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want to invest $4k for kids - Best way to do it?

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rated:
Hi, 

I want to make an initial investment for $4000 for my kids. ($2k/each) and want to invest it for 15-20 years, wherein I get a minimum ROI of 5% (year on year). 

I looked @ some of the following investment options:
1) Mutual Funds: however, minimum amount required was $2500-$3000. If I need to open for 2 kids, it wasn't feasible

2) ROTH IRA: the kids aren't old enough to make an income for me to open this type of an account (pre-requisite for this account is that the minor should be making an income)

3) Custodial account: this seemed like a good option until I read that the money control goes to them after they're 21; plus the tax bracket on income is essentially my current tax-bracket. Plus, when they apply for financial aid - this account might be a hindrance for them to qualify. 

I want to keep it simple or not make it too complicated (considering the investment amount is minimal). Although, on a yearly basis I will add funds here and there. 

Any gurus out here have some simple, logical investment tips for me? If so, I sincerely thank you for your help.

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Anything except crypto currency, they are not suitable for long-term investments.

casarstca (Aug. 16, 2017 @ 12:46p) |

529 accounts are better if you want to save for college

manuvns (Aug. 16, 2017 @ 2:49p) |

Just buy JPM, COST and BRKb and don't pay attention to it for 10 years. These 3 stocks will beat mutual funds and save y... (more)

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rated:
1. Open brokerage, use free ETFs to invest, no minimum.

2. Find mutual fund with lower minimum.

rated:
Schwab has $1 minimal investment funds. For example:
Schwab S&P 500 Index Fund SWPPX
Schwab Total Stock Market Index Fund SWTSX
Schwab Small-Cap Index Fund SWSSX

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@ mapen: thank you for your response. Are you referring that I create a brokerage account in my name and buy etfs and mutual funds? Would you recommend anything in the name of the kids?

rated:
How about some, err 1 Bitcoin? https://www.fatwallet.com/forums/finance/1581391

rated:
Bitcoin and the like may be a flavor of the week, but are way too risky for a starting investment. Red FLAG on the concept.

How old are the children? Your timeline suggests it is too early to guess if any of them will go to college and be successful. That said, investigate 529 deferred education fund.  Tax favored.
The things that I do not know include what happens in case of an emergency. What happens if they do not go to college? Can you loose the investment if certain things do not happen?

rated:
viraj75 said:   
I want to make an initial investment for $4000 for my kids. ($2k/each) and want to invest it for 15-20 years, wherein I get a minimum ROI of 5% (year on year). 

  There could be a world war in 10 years or an asteroid crash sending the planet back to the stone age. You won't find anything with 5% that isn't pretty risky short term, let alone 15-20 years which is too far to forecast. 

rated:
ROTH IRAs and Custodial accounts are not investment options.  They are merely account types, within which you still need to decide how to invest the contributions.

rated:
I'd use 529 plan especially if you get a tax break for the contribution.

Financial aid is mostly loans and if you have any decent income at that point then don't expect much more from a needs based scenario.

As mentioned above nothing guarantees 5%.

rated:
Thank you for the inputs, all.

I don't think I will need the 4K in an emergency; I just want to lock that money in some sort of investment. Some say 'what if they don't go to college'; I don't know, I hope they do.

I know nobody will/can guarantee a 5% ROI; but I was hoping to get some financial advice from someone who's done something of this sort in the past.

Worst case, instead of investing in their name, I can invest in my name for now.

Bitcoins - I don't understand that concept nor would trust my money on it. Too risky a choice for me.

I'm trying to understand how I can diversify the investment. What type of mutual funds to buy, what type of stock to invest in? My personal choice, I'd like to invest in a high risk, high return investment for 5-8 years and get take a moderate approach.

Unable to figure out what to do! Are there any fee based financial advisors that can help?!?

rated:
atikovi said:   viraj75 said:   
I want to make an initial investment for $4000 for my kids. ($2k/each) and want to invest it for 15-20 years, wherein I get a minimum ROI of 5% (year on year). 

  There could be a world war in 10 years or an asteroid crash sending the planet back to the stone age. You won't find anything with 5% that isn't pretty risky short term, let alone 15-20 years which is too far to forecast. 


I hear you; for all we know, we'll get nuked by North Korea tomorrow.

rated:
Dividend growth stocks.

rated:
viraj75 said:   Unable to figure out what to do! Are there any fee based financial advisors that can help?!?
 

  There are a lot! In fact, most of them will tell you they are fee-based. But what I think you mean is fee-only, and it's a significant distinction.

I would say you probably can't go too wrong with a Target date fund, whatever the farthest away one is. This will give you a truly hands off approach to gain the highest return you can, and with a 20 year timeline it makes sense.
If you're interested in re-balancing each year, then I would probably go for two index funds -- a total stock market and a total bond market at 90/10 allocation.

rated:
viraj75 said:   I'm trying to understand how I can diversify the investment. What type of mutual funds to buy, what type of stock to invest in? My personal choice, I'd like to invest in a high risk, high return investment for 5-8 years and get take a moderate approach.

Unable to figure out what to do! Are there any fee based financial advisors that can help?!?
Read this first -- Lazy Portfolios -- come back if you still have questions.

viraj75 said:   Some say 'what if they don't go to college'; I don't know, I hope they do.You can take the money out of the 529 even if they don't go to college, you'll just have to pay taxes on any gains (more if the contributions were tax-deductible).

rated:
Wealthfront now offers a 529 if you really want autopilot.

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BucknifeJones said:   Wealthfront now offers a 529 if you really want autopilot.At 0.46% expense ratio it's ~4x more expensive than a lazy portfolio with a few index ETFs, and since 529 is a tax-advantaged account, it doesn't benefit from the only worthy feature of robo-advisors (automatic tax loss harvesting).

rated:
Open an E*TRADE and pick some mutual funds. I think it's only 500 minimum

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Bit coins!!!!!!!!!!!!!

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This is probably not the best answer, but it's what I did.

I opened an investment custodial account in each of my kids name at e-trade. Then we talked about what kind of companies they liked, and why they liked them. Just light discussions about how stock ownership represents them owning a piece of the company. One liked McDonalds, and the other chose Southwest Airlines because we just had a vacation and flown them.

So we went into their account and bought the stocks. As time moved on I would give them updates on the share price when it went up or down significantly. We would look for earnings releases, etc. McDonalds was in the doldrums for a few years, but Southwest really took off. My son that owned McDonalds decided to sell and purchase Home Depot. Both ended up doing quite well.

When they turned 16, we began rolling these investments into a roth account to offset their earned income. It took a few years, but now each of them have five-figure roth accounts, and have a healthy interest and respect for investing.

They've known of these accounts for years, and even though I funded them, they feel like they have skin in them. They could liquidate them and blow the money on beer and pizza, but somehow, I don't think they will.

rated:
You could just buy tqqq and spxl and triple etf them over 20 years

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If in a state with tax deduction or credits for 529 plans contribution, I'd go for that. Especially if the plans are well-rated and you have multiple kids (hence high chance that at least one will go to college). Worse case (actually a pretty good case for your own finances possibly), if none of your kids go to college, maybe their own kids will and you can keep the 529 plans for them. Or you can just pay the penalty and tax on the earnings portion of it. One advantage of those 529 plans is that they don't have minimum investment levels. But their fees tend to be higher than the underlying mutual funds they invest in. Still better than taxable accounts though.

Another suggestion is to use Roth IRAs if you don't already max out your Roth IRAs contributions. Withdrawal of contributions are obviously tax-free after 5 years but also withdrawals for paying for college are also penalty-free on earnings. That is a more flexible option if you think the kids may not go to college. IRAs are also not (currently) part of the FAFSA calculations unlike 529 plans so those won't affect how much need-based aid you may qualify for. But the contribution limits are rather low so it may restrict how much you save for retirement.

And of course, you can mix and match those two strategies depending on your situation since they are two independent types of accounts (such as investing in 529 plan up to the state tax deduction limit and the rest in IRA).

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bopc1996 said:   Bit coins!!!!!!!!!!!!!
  Not coins.  For $4k he will get just one bit coin.

rated:
viraj75 said:   I want to make an initial investment for $4000 for my kids. ($2k/each) and want to invest it for 15-20 years, wherein I get a minimum ROI of 5% (year on year).
 

  Unless this money was gifted to the kids by say their grandparents, there is no reason to specifically invest $2k each in an account bearing their name.

Money is fungible. If you really want to segregate this money from your other savings, you could open a single account in your (or spouse or joint) name with 4k. When the time comes, take half of it to use for each kid's (college, first car, trip abroad, whatever).

rated:
cherry3m said:   This is probably not the best answer, but it's what I did.

I opened an investment custodial account in each of my kids name at e-trade. Then we talked about what kind of companies they liked, and why they liked them. Just light discussions about how stock ownership represents them owning a piece of the company. One liked McDonalds, and the other chose Southwest Airlines because we just had a vacation and flown them.

So we went into their account and bought the stocks. As time moved on I would give them updates on the share price when it went up or down significantly. We would look for earnings releases, etc. McDonalds was in the doldrums for a few years, but Southwest really took off. My son that owned McDonalds decided to sell and purchase Home Depot.  Both ended up doing quite well.

When they turned 16, we began rolling these investments into a roth account to offset their earned income. It took a few years, but now each of them have five-figure roth accounts, and have a healthy interest and respect for investing.

They've known of these accounts for years, and even though I funded them, they feel like they have skin in them. They could liquidate them and blow the money on beer and pizza, but somehow, I don't think they will.

  Have the company talk, and then go buy VTI! They will own some very small fraction of a share.

rated:
It isn't impossible to have your children have "earned income" You just need to have them work... if you employ them then you don't need to do any FICA withholdings either. Then you can do a Roth IRA.

I am still wondering if one could hold BTC in a Roth IRA.

rated:
Anything except crypto currency, they are not suitable for long-term investments.

rated:
529 accounts are better if you want to save for college

rated:
Just buy JPM, COST and BRKb and don't pay attention to it for 10 years. These 3 stocks will beat mutual funds and save you fees that you would had to pay for 10 years to a fund manager.

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