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Advice on how to invest child's B-day money...

  1. Here's the situation. My son is 3 1/2 years old. Whenever he gets money for birthdays or holidays my wife puts the money in his bank account. So right now the account balance is up to $7K which gets like $90 interest a year in some money market account at our bank.

    My wife wants to invest the money into something he'll get more interest in. She's done a little bit of research and wants to put half of the money into something called a 529 (which is a college savings plan). And the other half into some type of mutual funds so he can spend the money however he wants (car, house, wedding, etc...) The 529 looks pretty cool because we can give the account number to friends and family and they can contribute future gifts straight to the account.

    Does this sound like a good plan?
    Does anyone know of a better way to invest his money?

    Also, any recommendations on good mutual funds is also appreciated. Personally I use a company called Janus and have been very happy with them but don't know much besides that.

  2. If he's got $7,000 in savings at 3 1/2 years of age, he's doing much better than I am. Sounds like it's time to buy him a house; and let him get out on his own. :whistling:
  3. My personal experience is that people don't like gifting to 529's. They like seeing the child play with what they give.

    I'd throw $4000 in the 529 and $3000 in a Roth IRA.

    Research the 529's. You aren't limited to your state's offering but your state may offer some tax incentive to use theirs.
  4. Side note on kids and savings:

    My 6 year old has a tendency to lift money around the house. If she finds a dollar or some change laying around it magically becomes hers and we find it later, stashed in her room.

    Thus far she's acquired $2500 in her little savings account. The other day she asks my wife how much money she has.

    Wife: "You have about Two Thousand, Five hundred dollars"

    Daughter: "That's pretty good for not having a job"

  5. Bank Cd's - just take the longest ones you can get and have the money drop into the savings account when it's done.

    Unless the bank fails it's a safe investment. Banks don't fail in the US anymore, at least not the ones deemed too big to do so.
  6. I thought CDs were insured by the FDIC as well?

    Either way, my 6 year old has about $150 or so in a bank account from birthdays and christmas. She also took $10 in quarters and put them in her piggy bank once. $7,000 is a lot of money indeed. Really wish more of my family would give money instead of gifts they play with for about a week before they break it or lose interest.
  7. My understanding is that you cannot contribute to a ROTH IRA that is in the child's name until they have some earned income. If you do it in your name you would face penalties if you took it out before your retirement age.

    Notice: i am a recovering accountant YMMV

    Sent from my Nexus One
  8. In Florida there is something called the Florida pre-paid plan, where you buy college credits are today's prices, and get to use them whenever junior goes off to college, no matter what the rate is at that time. With college rates the way they are, might not be a bad investment. If he doesn't go to college, you can get the money back, but only what you originally put in.

    edit: another option would be to buy physical gold, lock it up, and just forget about it until he is an adult. I would not buy a long term CD at today's rates, which are historically low.
  9. Didn't realize that.

    I'd go 100% 529 then.
  10. :rofl:

  11. Thanks for the replies so far guys. If anyone has any more ideas please post them.

    It sounds like my wife has it right with the 529 and mutual funds. I'll have her check into the different state's plans. She mentioned the different state's plans.

    I was surprised too when she said he has $7k. We do have a very large family. My daughter just turned 1yr old last week and my wife says she already has $2k. So we're also looking into investing her money as well.

    Again thanks.
  12. I've had a 529 for my Son for about ten years. $200 a month goes in to it. It's a pretty good plan if it is handled right.
    Look at it this way, half that 7K or 3.5K should grow to about 5K when She needs it if you have a good 529. You are going to spend the money on College anyway, it's a smart move, do it now.
  13. Dumb question. In a 529.. What if things don't work out?

    I.E. the kid gets injured, dies, is unable to go to College? Can the money be used to raise his/her standard of care?
    What if kid decides that a 4 yr degree has no value since they want to take occupation with no requirement...

    (yes I realize any training can be helpful in most any career) It seems many go with "I have a app for that" :(

    One thing to consider. The younger a person is the more risk investments can have. (imo)
  14. It's a no brainer. Gold and silver eagles. You will regret not doing it if you don't.
  15. .....
  16. Good God...over 2k per year for a birthday.

    I never got more than $50 max. Cept for one year, I was given an old Browning pistol.

    You need anymore kids?:tongueout:
  17. Whatever you do, don't do the above. Literally a "no brainer".

    529 is a great place for the money.

    Take a look at a short term bond index fund if you're very risk averse. S&P 500 index is a good higher risk option. The likelihood of the S&P 500 outperforming another more specific option over the time-frame you're talking about is high.
  18. I think this answers most of your questions.

  19. According to my CPA current case law supports even the buying of a house or condo for da yute to live in while in school.

    I'm not sure what happens to the $ when it's sold.
  20. I started a 529 about 10 years ago (when my wife and I first met.) Since we didn't know what we'd have in the future/names/etc I started the 529 in my name. From there I can transfer it to any other 529 plan. 2% of everything I charge on my credit card gets rolled over to the Fidelity Investments 529 plan plus I contribute $200 biweekly to it. It's already up to $15k, not bad for being 18 months old.

    To the OP, I am in the same boat. My son is 18 months old and has about $8k in gifts, my parents don't believe in the value of toys (as he has plenty) so any gifts from them is cash. With everyone else when they ask what he wants I usually drop the hint for a Babies R Us Gift Card, if he receives $200 worth of gift cards, I 'pay' him $200 into his savings account and use the gift cards to purchase diapers, wipes, etc. I'm personally leaving it to accumulate until the discussion of first car comes up, at that point I'll be able to say you have $XXX amount saved up, what would you like to buy with it. When he starts getting an allowance we will open up a savings account and every week take him to deposit half into this account.
  21. I agree with the suggestions for a 529 plan or buying prepaid tuition. Check your state treasurer's web site for details. Both plans have options if the child doesn't want to go to school or doesn't want to attend a state school. If the child dies or something happens where they don't want to or can't attend school, the 529 can be transferred to another family member. Pick out some low-cost and conservative mutual funds, expect around a 7-8% rate of return. Way better than a savings account or a CD.

    I agree that $7k for a 3 yr old is a lot of savings. I averaged around $200-$300 per year for birthdays and christmas. In HS I used the savings to buy a computer for homework.
  22. I think that if I was your son, I would ask that all this money be invested in ice cream and a Red Ryder BB gun!
  23. It sounds like you and your family are pretty well to do. I would save carefully, but wouldn't spend a lot of time agonizing over this investment or that investment for their college fund.

    If they are really smart and capable of college level studies, is it really going to matter whether they have $364,905.22 or $377,809.66 in the account??
  24. A 529 is not a bad idea. Here in ohio, I Max out my contribution each year to the level I get a tax deduction from Ohio. I think it comes out to $130/year tax savings which beats a savings account.

    We also keep multiple 529 plans for my son. Keep in mind, he can have multiple... your parents could have one as well and also get the tax deduction.

    Sometimes though getting a good financial advisor can be well worth the cost in the long run. Just make sure you don't put all the eggs in one basket ala Bernie Madoff.
  25. Colt 6920 and Glock 17 now for his future in case he cannot get them when he is old enough and these are grandfathered in. a 1,000 rounds for each would be good. Can be sold later on if he has no interest.
    the other 5,000 in a 529. At your rate, he will still be getting money for a few more years, so put it in the bank or more 529s. The time to act on the Colt and Glock is now.
    Just some advice.

  26. :rofl:

    umm NO, you will regret it when gold is at $600 an ounce!!
  27. I January, I took the money that both my girls had accumulated over the last couple of years and bought Silver Eagles. I plan to do that every year from here on out with the money I contribute to their savings accounts. They will end up with a sizeable lot of silver in 15-20 years.

  28. Invest in Solyndra
  29. I'd vote to split it 50/50 in 529 and mutual funds. The 10% hit for pulling surplus out of a 529 sucks!
  30. Okay, just give me a specific stock or fund or index that will outperform gold and silver over the next 15 years.

    Let time judge the investment, not emoticons.
  31. Smart man.
  32. My understanding is that the issue with Gold and Silver is the cost of getting in and the cost of getting out and theft.
  33. I'm no expert on Janus, but when I was helping my parents with some of their finances the first thing I suggested was ditching their Janus Funds. The expenses were high and the performance wasn't there. I found a couple ETF's that matched the investment objectives while outperforming Janus significantly and reducing their fees by ~90%.

    In short - for any mutual fund you find check for an ETF with a matching investment objective. Generally the annual fee will be lower, and the performance should be very similar.
  34. TD Ameritrade has a nice app for comparing ETFs and Mutual funds. After spending a good bit of time, I came to the conclusion that the best performing mutual funds were better than the best performing ETFs. This was looking at past performance and sharpness including fees. (The exception is if you could find a ETF that was undervalued when you get in and overvalued when you get out. But that is not how my luck runs.)

    Just for fun, what ETF would you recommend, if I recommended YAFFX?
  35. Those mutual funds won't grow tax free. Besides, who says you have to pull out the surplus, assuming there is one?
  36. You've got transactional costs buying and selling funds....trading fees, bid-ask spread. You're buying at a premium and selling at a discount there too.

    Risk of theft, too.
  37. How many years have you been saying that now?
  38. There are maintenance fees, but the funds I am using do not cost at buy in or selling. There is just one price per day based on the value of the assets.

    I don't know of a local place I can buy and sell gold/silver at reasonable fees. How much is spot price today? How much can you by for? How much can you sell for? At your location.

    Assuming you are dealing with a larger firm, risk of major theft is minimal. Risk of minor theft is still there, but the larger firms like to fire employees and toss them in jail for theft.
  39. Account fees and the bid-ask spread is there though you might not see it. The transactional costs you're referring to with gold are essentially the bid ask spread. They're in the funds and in the stocks within the funds.

    Plus you're forgetting about expense ratios.

    What happened to folks who owned funds invested in Tyco? Enron? Fannie/Freddie? Real estate?

    Answer: They were stolen from.
  40. FWIW, it's not a 10% off the top of all surplus. It's 10% of earnings. It's not nothing, but they're not penalizing the original principal withdrawal. Granted, if it's an old account, the earnings can be significant.

    Also, those earnings are taxable if not part of a qualified withdrawal.
  41. I am not saying it is all good.

    What is spot price?
    What is buy price ?
    What is sell price?
    Today at your local shop

    If your house is robbed what portion of the gold in your house can be lost?
  42. Okay. And the last twelve years, the S&P has done nothing while silver and gold have skyrocketed.

    You cherry pick your entry points and I can do that too. What matters is the next ten to fifteen years.

    I will take my chances with gold and silver, an asset class that has no counter party risk. You take your paper assets and let the crooks on Wall Street make good on them.

    Enron? Lehman Brothers? MF Global? The Fed printing money like there's no tomorrow? The rest of the world starting to abandon the US dollar the the world's reserve currency?

    Gold and silver...trusted for over 5,000 years.
  43. S&P 500 in March 2000~ 1527
    Gold in March 2000~280

    S&P in April 2012~1400
    Gold in April 2012~1,650

    So, since then, Gold has gone up about 6 times while the S&P has done nothing. Oh wait, you have dividends of about 3% per year!

    I'll stick with this current trend as it still has a ways to go.
  44. Um, no. For gold to be $600, silver would have to be around $10. It costs $20 just to get it out of the ground. You will NEVER see gold below $1000/oz again, at least not with this dollar.

    The DOW has still yet to break its high of 14164, and its been about 5 years. There has been inflation during that five year period. Although people might be back up to where they were, their purchasing power is not the same. It's taken 2 rounds of quantitative easing and a Fed interest rate at 0% to just keep it around 13000.
  45. Get a Roth IRA that's invested in mutual funds. The growth on those is insane. We're talking like %12 APR. That'll double your money every 7 years, and the market can compensate for inflation.

    If you want a little more stability but still get aggressive growth, look into fixed indexed annuities. Those usually have a guarantee of principal, so you can't possibly lose money. They earn money on a monthly basis up to 1.5% (so a potential of up to 18% per year.)

    What to stay away from. CDs are a joke. You'd spend a lifetime to double your money just once.

    Stay far far away from whole life policies. They promise you insurance and savings in one. They are lying. It's one or the other. You get one, you lose the other, and the agents outright lie about the interest rates you'll be getting. They tend to promise the maximum, but only ever deliver the bare minimum. Whole life is the biggest scam ever perpetuated on decent working people, and it's revolting that an entire industry has grown around it.
  46. My sister-in-law invested my nephew's money, that he was saving for a Bennelli shotgun, into remodelling her bathroom. I'm not sure that's the way to go. I hope the lesson he learns from it is how to hold a lifelong grudge.
  47. Gold and silver both took a dump today along with Palladium which was a bit of a surprise as I expected an upward trend for Palladium.
  48. :rofl:

    Ummm Anything that was on the Dow Jones Index



    Ok besides 1980, and the last 6 years tell me when in history of the US dollar when gold was worth over $600 an ounce :whistling:


    Let me guess you were telling people to buy real estate in 2007.

    Buy low and sell high my friend.
  49. After some quick comparisons of Large-Cap Value ETF's on Yahoo Finance I doubt I'd recommend any over that fund. It looks like it has done great pretty much since inception. There are some 3x leveraged ETF's that are performing with it, but of course then your Beta spikes so that's not really a fair comparison.