18 year old insurance settlement investing?

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PBRME
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Joined: Sun Aug 20, 2017 6:32 pm

18 year old insurance settlement investing?

Post by PBRME » Tue Aug 13, 2019 6:43 am

So my 18 year old child will be getting proceeds of 70k to 200k from auto accident. Will be buying car and trying to keep long term 10 years. College through bachleors degree cost is taken care of. How would you invest for house purchase in 10 years ,and then seperately jump start retirement savings account. Thank you for all recommendations or ways of handling this scenario for us to investigate.

Flyer24
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Re: 18 year old insurance settlement investing?

Post by Flyer24 » Tue Aug 13, 2019 7:50 am

Start a Roth IRA if the child has earned income. The child can contribute $6K a year provided he/she has earned that amount.

megabad
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Re: 18 year old insurance settlement investing?

Post by megabad » Tue Aug 13, 2019 12:34 pm

PBRME wrote:
Tue Aug 13, 2019 6:43 am
So my 18 year old child will be getting proceeds of 70k to 200k from auto accident. Will be buying car and trying to keep long term 10 years. College through bachleors degree cost is taken care of. How would you invest for house purchase in 10 years ,and then seperately jump start retirement savings account. Thank you for all recommendations or ways of handling this scenario for us to investigate.
Sorry your child went through this, hope he/she is ok. At 18, as above poster said if child has the income, I would dump $6k immediately into the Roth IRA into a Target Retirement 2065 Index Fund (either at Vanguard or Fidelity). The remainder I would drop into a low cost Total US Stock Market Index Fund. Assuming a successful career, the house purchase doesn't affect what I would do very much since he/she will have plenty of time to save in addition to this amount.

An alternative strategy might be to use the funds to buy a home near the college he/she will be attending. Renting this home out to roommates might provide a lucrative 4 years and then your 18 year would have a rental property after graduation. This suggestion would be entirely dependent on the allowable living situation and local real estate market though. Definitely a little more radical.

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dm200
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Re: 18 year old insurance settlement investing?

Post by dm200 » Tue Aug 13, 2019 12:37 pm

PBRME wrote:
Tue Aug 13, 2019 6:43 am
So my 18 year old child will be getting proceeds of 70k to 200k from auto accident. Will be buying car and trying to keep long term 10 years. College through bachleors degree cost is taken care of. How would you invest for house purchase in 10 years ,and then seperately jump start retirement savings account. Thank you for all recommendations or ways of handling this scenario for us to investigate.
For that amount of a "settlement", I would first make 100% sure any "harm" to him that led to the settlement is addressed.

ExitStageLeft
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Re: 18 year old insurance settlement investing?

Post by ExitStageLeft » Tue Aug 13, 2019 1:22 pm

Welcome to the forum!

It's great that you are starting your child on a Bogleheads style of saving for the future. Here are a couple of great resources to get you started:

The Bogleheads investing philosophy: https://www.bogleheads.org/wiki/Boglehe ... philosophy

William Bernstein's If You Can booklet: https://www.etf.com/docs/IfYouCan.pdf

Keep these things in mind and they can't go wrong. After doing the reading, I would have them open a brokerage account at Vanguard (or Fidelity or Schwab) and invest the funds in a target date fund such as Vanguard's VTTSX. Then open a Roth IRA with the same company and move up to $6k per year into the Roth IRA, investing it in the same fund. As noted by others, you can only contribute as much as your earned income for the year up to a max of $6k.

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Stinky
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Re: 18 year old insurance settlement investing?

Post by Stinky » Tue Aug 13, 2019 1:48 pm

PBRME wrote:
Tue Aug 13, 2019 6:43 am
So my 18 year old child will be getting proceeds of 70k to 200k from auto accident. Will be buying car and trying to keep long term 10 years. College through bachleors degree cost is taken care of. How would you invest for house purchase in 10 years ,and then seperately jump start retirement savings account. Thank you for all recommendations or ways of handling this scenario for us to investigate.
Welcome to the Forum! Glad that you've posed this question, and hope that your child is fully recovered from the accident.

In addition to the excellent responses provided by others, I would want to make sure that the child isn't tempted to "fritter away" part or all of the lump sum. It could seem like a little thing to "buy a nicer car", "take the beach vacation", "throw a nice party for my good friends", etc. But those little things can add up to big dollars over a college time, and can become habits that are hard to break.

Your child has a sound foundation for an excellent financial future, with a comfortable nest egg and college costs provided for. Help your child to not let that slip away.
It's a GREAT day to be alive - Travis Tritt

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