Best single ETF for teaching kids investing?

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siriusblack
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Best single ETF for teaching kids investing?

Post by siriusblack »

Bogleheads,

I'm starting my 13 year old on investing -- she has a custodial account (UTMA) and $30 invested so far. She went straight for individual companies (Disney, Apple, Costco, at $10 each) for her first round. I'm fine with that, so she can get some experience of owning stocks. However, I would like to teach her to put the bulk of her money into something more boglehead-like. Ideally it would be something that's balanced so a big decline doesn't scare her away from investing.

Any suggestions for a single ETF? I was thinking about Vanguard's STAR fund but it has a $1000 minimum investment (and no ETF).

Thanks for the ideas
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Brianmcg321
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Re: Best single ETF for teaching kids investing?

Post by Brianmcg321 »

VTI.

Vanguard Total Stock Index ETF
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livesoft
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Re: Best single ETF for teaching kids investing?

Post by livesoft »

While VTI seems to be a natural choice, the current price per share of about $164 may limit some teaching on multi-share orders. Therefore, it may be better to try to use SPTM with its $40 a share price. Or use both and compare/contrast differences over time. But even $40 per share is out of the price range for someone with only $30 and using a normal brokerage.
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Workable Goblin
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Re: Best single ETF for teaching kids investing?

Post by Workable Goblin »

siriusblack wrote: Sat Jan 04, 2020 11:29 am Bogleheads,

I'm starting my 13 year old on investing -- she has a custodial account (UTMA) and $30 invested so far. She went straight for individual companies (Disney, Apple, Costco, at $10 each) for her first round. I'm fine with that, so she can get some experience of owning stocks. However, I would like to teach her to put the bulk of her money into something more boglehead-like. Ideally it would be something that's balanced so a big decline doesn't scare her away from investing.

Any suggestions for a single ETF? I was thinking about Vanguard's STAR fund but it has a $1000 minimum investment (and no ETF).
About the only option I know of that fits the bill is the iShares "Allocation" ETFs, AOA, AOR, AOM, and AOK. For some reason or another balanced ETFs have not really taken off, so you'll be hard pressed to find anything else that provides stock and bond exposure in a single fund. Obviously if you're willing to jump to a two or three-fund setup then there's a lot more options out there.
tenkuky
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Re: Best single ETF for teaching kids investing?

Post by tenkuky »

Why not VT and own the world?
Half the price of VTI and international diversification.
When fractional share purchases are allowed (like Schwab intends), even $30 can buy a piece.
ohai
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Re: Best single ETF for teaching kids investing?

Post by ohai »

Stock/Bond is the most important asset allocation decision. So, I'd suggest an SPX proxy vs a bond market proxy.

However, at age 13, I think you can argue for more than 100% equity and go straight for UPRO, which has returned more than 2500% return over the past 10 years...
GrowthSeeker
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Re: Best single ETF for teaching kids investing?

Post by GrowthSeeker »

For a 13 year old to learn about investing by doing, I am wondering if letting them pick individual stocks might in fact be an excellent learning experience. I went through decades of this before I noticing that a few of my trades were big winners and the rest of my trades averaged out to break even, so although I guess I "did OK" I'm sure I would have been better off in VTI.

I wonder if custodial accounts can also have a fake account with paper money? TDAmeritrade with their Thinkorswim platform allows a paper money account: trade in real time with real stocks or options or whatever. Marketwatch might have paper trading, not sure. Maybe have a real account with $100 and a fake paper money account with $100,000. Put the real money into an index etf. Trade the paper money. In a year, see which one is proportionally ahead.

The real trading could serve as a stimulus to learn about how to evaluate companies, annual reports, earnings growth, etc etc. You'd just have to somehow make sure it didn't instead teach gambling.
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snailderby
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Re: Best single ETF for teaching kids investing?

Post by snailderby »

Fidelity's Freedom Index target-date mutual funds have a $0 minimum if you want a balanced fund with a low minimum.
ChrisBenn
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Re: Best single ETF for teaching kids investing?

Post by ChrisBenn »

When I (just) did something similar:

I let them pick a few individual stocks, then "matched" the total value of their stocks with FZROX (it was at fidelity) in their account with another contribution. This makes it easy to track the relative performance of the two over time - since the starting values were identical.

I felt one experience at a time was better, so didn't want to bring in portfolio concept -- but if you wanted to you could also make another equivalent contribution to a balanced mutual fund (FBALX is a 60/40 at fidelity - fees are annoying on this one at .53 though).

--

Now I see you mentioned values like 10 dollars into disney, etc. -- if you are on a platform that supports fractional shares it's much easier -- you can do the same thing with one of the balanced ETF's already mentioned (ishares AOR is ~60/40 i think) - and with whatever total market fund you want (VT, VTI, ITOT, etc.).

If not then I think mutual funds (even with the higher fees like on FBALX) might be preferable just because of the intuitiveness of initial dollar equivalence. If vanguard didn't have the 3k minimum it would be a no brainer.

--

My biggest worry was that their investment in disney (that was they stock they went all in on) will now (based on murphy's law) forever outpace the S&P :)
dbr
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Re: Best single ETF for teaching kids investing?

Post by dbr »

siriusblack wrote: Sat Jan 04, 2020 11:29 am Ideally it would be something that's balanced so a big decline doesn't scare her away from investing.
I think on the contrary that owning at least one representative of equity investing and one representative of bond investing would be more educational.
DemoEngr
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Re: Best single ETF for teaching kids investing?

Post by DemoEngr »

Since trading is now free

I would suggest multiple sector funds

20% in each

Whole market
S&P
Bond
International
And one they find interesting, my son bought FDN
Topic Author
siriusblack
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Re: Best single ETF for teaching kids investing?

Post by siriusblack »

Thanks all for the ideas! She's on stockpile so fractional shares are allowed. She's buying through her allowance/chores app (BusyKid) so buying is $0 fee but selling is (I think) $1 fee. For that reason I wouldn't want her doing a lot of rebalancing etc.
1130Super
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Re: Best single ETF for teaching kids investing?

Post by 1130Super »

She might learn more about the concept if you wait till something she picks goes down significantly, tough love but better to learn early when next to nothing is invested. I saw the light when I lost a few grand investing in the next big thing (some 3D printing company) either that or she proves you wrong and she will be rich.
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