Investing For You Kids?

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R.R. Ag
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10:47a, 10/27/23
I've seen a lot stuff lately about if you put XX amount of dollars in an investment account for your kids and let it grow for the next 40-50 years it will be millions when they are ready to retire

My kids are still pretty young (16, 14 ,11) and I would like to use some of the financial success I have achieved in my life to help them have a better future

My CPA says my wife and I can each gift them $17,000 ($34k total each) so we are considering doing this for each of them for Christmas. I do have a financial professional that I am discussing this with but I wanted TexAgs opinion on the best places to put this money. IRA? Trust? Something else? I've been really good at making money in my life but as far as investments go, I generally leave that to people who are more knowledgeable than me. We would likely add to it yearly

TIA
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agnerd
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11:07a, 10/27/23
AG
Gotta make it fun for them. Let them pick their own stocks to invest in. Allow them to spend 10% of the increase in value on something they want.
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txaggie_08
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11:07a, 10/27/23
AG
You're probably asking for something far beyond this, but I give $250 a month to my kid. $200 of which goes to a 529 and $50 into a UTMA. The 529 will go to college (if she chooses to go) and the UTMA will hopefully be used for further college expenses, future home, or continued investment.

Ultimately the UTMA will become their property at a certain age, so they can do with it what they want, but hopefully she'll be smart about it.
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ToddyHill
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3:12p, 10/28/23
AG
R.R. Ag,

First...congratulations on having the means to generate income...as well as the consideration of putting some of it away for your kids. Way to go Mom & Dad!

I have a bit of experience in this area.

I've been married to my second wife for 16 years. She has three daughters, now adults...which I raised with her when they were pre-teens to the time they left the nest.

In 2017, their Maternal Grandmother passed away. In her will, she gifted each of them $10,000 that was to be managed by her daughter, my wife. We immediately set up Schwab Accounts for all of them, and I actively managed all three. Here's the deal though...I am pretty good at picking quality stocks so I chose to buy technology, consumer products, and oil stocks. I avoided ETF's and Mutual Funds, and a financial advisor. When the step daughters turned 18, I turned the funds over to them. In 6 years, I've turned $10,000 into $38,000. I'm not being arrogant when I say it is not that difficult to beat the S&P 500 if you put a few hours per week into the stock markets, and pick quality stocks that are number one or two in their segment.

I can't be any clearer than what I'm about to say. I have now been burned by Financial Advisors at Big Name Brokerage firms twice. I'm presently working through a 5 figure IRS bill because my 'fully accredited' advisor didn't know his a$$ from his elbow when he made a mistake...not realizing there is such a thing as UBIT when you sell a Limited Partnership Unit that you 'thought' was a stock.

At a minimum, I'd make sure those funds were in a fund that mirrored the S&P 500. Over time, consider some aggressive stuff, such as QQQ, or even go out and buy some stocks. NVDA and COOP, though vastly different, will show you that huge money can be made, even by an individual.

Good Luck!
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ToddyHill
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3:24p, 10/28/23
AG
By the way, though it's not entirely accurate, become knowledgeable about the Rule of 72. Simply put, place 72 into the Numerator, and place the expected return in the denominator. For example, if you're expected rate of return is 10%, the Rule of 72 would be 72 Divided by 10 equals 7.2 7.2 is the number of years it takes to double your money. Now think about that for one of your kids, and let's pick 15, with an anticipated retirement of 65, which is 50 years from today. 50 divided by 7.2 is 6.94.

So that 15 year old, who has $10,000 invested at 10% annually will retire with over a million dollars when they are 65. ($10,000 x 2 X 2 X 2 X 2 X 2 X 2 X 0.94)

Time Value of Money is considered the 8th wonder of the world. Unfortunately, many of us don't realize it until we're in the twilight of our lives. You are doing your kids a HUGE favor by taking this path.
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62strat
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In reply to ToddyHill • 12:11p, 10/31/23
AG
T said:
7.2 7.2 is the number of years it takes to double your money. Now think about that for one of your kids, and let's pick 15, with an anticipated retirement of 65, which is 50 years from today. 50 divided by 7.2 is 6.94.

So that 15 year old, who has $10,000 invested at 10% annually will retire with over a million dollars when they are 65. ($10,000 x 2 X 2 X 2 X 2 X 2 X 2 X 0.94)
Your equation brings it to $600k.

Here's why;
The last number should be 1.94, not 0.94. Multiplying by 0.94 makes it smaller than doubling 6 times. It should be larger than doubling 6 times. It's almost x2 again, so x1.94.

Correct math brings it to $1.241m





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Troglodyte
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In reply to R.R. Ag • 2:10p, 10/31/23
AG
Look into a Uniform Transfer to Minors Act (UTMA) account. Essentially, you fund it every year up to gift amount and then it transfers to your kid once they become an adult. That's the down side of it. It's there's when they turn 18.

But, if you keep putting money into it, I'm sure they will respect your wishes (until they don't)
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txaggie_08
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In reply to Troglodyte • 2:13p, 10/31/23
AG
For a UTMA, I believe it's 21 in Texas.
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ToddyHill
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In reply to 62strat • 3:56p, 10/31/23
AG
Yup. Sure does. Thanks for the correction!

But my point remains...Time Value of Money is what many call the 8th Wonder of the World.
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OldArmyCT
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4:34a, 11/1/23
AG
UTMA's are fine but at maturity (18 or 21, depending on the state) it's their money, even if they're about to climb on the back of a Harley and head out with biker boyfriend. I'd set up a Roth in my name, another in wife's name, and gift them the money in increments once they finish college.
Stock picking for short term is often a crapshoot, I've owned Apple for about 15 years, saw it drop +25% at least twice. Now the market has done that too but the market always returns, not all single stocks do. Buy an index fund or ETF. For example MNST has outperformed NVDA over time, as has a company tickered POOL. Would your kids keep their single stocks or sell at the first downturn?
https://wtop.com/news/2022/07/10-best-performing-stocks-of-the-past-30-years-2/
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Cyp0111
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3:27p, 11/1/23
I've setup 529s for both kid and will fund at a good level esp. with the added benefit of excess being available to roll to a roth.

? on setting up a UTMA for a kid now. Would it also not make sense to setup a separate brokerage account under your name, let them still be involved and then make annual distributions to them at your choosing and based off of where they are at the time ?

That is the current issue I have with UTMAs.
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AgCPA95
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7:39a, 11/2/23
AG
I might be stating the obvious, but for those stating Roth IRA your kid must have reported income up to the amount you contribute for them in that tax year.





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MyNameIsJeff
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In reply to AgCPA95 • 7:54a, 11/2/23
AG
AgCPA95 said:
I might be stating the obvious, but for those stating Roth IRA your kid must have reported income up to the amount you contribute for them in that tax year.





That's a good thing to point out. Also, something new for 2024 is that money from a 529 can be used to fund a Roth, up to a certain amount. I believe it's $34k, and the annual contributions still can't exceed the normal annual limits, so it might take a few years. This helps out a lot with the people concerned about their children not furthering their education and having an avenue to use the 529 funds.

When our first was born, I set him up a 529 and UTMA as soon as we got his SSN. We've set up automatic monthly contributions into each account. Any gifts go into the UTMA. This was going great until baby 2 and my wife leaving the workforce, but we intend to resume as soon as we get our budget dialed back to one income or she goes back to work in a few years (hopefully). The UTMA is in an S&P 500 ETF, and I believe the 529 is a target date fund. Both through Fidelity.

Edit: It's $35k. Here's a good link. Note that the 529 has to be in their name for a certain time period, which could be an issue if you're just starting one for older kids.

https://www.fidelity.com/learning-center/personal-finance/529-rollover-to-roth
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Apache
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In reply to agnerd • 9:06a, 11/2/23
AG
Quote:
Gotta make it fun for them. Let them pick their own stocks to invest in. Allow them to spend 10% of the increase in value on something they want.

You serious Clark? I agree make it fun & letting them reap some rewards is cool.
But maybe just an index fund & teach them not to put all the eggs in one basket. Lord knows what kind of stocks my kids would pick if I let them do what they wanted!
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EnronAg
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In reply to Apache • 9:44a, 11/2/23
AG
Apache said:
Quote:
Gotta make it fun for them. Let them pick their own stocks to invest in. Allow them to spend 10% of the increase in value on something they want.

You serious Clark? I agree make it fun & letting them reap some rewards is cool.
But maybe just an index fund & teach them not to put all the eggs in one basket. Lord knows what kind of stocks my kids would pick if I let them do what they wanted!
I could be wrong, but I would imagine he means you could probably steer them into brands they've heard of or places they are familiar with/spend money at...like Walmart, McDonalds, Apple, Google...good companies that they are very familiar with and could relate to...
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Todd 02
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11:10a, 11/2/23
AG
My dad passed earlier this year. The wife and I have a revocable living trust, so I set up Vanguard brokerage accounts titled to the trust for all three of my kids and funded $10k each from my inheritance into them. Each account is identified in the trust as being for one the kids. All invested in VTSAX.
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lobwedgephil
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In reply to ToddyHill • 11:59p, 11/3/23
ToddyHill said:
R.R. Ag,

First...congratulations on having the means to generate income...as well as the consideration of putting some of it away for your kids. Way to go Mom & Dad!

I have a bit of experience in this area.

I've been married to my second wife for 16 years. She has three daughters, now adults...which I raised with her when they were pre-teens to the time they left the nest.

In 2017, their Maternal Grandmother passed away. In her will, she gifted each of them $10,000 that was to be managed by her daughter, my wife. We immediately set up Schwab Accounts for all of them, and I actively managed all three. Here's the deal though...I am pretty good at picking quality stocks so I chose to buy technology, consumer products, and oil stocks. I avoided ETF's and Mutual Funds, and a financial advisor. When the step daughters turned 18, I turned the funds over to them. In 6 years, I've turned $10,000 into $38,000. I'm not being arrogant when I say it is not that difficult to beat the S&P 500 if you put a few hours per week into the stock markets, and pick quality stocks that are number one or two in their segment.

I can't be any clearer than what I'm about to say. I have now been burned by Financial Advisors at Big Name Brokerage firms twice. I'm presently working through a 5 figure IRS bill because my 'fully accredited' advisor didn't know his a$$ from his elbow when he made a mistake...not realizing there is such a thing as UBIT when you sell a Limited Partnership Unit that you 'thought' was a stock.

At a minimum, I'd make sure those funds were in a fund that mirrored the S&P 500. Over time, consider some aggressive stuff, such as QQQ, or even go out and buy some stocks. NVDA and COOP, though vastly different, will show you that huge money can be made, even by an individual.

Good Luck!
I mean, you're not wrong. The best, and safest advice for most people is to just be safe, index funds, etc. Take the known return average. Safest play for sure.

Or you can be like Buffett, go big in the best companies. Just depends on your risk tolerance.,

S&P this year: 11.89%

AAPL: 31%
AMZN: 58%
META: 150%
NVDA: 179%

Now sometimes the stock pickers under perform as well. Just depends on the individual, but no need to pay anyone to do what you can learn on your own.
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YouBet
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In reply to Apache • 7:46p, 11/4/23
AG
Apache said:
Quote:
Gotta make it fun for them. Let them pick their own stocks to invest in. Allow them to spend 10% of the increase in value on something they want.

You serious Clark? I agree make it fun & letting them reap some rewards is cool.
But maybe just an index fund & teach them not to put all the eggs in one basket. Lord knows what kind of stocks my kids would pick if I let them do what they wanted!
My nephew picked XOM after doing his own research. Granted, he's a child prodigy and smarter than any of your kids (and most adults) on this website so we were all good letting him pick his own stock.

He's done quite well with it.
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