Investing and college going kids

[Deleted]

I want my kids, going to college,  to start investing. I will let them choose investments.

1) Is it a bad time to start?

We are in 12 year bull market. Recession is overdue. If it was not for covid, we would have one by now. So they will experience recession soon likely in next 3 years.

2) How much should I give them to play/learn with? What would be good reasonable amount that is not too less to learn and not too large to start with.

is $2000 account too small for meaningful learning?

I do expect them to lose 50% or so as they learn. I am fine with that.

[Capital]

@waffle , I have kids 18 and 16. They have a time horizon of 50+ years in the market if they start now. They have already started. Both have UTMA accounts and Roth IRAs. On average over the long term stocks double every 7 years. A $2k deposit into a Roth IRA at age 16 will turn into $250k of non taxable funds when they are in their late 60s. Do that for them 6 straight years and you have given them $1.5m for retirement. When I started with them we had a meeting to discuss investments. They chose FZROX at my suggestion and discussion why. Each has a login at Fidelity that allows then to watch their accounts grow. I fund the Roth IRAs by gifting them the money to do so in an amount based upon their earnings.. I add a small amount to their savings and UTMA accounts monthy. That way they see how it really works trying to save money.

[Chahta]

I do not think you should give them anything to start. It should all be their skin in the game. JMHO.

[anitya]

Capital, Good job.

Does not one need earned income to fund Roth IRA? I ask because you say you are funding kids Roth IRA.

At lower / lowest marginal tax rates, which are most students, Roth IRA contributions are the best.

[Capital]

Jul 27, 2021 23:31:32 GMT anitya said:

Capital , Good job.

Does not one need earned income to fund Roth IRA? I ask because you say you are funding kids Roth IRA.

At lower / lowest marginal tax rates, which are most students, Roth IRA contributions are the best.

anitya , yes you must have earned income to fund a Roth IRA. My 18 year old had jobs in 2020 working in the food service industry. I gifted him enough money to fund his Roth IRA to the amount of his earnings from those jobs. My 16 year old is getting paid for some yard work at my and my neighbor's homes. I will file a return for him with a Schedule C and will gift him enough to fund his Roth IRA to the amount of his earnings. Neither of my children earned enough to pay FIT nor will the 16 year old earn enough to pay SE tax; however, I file their tax returns to make it possible to fund the Roth IRAs. Rule of thumb multiply what you put into a teenager's IRA by 125 and that is the amount he/she can expect that contribution to turn into by their late 60s. Just think a mere $400 will be $50k by age 69.

[steelpony10]

   @waffle ,       

           I started teaching 2 of my kids at around age 14. There was an organization where you could invest small amounts at that time.

           Anyway my kids used there own money, each had about 1k at the time from odd jobs. I guided them and told them I would cover any “long term” losses, at the end of high school. My goal was to introduce the psychological stress of investing when there was no obvious right answer as taught in school and four years was long term to a kid at that age. Of course it was the dawn of the internet so easy money got them hooked.
 
            My answer is don’t push anyone to do this just because it’s important to you. Make sure anyone that participates has skin in the game to test their true interest. So maybe you can match their contribution. 

            Now at age 40 one kid is a tech millionaire riding the hot hand since then (in part like the old man) and the other invests with the “I think” method. But being a skinflint he’s getting by. Lol.

             As always any time is a great time to start. Get that compounding working with money they can’t squander easily. I started at DOW 750. You know what the Dow will be 40-50 years from now?

[johntaylor]

Age 12, had my own checking and savings accounts. All my money, from jobs like picking rock.

[javajoe]

@waffle, my 12 year old daughter has had her own Roth IRA for 4 years now, based on earnings from her Etsy business. So much of this depends on the personality and temperament of your kids so be careful listening to advice from others who don't know you both well! That being said, we found the following helpful:

We do dollar for dollar matchingb up to her max contribution amount. This creates skin in the game but also helps that get momentum early.
Last year her gains far exceeded her annual contribution amount which was really powerful for her to experience first-hand
Emphasize learning as much as making money. Let them dictate what they want to learn, and how they want to learn (YouTube, Reddit, peers etc). Their choices will likely surprise you and be quite different than yours (books, forums etc).
Broaden the learning to more than just a roth and picking funds. For example, this year one of our top goals was to teach her how to read a financial statement, so every time we get a 529 statement, bank statement etc she reviews and then we discuss the top 5 most important things it is saying. I think this aspect is often overlooked when talking about this topic.
Be open to them using a different, generationally-appropriate platform like Robinhood in addition to something traditional like Fidelity. They don't work on browsers because they grew up on phones.
Fidelity has a Roth IRA product specifically for kids which is free and easy and includes other learning resources. May or may not be relevant with college-age kids?
Don't be surprised if they chose things like individual stocks or high volatility ETF's like ARKK/ARKW, Tesla etc.
In terms of "recession likely in the next 3 years", you need to really think about the personality of yours kids. My oldest is more naturally risk averse so we built her positions slowly as sort of a psychological scaffold. For others being fully invested and riding out a major drop while continuing to add money could be more beneficial. Just be intentional about it and have lots of dialog.

Hope something in here helps!

[Deleted]

Thank you.

I discouraged my kids from working during high school and told them to focus on studying and extra-circulars only. Not sure if that was very wise. So Roth IRA is out for now. But as soon as they start work, I will start a roth ira for them.

For one I have opened youth account in Fidelity and other wanted robinhood. I am funding it to begin with. Later when they start earning in college, I will do a match for them.

And yes, they are on reddit and one using Robinhood mentioned buy AMC and wait for the short squeeze

[Deleted]

javajoe,- I am noticing one of my kid is very risk averse like me and other is opposite all into reddit and wall street bets. So for risk averse kid, as you said, I am giving her time.

[javajoe]

Aug 4, 2021 14:58:30 GMT @waffle said:

javajoe ,- I am noticing one of my kid is very risk averse like me and other is opposite all into reddit and wall street bets. So for risk averse kid, as you said, I am giving her time.

Exactly!  One of our parent mentors likes to say, "Love them equally, treat them uniquely!"

I think one of the huge mistakes sophisticated investors make when advising others (I learned this the hard way doing pro-bono financial counseling for people struggling in our church) is assuming that only math and logic matters.  Obviously a teenager should have a very long time horizon and technically would be best in 100% equities, but if we get another 38% down-turn in the near future and she logs in, sees the huge drop, and swears off the stock market (and your advice) as a farce then that 100% equity position was actually really bad advice.

Lastly, it may seem silly but one thing I learned is that for some risk adverse people, having a blended investment vehicle like a target date fund may be better than a 3-5 position portfolio, because it hides the volatility and keeps them focused on the overall performance.

-JavaJoe

[anitya]

Aug 4, 2021 14:58:30 GMT @waffle said:

javajoe ,- I am noticing one of my kid is very risk averse like me and other is opposite all into reddit and wall street bets. So for risk averse kid, as you said, I am giving her time.

They are lucky as they can learn from each other and moderate if they have the opportunity to learn to contemplate.  Critical thinking and attentiveness are two traits helpful in contemplation.  Most often we apply those traits / skills to external objects but they can be more helpful when turned 180 degrees and applied to self.  It is great to see how much effort people are putting into parenting!