index fund for a child?

[zetta]

The OP said that the money doesn't have a specific goal -- that it is mostly gifts the child has received. The intention seems to be to end up with a larger chunk of money to turn over to the child (when he or she is of age) than you would get by leaving it in a savings account. My dad did something similar for me when I was 12, and I've still never spent the money that is in this fund (I'm now 36) -- it basically formed the base of my investments. Since the child may choose to do the same (especially if you use the fund to teach your child about how investments grow), I wouldn't necessarily move the money into more conservative vehicles as the child gets older. Perhaps in his or her late teens you can discuss strategy with the child, and make a decision then on whether to leave it in the fund or move it into CD's.

[jIM_Ohio]

I've heard of this one several times now. I'm going to look into it.

Another popular "moderate allocation" fund is PRWCX (T Rowe Capital Appreciation). This owns stocks and corporate bonds (as opposed to stocks, corporate bonds and government bonds like the Vanguard suggestions).

[MonkeyMama]

How about Vanguard STAR fund. Low minimum, low expenses. Currently a 63/25/12 allocation -- fairly safe.

Oh - Scanner beat me to it - this is the one I Decided on for the same purpose as you, for my kids - minimum $1k to invest.

It has a nice mix of stock and bonds. I think once I build up a bigger balance I might invest some a little more aggressively. But certainly a good start. Just something extra, not earmarked for college, pretty long horizon, so I wanted something more aggressive than a c.d. myself.

I was also looking at Target retirement funds - just 1 fund that has some diversification, since the balance is so small to start. The mix gets less aggressive with time, could work for something you may use as a backup college fund. Downside is fees are a little higher, but overall I like the idea.

[crabbypatty]

I'm getting sort of paralyzed with indecision again LOL

Yes the ultimate goal is to end up with more money than we started with. More than could be gained from a savings acct. In some respects I want to preserve principal b/c it's not my money. But in the event that we lose principal (an unlikely event given the length of time we have to weather market fluctuations) I could always shell out from our own investments.

The Vanguard STAR looks good, b/c I can at least get the money working for us with a lower initial investment (closer to what "the baby" has in savings.)

But the bigger kid has enough to open a fund at T. Rowe or Fidelity. I think I've gotten over my irrational fear of T. Rowe and DH piped in about T. Rowe for the Roth'(s). (although they seem to be taking their time getting the prospectus/application to me).

That brings me to potentially having funds at different co.'s for different kids but that's OK with me.

If it turns out that I want to change funds I can always switch funds within the same co. for minimal hassle right? + maybe a small fee?

[jIM_Ohio]

Help me out with the minimums of the funds involved. I "always" contribute each month, so minimums get waived at T Rowe if investor used asset builder.

The fact you are comfortable "moving money" from your accounts to make up for lost principle tells you have a "risk" hedge in Mom and Dad... that tells me to go for return (which is closer to 100% stock than the 40-60 or 60-40 funds. We'd all prefer to NOT do this, but the upside is higher if you take on the additional risk.

The take the suggestion if/when you get gains, sell them off into something more conservative.

Selling any fund for a child should only involved "capital gains taxes". I think first $250 of gain/interest for a child is taxed, but I have not had to do this before, so check with someone which knows.

[crabbypatty]

This is all non retirement. Min's change for retirement funds.

The Vanguard STAR is 1k to start and $100 to add. I thought most other Vanguard funds are 3k to start.

T Rowe is $2500 to start and $100 to add. $50 to add if a monthly contribution.

Fidelity is $2500 to start. $100 to add monthly , $250 to add otherwise. The rep told me 10k minimum for index funds which seems bizarre to me. If he's right, they're just losing out on business. If he was wrong then my 1st experience with customer service gave me incorrect info, not a good sign.

ETA: I feel an absolute obligation to maintain the principal, even if it means make it up from the bank of Mom and Dad if I make a bad decision. This start-up money isn't from us. It's from Aunties and Uncles, grandparents. Birthday and Christmas money.

[jIM_Ohio]

ETA: I feel an absolute obligation to maintain the principal, even if it means make it up from the bank of Mom and Dad if I make a bad decision. This start-up money isn't from us. It's from Aunties and Uncles, grandparents. Birthday and Christmas money.

I think this adjusts the risk profile upward.

You know the risks (based on q&a in this thread)
You **could** lose money going 80-20 or 100% stocks... but at same time the liklihood of that over 15 years is **really** low (based on past performance).
You have the means to replace any shortfall (I assume based on your post)

The biggest risk to this might be a "drop" the first 6-18 months of the investment. Depending on amounts, hedge this risk by investing 1/3 of what you have every 6 months (to get an "average" entry point.)

The obvious pro of this technique is the extra 5-20% returns you get at the high end.

I'd hate to lose money people gave me for kids... but at same time kids have more time than the rest of us, so I'd go for more returns.

But not my kids, and I don't know you or your husband. And it's easy for me to advise you with money which is not mine.

[sweeps]

I'm getting sort of paralyzed with indecision again LOL

That seems to be happening a lot lately. Someone asks for the time and people explain how to build a watch.

[Scanner]

Sweeps,

I hear ya but to me, she seems to be really adverse to the idea of a 30-60% loss in a year and let's face it - that's a distinct possibility with a 100% stock fund.

Now, if she feels stable enough in her career(s) that they can just make up the loss with a contribution. . .well, then yes, Jim is right - you may as well go for the riskiest thing around.

I'll give you an idea of what can happen.

We have a child and we were in the same boat as you - a little b-day money some birth gifts, amounted to about $2800.00

I put it in Janus Global Technology is about 1999. Now, this is a good example because it's about the worst thing that could have happened. It's in a UTMA BTW.

It dropped all the way down to about $1300 from 2000-02.

It still hasn't recovered (I think it's around $1800 now) and my son is 9.

Can you live with that?

If no. . .go balanced.

If yes. . .or "I'll make up the losses". . .then go with a risky fund and get the return.

Unfortunately, only you can answer the question.

There's nothing wrong with saying, "No, I can't live with that kind of risk."

[jIM_Ohio]

I'll give you an idea of what can happen.

We have a child and we were in the same boat as you - a little b-day money some birth gifts, amounted to about $2800.00

I put it in Janus Global Technology is about 1999. Now, this is a good example because it's about the worst thing that could have happened. It's in a UTMA BTW.

It dropped all the way down to about $1300 from 2000-02.

It still hasn't recovered (I think it's around $1800 now) and my son is 9.

Can you live with that?

If no. . .go balanced.

If yes. . .or "I'll make up the losses". . .then go with a risky fund and get the return.

Unfortunately, only you can answer the question.

There's nothing wrong with saying, "No, I can't live with that kind of risk."

hindsight being 20-20, let's keep this in perspective

on a risk scale, S&P 500 is an 8, the Janus fund in question is at least a 9, maybe a 10.

Choosing a solid fund is also important. I almost looked at Janus when I started investing, and I believe they were hit by the fund scandels of that era. I also invested with Strong, which was decimated by same scandals.

Choose fund companies wisely, is my advice.

[MonkeyMama]

This is all non retirement. Min's change for retirement funds.

The Vanguard STAR is 1k to start and $100 to add. I thought most other Vanguard funds are 3k to start.

T Rowe is $2500 to start and $100 to add. $50 to add if a monthly contribution.

Fidelity is $2500 to start. $100 to add monthly , $250 to add otherwise. The rep told me 10k minimum for index funds which seems bizarre to me. If he's right, they're just losing out on business. If he was wrong then my 1st experience with customer service gave me incorrect info, not a good sign.

ETA: I feel an absolute obligation to maintain the principal, even if it means make it up from the bank of Mom and Dad if I make a bad decision. This start-up money isn't from us. It's from Aunties and Uncles, grandparents. Birthday and Christmas money.

Fidelity - I heard that $10k minimum mentioned here before (or was that you?). Does seem steep.

STAR is the only vanguard fund with a low minimum.

I think you understood, but maybe not, to make clear, the Target Retirement funds do not have to be put in a retirement fund. That just gets consfusing. But you can set the Target when you want to take the money out (when child reaches 18?) and the fund manages the stock/bond balance accordingly over time.

I think I am with you. I am not very worried about losing the principle though. I have faith if I pick a diversified portfolio and with plenty of time, it should be able to grow. As the kids near adulthood or the time when I give them the money I will play it a lot safer though. Due to my risk aversion though I would not pick 1 index or a 100% stock fund...

Read carefully about all the fees. I didn't think Vanguard had any particular fees for trading funds. There is sometime a fee if you trade too early though ("too early" depends - sometimes 3 days - sometimes 3 months). Read all the fine print so you know...

[Ima saver]

I would vote for the vanguard star fund also.

[all4money]

To piggyback on the question... if one is going to open up, let's say the STAR fund, for the child with the child's money... would you open the account in the child's name or under the parent's name?

[LuxLiving]

If it's not to late to enter this discussion -- you can get into Fidelity's Four-In-One Index (FFNOX) fund that gives a nice rounded index portfolio in one fund for $2500.00.

It's target asset allocation in their underlying funds is approximately 55% in Spartan 500 index fund, 15% in Spartan extended market index fund, 15% in Spartan international index fund, and 15% in Fidelity U.S. bond index fund.

[CRFSaver]

balanced funds have been my favorite fund for years. they have been the most consistent and many times some of my best investments. Unfortunately the one I absolutely love is closed to new investors except in 401K plans (where I have mine) which is the dodge and cox balanced.