are feeling really racy, 40% Vanguard Total Stock Market, 20% Vanguard Small Cap Value (US), 40% Vanguard International

All 3 strategies are about going to the casino and putting the money on red. But with a (reasonable) bet that the odds are with him - say 2 chances out of 3.
^ This. Or 90% S&P 500 and 10% US Treasuries.
I agree with the value of a "safe" asset to portfolios. To the extent that returns are mean reverting, there's good merit to this, besides the psychology.

My problem is that 10% is not a bet. It's not going to have much impact on portfolio volatility nor final return.

Thus if we are throwing in bonds, then 20% US Treasuries. That then starts the question of dilution of returns, long run.

I was 100% equities for a long time. But, then, I always had a large cash "barbell". Now I am more like 50% bonds (some of that is tax related). And that's the first time. Having lived through 2000-2003, and 2008-09 (and before that 1997-98, 1994, 1987 ...) I have reached that point where the volatility is a real issue for me. I won't be able to work forever-- run out of time to make up lost ground.

Had I instead run with 30-40% bonds, say, I would have had a higher long run return.

My preference for VG Total Stock Market is the usual: lower costs, lower portfolio turnover, small cap effect included. However it's hard to put a sheet of paper between that and S&P 500.

I agree S&P 500 and maybe a US Treasury Bond fund has a lot of merit of simplicity, ease of understanding, and teaching good portfolio habits.

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oldcomputerguy
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Re: Bar Mitzvah Money Investing Ideas

Post by oldcomputerguy » Fri Jun 22, 2018 6:16 am

Since the account is at Fidelity, you might check FFNOX Fidelity Four-In-One Index Fund. It's low-cost (0.11% ER), the asset allocation is 85/15 stock/bond with a 70/30 domestic/international equity split. It's IMO a good three-fund choice. (The fund is "four-in-one" rather than "three-in-one" because Fidelity uses a combination of S&P500 and completion funds to approximate Total Stock Market.) It would also lend itself to automated investing into a balanced portfolio.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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oldcomputerguy
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Re: Bar Mitzvah Money Investing Ideas

Post by oldcomputerguy » Fri Jun 22, 2018 6:20 am

Valuethinker wrote:
Thu Jun 21, 2018 5:46 am
Vanguard Total Stock Market fund

If you need a second, Vanguard Total International (50/50 or 55/ 45 US/ International).

If we are feeling really racy, 40% Vanguard Total Stock Market, 20% Vanguard Small Cap Value (US), 40% Vanguard International

All 3 strategies are about going to the casino and putting the money on red. But with a (reasonable) bet that the odds are with him - say 2 chances out of 3.
The OP mentioned that the existing investments were at Fidelity. Buying Vanguard mutual funds at Fidelity involves a whopping fee ($75 per fund). If Vanguard investments are desired, the OP should move the money to Vanguard and do it there.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

johnra
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Re: Bar Mitzvah Money Investing Ideas

Post by johnra » Sat Jun 23, 2018 10:26 am

$2,500 cash, to have (and enjoy) pocket money (and be his own man now that he is one)
$22,500 total US stock
$7,000 international
$3,000 Pacific Basin or Emerging Markets

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