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Learning, Sharing, and Teaching => Investor Alley => Topic started by: kkbmustang on March 18, 2014, 08:47:53 PM

Title: Assets Invested FBO Your Kids
Post by: kkbmustang on March 18, 2014, 08:47:53 PM
Wise Mustachians: I'd appreciate your advice on the following situation:

Each of our children owns closely held, dividend producing stocks (family started the business in late 1800s- on the husband's side). The dividends are paid in cash --no DRIP option. Dividends are issued quarterly. Until the kids were old enough to notice, all birthday/Christmas/etc. cash gifts were put in their savings accounts. 

They each have the following:

The Boy, Age 11
-100 shares, FMV ~$10,000
-CD, $1700, 6 month term, matures July.
-Cash, $4300

The Girl, Age 9
-100 shares, FMV ~$10,000
-Cash, $4800

We have separate 529 plans for each of them (small amounts, under $3k each) and grandparents have prepaid 4 years in-state public college tuition for both of them.

What is the best thing to do with their cash from an investment standpoint? It's sitting in a savings/money market/CD right now because we haven't made a decision as to how to invest their funds. We have Vanguard accounts quasi-designated for their investments (ie, in our names, not theirs). Do we do all equities- like the index fund? Or do we do a split equities/bonds? They will not be accessing the funds until they turn 16 and want to buy a car. We will match whatever they save for a car (up to a certain amount, we don't know what that will be yet). Otherwise, we will not really be allowing them to access those funds.

Thoughts? Suggestions? Thanks!
Title: Re: Assets Invested FBO Your Kids
Post by: ZMonet on March 18, 2014, 11:04:07 PM
Awesome that the grandparents are covering college for them.

We've been putting money in a 529 for our daughter (age 4) so hopefully we'll have it covered by the time she gets to be 18.  My grandfather has been giving her approximately $1100/year since birth.  Initially we put it in a savings account, but then I realized that was foolish given the time until she needs to access the money.  I have moved all but $1000 into Vanguard index funds.  My hope is that when she gets old enough to understand, that this will propel her on to utilizing index funds as her primary investment vehicle.  This post, one of my all-time favorites, was instrumental in my making the change: http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

Even with the slightly older ages than mine, I think investing a good chunk of their money into an index fund is a great idea.    Once they see the dollar value going up (hopefully the market continues going up so they say their money growing, not diminishing) they'll likely be hooked.  At least until it is time to buy that car...lol.

Good luck
Title: Re: Assets Invested FBO Your Kids
Post by: beltim on March 19, 2014, 12:28:24 AM
I'd ask your kids -- getting them involved as early as possible is the best way to get them interest and pass on good habits.  And for this, I'd recommend individual stocks.  It's all very well and good to have a passive index fund for you, but for kids, knowing that they actually own a portion of a company, and get to vote to select the board – to me, it's a great introduction to capitalism as well.

I'm quoting myself from another thread (https://forum.mrmoneymustache.com/ask-a-mustachian/encouraging-the-kids-to-grow-a-'stache/) :

My Dad bought some stock for me in dividend reinvestment plans starting from when I was 8.  I loved getting statements in the mail every quarter, seeing how the dividends I received each quarter increased because the previous dividend was reinvested.  And then about once a year the dividend rate would increase, and my dividend would jump higher!  Plus, I started reading annual reports to learn more about the companies, which then taught me a wealth of other knowledge - electricity generation, oil exploration, even paints.

Now I look back and can see the value of buying high quality stocks and holding forever.  Plus I've learned a ton about investing, finance, business, and more.
Title: Re: Assets Invested FBO Your Kids
Post by: soccerluvof4 on March 19, 2014, 08:17:18 AM
I'd ask your kids -- getting them involved as early as possible is the best way to get them interest and pass on good habits.  And for this, I'd recommend individual stocks.  It's all very well and good to have a passive index fund for you, but for kids, knowing that they actually own a portion of a company, and get to vote to select the board – to me, it's a great introduction to capitalism as well.

I'm quoting myself from another thread (https://forum.mrmoneymustache.com/ask-a-mustachian/encouraging-the-kids-to-grow-a-'stache/) :

My Dad bought some stock for me in dividend reinvestment plans starting from when I was 8.  I loved getting statements in the mail every quarter, seeing how the dividends I received each quarter increased because the previous dividend was reinvested.  And then about once a year the dividend rate would increase, and my dividend would jump higher!  Plus, I started reading annual reports to learn more about the companies, which then taught me a wealth of other knowledge - electricity generation, oil exploration, even paints.

Now I look back and can see the value of buying high quality stocks and holding forever.  Plus I've learned a ton about investing, finance, business, and more.

^+1

I would create your own little Dividend fund for them with names that they can relate to. I allow my kids to pick some stocks as well with guidance.  Besides kids can sometimes tell you what to look for by what they like.  But i am sure they would recognize safer companies with good dividends like KO, MAT, and so on.
Title: Re: Assets Invested FBO Your Kids
Post by: Mister Fancypants on March 19, 2014, 12:06:10 PM
We follow the same asset allocation for childrens investments as outs 75% stocks, 25% bonds all through ETF's that track indices.

Just be congnizant of the kiddie tax as they start to earn more investment income, we are not there yet, but I am preparing for how to address that to hopefully shield my children from having to pay at my tax bracket.
Title: Re: Assets Invested FBO Your Kids
Post by: kkbmustang on March 19, 2014, 12:14:07 PM
Thanks everyone! I appreciate it. I'll probably do a mix of index funds and allowing them to use some of it to invest in an individual stock or two.