The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Beridian on February 07, 2018, 12:42:16 PM
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My 18 year old son just funded his brand new Roth IRA with $11K, $5500 for 2017 and $5500 for 2018. Now we need to decide how to invest it. We were thinking of initially investing $9000 three ways between an international ETF, a growth ETF, and a large cap US ETF, keeping $3000 for opportunistic investments as they arise or if the markets tank further. Since he is so young we are incline towards more risk. My son was also interested in a Tech ETF. I appreciate the safety of total market ETFs like VTI total US markets and VXUX total international.
So I was wondering what you folks would advise in this situation?
Thank you
Beridian
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My daughter is 23 and just began contributing to her 401k. Since she doesn't know much about investing yet, I had her invest in the Vanguard Target Retirement 2060 Fund (VTTSX). It's just one fund and if she never gets to the point where she does anything else, she should still be okay since they will adjust the asset allocation automatically for her as she gets older.
Since your son is a littler younger, you could have him invest in Vanguard Target Retirement 2065 Fund (VLXVX) if you like this approach.
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My 18 year old son just funded his brand new Roth IRA with $11K, $5500 for 2017 and $5500 for 2018. Now we need to decide how to invest it. We were thinking of initially investing $9000 three ways between an international ETF, a growth ETF, and a large cap US ETF, keeping $3000 for opportunistic investments as they arise or if the markets tank further. Since he is so young we are incline towards more risk. My son was also interested in a Tech ETF. I appreciate the safety of total market ETFs like VTI total US markets and VXUX total international.
So I was wondering what you folks would advise in this situation?
Thank you
Beridian
Seems like now would be the time to talk to him about putting what you want to keep in VTI and then gamble on tech with whatever he is comfortable losing (I'm guessing this might depend on whether this is his money or your money; it's psychologically easier to play with OPM). If he's not comfortable losing any of it, that's your answer. If he thinks he is, then he should figure out how much he wants to potentially lose and then treat it like it's already gone.
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My daughter is 23 and just began contributing to her 401k. Since she doesn't know much about investing yet, I had her invest in the Vanguard Target Retirement 2060 Fund (VTTSX). It's just one fund and if she never gets to the point where she does anything else, she should still be okay since they will adjust the asset allocation automatically for her as she gets older.
Since your son is a littler younger, you could have him invest in Vanguard Target Retirement 2065 Fund (VLXVX) if you like this approach.
I'm 24 and I use the Fidelity equivalent - Fidelity Freedom Index 2060 (FDKLX) - because it's in-house, so no trading fees. Not sure about Vanguard, but Fidelity has both index and managed versions of these target year funds, and the index ones are far cheaper but harder to find info about.
Anyway, the target date funds don't require rebalancing and automatically adjust asset allocation as the target date nears. The 2060 one is set at about 90% stocks for many years.
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Unless he's earning a lot, wouldn't he be better off with a traditional IRA than Roth?
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You can look at the Vanguard Large Cap blend (growth and value) Fund VV, and the Small Cap Blend VB. Over the long term small cap out perform large cap so you can tailor the asset allocation which you can't do with a total market fund. For international VEU is the All Word EX US fund.
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Unless he's earning a lot, wouldn't he be better off with a traditional IRA than Roth?
No.
Think about it.... :)
See Traditional versus Roth - Bogleheads (https://www.bogleheads.org/wiki/Traditional_versus_Roth) if needed.
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VTI - total market
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Is the goal safety, returns or eduction?
Is he "into" the markets emotionally, or just seeking guidance while he focuses on other projects?
What is his reasoning about the tech idea?
Without knowing the answers to these questions, my guess would be some of the tech thing (so he learns from involvement) and one or two of the broader funds like VTI. But the answers should drive the decision. IMHO learning is more important than returns at this stage, hence the emphasis on including his suggestion.
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Unless he's earning a lot, wouldn't he be better off with a traditional IRA than Roth?
No that's backwards. If he earns a lot, tIRA is better because you reduce taxes. If he earns little (thus pays little or no tax) then why would he do tIRA?
I say just stick it all in a broad index fund like VTSAX and forget about it.
EDIT: Also that's badass he's maxed out his Roth for 2 years by age 18.
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Lot of overlap between the growth and large cap funds.
My 18-yr-old is in Target date 2060, but once it builds enough we will probably split 50/50 into total US and total international and hope the education grows from there. Small-cap is also good for long-term (her UTMA account is split between US and international small-caps) but starting out it's also good to let them see stable results, I think.
I'd support putting some in the ETF he is interested in so he can learn and compare. Good job.
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So we're talking a small amount and an owner who is realistically at least 15 years from retirement. Being perfectly balanced might be less important than learning to live with volatility and the rewards it brings.
Hell, throw it in VGT - Vanguard's IT fund. That's what I bet will be worth the most in 15 years.
I also like L.A.S.'s suggestion.