help my son invest 1k in a total stock index fund

[aceyou]

Hey Everyone,

My son is 11, and today his net worth has eclipsed 1k.  I told him when he hit this mark I'd help him switch from saving to investing.  He wants to buy a total stock market index fund.  I personally use VTSAX, but I was wondering what the best way to do it for a kid is.  Here's some questions I'm trying to sort out:

• Which companies allow you to open an account with 1k...will vanguard allow that?
• All of my personal investments are in 403Bs or Roth IRA's.  Is there a way that my son can put it into a tax sheltered bucket?  If not, how do I help him out with taxes?
• Any other considerations I should be taking into account that maybe I haven't thought of?

Thanks so much, we are very excited to get at it!

-Ace

[Dicey]

I'm a fan of this: fidelity zeroŽ total market index fund. That's where I keep my DAF $, because volatility doesn't scare me.


Your son has a long time horizon, so volatility shouldn't scare either of you. I wouldn't worry about tax sheltering at this point: he has no income. Even when this account produces some, he won't need to file or pay taxes for a very long time.

[aceyou]

Excellent.  Thanks Dicey.  I already do all my investing with Vanguard in VTSAX.  Do you think the advantages of using fidelity outweigh the annoyance of having accounts at two firms?

[MDM]

Do you think the advantages of using fidelity outweigh the annoyance of having accounts at two firms?

It's mostly a matter of taste (so opinions will vary) but any of Fidelity, Schwab, or Vanguard will work.  I wouldn't go out of my way to open an account at a separate firm if I already have one at any of those three.

He needs earned income to justify a contribution to a custodial Roth IRA.  See Where to start a child's Roth IRA with very low income?  The short answer: any of Fidelity, Schwab, or Vanguard will work. :)

[aceyou]

This is good stuff.  Ok, I'm going to get started.  It prompted about an hour long conversation together today about what a stock is, and what an index fund is.  It's really cool to have a child at an age to not only be able to understand it, but also to be excited to understand it.  These are good times!

[Dicey]

I don't use Vanguard, but there was a recent-ish thread here about how much of a PITA Vanguard has become of late. Many people were switching to Fidelity and having a better experience.

I only use Fidelity for my DAF, and a small inherited IRA, which I use to feed the DAF. I really like the Total Zero option. For someone that young, why pay any fees at all if they can be fairly easily avoided?

[yachi]

I don't use Vanguard, but there was a recent-ish thread here about how much of a PITA Vanguard has become of late. Many people were switching to Fidelity and having a better experience.

I only use Fidelity for my DAF, and a small inherited IRA, which I use to feed the DAF. I really like the Total Zero option. For someone that young, why pay any fees at all if they can be fairly easily avoided?

I much prefer Vanguard to TD Ameritrade (are they still around? my Ameritrade account is moving to Schwab).  But I'm finding it difficult to recommend Vanguard.  I haven't had a Fidelity account to compare.

Vanguard has great low cost index funds, but they leave a lot to be desired as a broker:

• The log in window sometimes kicks me back to a second log in window which makes me doubt their online security.
• Their website is a weird mix of old and new versions, with a new version of they buy window to buy stocks and mutual funds, and an old version used for buying options
• Thinly traded securities are not valued correctly according to SEC or FINRA definitions (I can't remember which), until End of Month Statements, when they're *almost* valued correctly
• For years they logged automated contributions as "buys", but they've since fixed it.  I spent an entire morning resolving this for my taxes so I'm leaving it on here.

1 through 3 make me doubt the security of Vanguard against hacking attempts.  3 requires that I put all my thinly trades securities into a spreadsheet if I want to now my true net worth.  The issue is Vanguard reports the last price no matter how old or far from current bid-ask prices it is.  They are supposed to use the last price only if it traded there today.  If it didn't they're supposed to use something between the bid and ask price.  I say they almost fix it in the monthly or quarterly statements because they'll report the bid price if it equals the last price, which is not proper.  I have one position valued at the price it traded on 6/16/2023.  The bid and ask prices suggest this would sell for 6.6% higher than its price on 6/16.

[ClimateMind]

Funny, I came on here thinking about a similar question - my son, 13, has been asking a lot about investments, stocks, etc. (not at all because we talk about them - he seems to have a natural interest in making money!) and I've been thinking of coming up with a way to give him a chance to practice investing. However, he would balk at the idea of investing all of his money! So I'm curious if you've talked with you kid about the potential risk and lack of liquidity. That is, what if he finds something he wants to buy?

I say this because I think it's an interesting challenge as a parent - how to balance teaching savings/accumulation, and just reasonable consumptions/spending. I find that I have to sort of encourage my kids to spend their money because sometimes they talk themselves out of buying something they really want. I want them to have a balanced relationship with money, be willing to make mistakes, over spend on something they don't end up liking and learn a lesson.

I don't mean to hijack the thread, but I think this might all be worth considering before he puts 100% of his net worth in the market. Unless, of course, he has a really big allowance/side gig, and will replenish his liquid cash quickly :)

P.S. the idea I offered my son (after trying to explain index funds and stocks, bonds and money markets, and if he agrees to complete the Khan Academy Finances curriculum) was to let him pick something to invest $100 in. I said I'd match his investment with $100, as long as he leave the money invested for 12 months, we'd see what happened, and it would all be his.  He'd have complete control over what to pick - I think he's leaning towards Apple :)