Investing Small Amount - Get in now or after next recession?

[Bales9er]

My wife and I would like to invest the money in our son's savings account ($3,000) in a basic Vanguard index fund. He's only 4 so this is a long term plan to help his money work best for him. We would like to do it sooner than later to get the ball rolling but since we're currently in the longest stretch between recessions that we've ever had, we're afraid that if we invest it now and the bottom falls out soon it may be the wrong time. My thought, which may be completely wrong, is that since the balance will be so low that if the market tanks he may lose all of it before it even has a chance to grow. Am I wrong for having that mindset? Should we hold off for now until that next recession does hit and then buy in after? We are complete newbies at this, hence the question.

[Cromacster]

Yes, you have the wrong mindset.

If you bought $3,000 of VTSAX (I think you can get in for 3k now) you would have around 45 shares.  Market goes up, you have 45 shares. Market goes down, you have 45 shares.  Every quarter you get dividiends and more shares.

You are never going to "lose it all" unless you panic and sell.

"The best time to plant a tree is yesterday"

[coppertop]

Here's a question I have about that:  minimum to invest is $3,000.  I invested $3,000 in a Vanguard fund in June.  Looked this morning and it's down to $2,974, which is now below the minimum to invest.  Will Vanguard want me to divest myself of that fund?  I have traditional, Roth IRA's as well as taxable funds already in Vanguard, so it's not the only money I have there. 

[SwitchActiveDWG]

Here's a question I have about that:  minimum to invest is $3,000.  I invested $3,000 in a Vanguard fund in June.  Looked this morning and it's down to $2,974, which is now below the minimum to invest.  Will Vanguard want me to divest myself of that fund?  I have traditional, Roth IRA's as well as taxable funds already in Vanguard, so it's not the only money I have there.

No they won’t.

[jacoavluha]

My wife and I would like to invest the money in our son's savings account ($3,000) in a basic Vanguard index fund. He's only 4 so this is a long term plan to help his money work best for him. We would like to do it sooner than later to get the ball rolling but since we're currently in the longest stretch between recessions that we've ever had, we're afraid that if we invest it now and the bottom falls out soon it may be the wrong time. My thought, which may be completely wrong, is that since the balance will be so low that if the market tanks he may lose all of it before it even has a chance to grow. Am I wrong for having that mindset? Should we hold off for now until that next recession does hit and then buy in after? We are complete newbies at this, hence the question.

when does your son have a say about use of the money? What if he's 10 and the value is $2000 instead of $3000? (This is possible.)

[Bales9er]

Thanks for the replies, makes sense I just didn't realize that's how it worked with the shares.

As far as when he has a say about the use of his money, we haven't totally figured that out but we want his money to make money instead of sit in a savings account until he's ready to use it himself. I'd like to see him not touch the money until he's out of college and on his own at the very least, and hopefully we'll teach him well enough so he doesn't ever want to touch it until retirement. Maybe a CD or something would be better we just thought that the index fund would be a pretty safe bet over the long term, especially if we keep adding to it.

[jacoavluha]

Thanks for the replies, makes sense I just didn't realize that's how it worked with the shares.

As far as when he has a say about the use of his money, we haven't totally figured that out but we want his money to make money instead of sit in a savings account until he's ready to use it himself. I'd like to see him not touch the money until he's out of college and on his own at the very least, and hopefully we'll teach him well enough so he doesn't ever want to touch it until retirement. Maybe a CD or something would be better we just thought that the index fund would be a pretty safe bet over the long term, especially if we keep adding to it.

how about you put it in a 529 then

[Bales9er]

As far as I know the 529 plans are supposed to be used for educational costs correct? That's not our plan for his money, he may not want to go to college. Just trying to not waste the years of interest he would otherwise be missing out on. Open to other suggestions but we figured this was a pretty safe route overall.

[jacoavluha]

correct, you mentioned college, hence my suggestion

to invest funds for a minor at Vanguard you would have to open a UGMA/UTMA account. Unless you're investing it in your own name

[Bales9er]

That's good to know as well that we can actually set up the account in his name because we had initially just planned on investing it under our name and then giving it to him at whatever age we decide on. Other than potential market volatility is there any reason(s) why investing the money in an index fund would be detrimental? It just seems like a no-brainer if the end game is to conservatively grow the money for him at a much higher rate than CDs and high interest savings accounts can offer.

[BrightFIRE]

It is a no brainer. Put it all in an index fund and forget about it. Personally, I don't see the point in setting up a separate account for the kid. I would just invest all my money and then give kid a pre-determined amount at a pre-determined age.

If it's to teach him about money, you'd probably want to be using his allowance/bday gift money, but I wouldn't put that in the market. I'd keep that in something stable like treasuries until he's older and can understand things like risk.

[Bales9er]

Yeah its not to teach him about money right now, we can explain and show him what we did and the reasons for it when he gets to an age where he can comprehend it and hopefully he'll appreciate it and continue it himself. For now its just about putting his money to work so he can reap the benefits years later, something neither my wife or I can say we did for ourselves but wish we had looking back.

[harvestbook]

If it's a UGMA/UTMA account, then it legally becomes sole property of the minor upon age 18 or 21, depending on state. You won't have any say in the matter.

Also note that a portion or all of that money might be expected to be used for college expenditures and count against financial aid, if that is a concern.

Otherwise, go ahead--what I did was sell the UGMA/UTMA account when my daughter started working and used it to match her income in a Roth in her name. While the Roth is accessible in an emergency and for things like college and buying a home, the original intent--saving for the long run--is strengthened. Either way, it's a good move. I wish someone had done that for me.