Investing for a 1 year old

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Gemini
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Investing for a 1 year old

Post by Gemini » Sun Apr 15, 2018 2:52 pm

Title says it all...any unique ideas? I was considering a small amount in SCV in a trust that he cannot touch until 65 and letting it ride :D

We already have a 529.

mega317
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Re: Investing for a 1 year old

Post by mega317 » Sun Apr 15, 2018 2:56 pm

65??? Sounds like a waste to me. There are plenty of things someone between the ages of 1 and 64 might want to do with money. School trips, tuition, car, wedding, house, kids' education, early retirement.

GCD
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Re: Investing for a 1 year old

Post by GCD » Sun Apr 15, 2018 4:18 pm

If you believe in FIRE (maybe you don't), why make the kid wait until 65? I am thoroughly enjoying retirement at age 52. And to all the naysayers, yes, I am productive in retirement, just not employed. Maybe make it age 40-50?

I got my kids started in IRAs as babies. It still kinda sorta locks them in until later in life. But all the ways to fund an IRA for a kid are a PITA. There's a couple threads on the board if you search for them.

IRAs are inheritable though and the beneficiary can reset them to their age. Just max your own IRAs and don't draw anything out. Then when you die the kid gets it and can wait until their age 57. You don't have to worry about a trust since it's your IRA and they can't play with it. Or if you can work it with your parents, just have them skip spending their IRA and then you can decline it on their death and let it pass to your kid. Same deal, but you are really stretching out the investment horizon.

Obviously go all equities. I guess SCV is as good as anything else.

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Peter Foley
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Re: Investing for a 1 year old

Post by Peter Foley » Sun Apr 15, 2018 4:48 pm

We invested for our kids using custodial accounts and EE bonds when they were very little (some 30 years ago). Then 10-15 years later the IRS changed the rules on the reporting of children's income, taxing it at the parent's level.

Tough to plan so far in advance. Based on where we are today I would suggest a 529 plan and a small custodial account.

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F150HD
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Re: Investing for a 1 year old

Post by F150HD » Sun Apr 15, 2018 5:11 pm

Title says it all...any unique ideas? I was considering a small amount in SCV in a trust that he cannot touch until 65 and letting it ride :D

We already have a 529.
Image

Grt2bOutdoors
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Location: New York

Re: Investing for a 1 year old

Post by Grt2bOutdoors » Sun Apr 15, 2018 5:24 pm

Gemini wrote:
Sun Apr 15, 2018 2:52 pm
Title says it all...any unique ideas? I was considering a small amount in SCV in a trust that he cannot touch until 65 and letting it ride :D

We already have a 529.
50% VTI
50% VIOV
Let it ride.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

palaheel
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Re: Investing for a 1 year old

Post by palaheel » Sun Apr 15, 2018 5:43 pm

Paul Merriman has some ideas along these lines:

https://paulmerriman.com/turn-3000-into-50-million/
Markets crash. Markets recover. Inflation takes your money FOREVER.

GCD
Posts: 332
Joined: Tue Sep 26, 2017 7:11 pm

Re: Investing for a 1 year old

Post by GCD » Sun Apr 15, 2018 7:36 pm

F150HD wrote:
Sun Apr 15, 2018 5:11 pm
Title says it all...any unique ideas? I was considering a small amount in SCV in a trust that he cannot touch until 65 and letting it ride :D

We already have a 529.
Image
Whatever...

If you go to an investing acronym list (like oh say Bogleheads) you find only one SCV:

SCV - Small Cap Value. A stock classification. See: Stock Style boxes

malabargold
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Joined: Fri Aug 08, 2014 8:16 am

Re: Investing for a 1 year old

Post by malabargold » Sun Apr 15, 2018 7:59 pm

This forum says “not investing”, nevertheless,
unless your crystal ball is better than mine
why not just VT?

MoneyMarathon
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Joined: Sun Sep 30, 2012 3:38 am

Re: Investing for a 1 year old

Post by MoneyMarathon » Sun Apr 15, 2018 9:49 pm

Gemini wrote:
Sun Apr 15, 2018 2:52 pm
Title says it all...any unique ideas? I was considering a small amount in SCV in a trust that he cannot touch until 65 and letting it ride
Biggest free lunch here is the step up in basis. You can create a trust that becomes irrevocable on death (a revocable living trust). The step up in basis occurs at death. Generally, this is a good thing, especially if under the estate tax limits ($11.2 M). You don't need a trust to get a step up in basis, of course. A regular POD or TOD (payable/transferrable on death) account has similar tax advantages.

You might want to reconsider the 65 clause, even if it's retirement money. There are lots of jobs where the earliest retirement age is 50-55. Suppose your kid got a pension from one of these jobs and then got the full social security around 67-70. The two of these things could add up to $6k-$7k a month in today's dollars. At that point, the extra is just 'play money' anyway, so why not give it earlier? The kid might not make it to this age, or they could also have a health problem that kicks in around 60-65, which prevents travel. In the worst case, they could have a health problem where the money would have gotten them better treatment that saves their life, but the lawyers' hands could be tied.

Age 35 or 40 (or no restriction, even) is sometimes suggested as being early enough to offer flexibility and late enough to ensure the recipient is going to use it for the long term. The flexibility could allow it to be used for things like a house down payment, grandkid's education, and/or retirement. It could be flexibly deployed by the adult child into a Roth during lower earning years, or to top off a 401k, for better tax-advantaged growth during the child's life before retirement - something you could tell your heir about. At age 65, it would typically just be retirement, and taxed at the ordinary capital gains rates, but the recipient has their whole lives and whatever other tax-advantaged savings vehicles they have to use for that also.

I'd prefer to keep accounts very normal-looking when giving them off to someone else. I'd want them to be able to manage it passively, without having to think about it, and without relatives or advisors convincing them to switch around. Still, given the time horizon, I wouldn't want to put up with lots of bonds or with high fees. Something like "VT" (total world stock) would be a good choice, especially since it will rebalance itself naturally (and tax-efficiently) across the entire equity investment universe of a very broad-based index. If the United States ends up being 30% of equities or 70% of equities, the owner of the fund won't feel like they're in a lousy, weird position in this account.

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