Roth IRA for a college student

Gingersnap

Hi Folks,
Delighted to have discovered this board! I am trying to choose which fund for a Roth IRA for my daughter who's a college senior and has enough earned income.This will be her graduation present from us.She has no other investments. I'd appreciate any thoughts:
VBINX
VTSMXor FSTMX
VWELX
STAR
VEIPX
VTINX
I am aware that I could choose something more aggressive given her timeline but given the market's current runup I don't want to do that. For whatever reason the target date funds didn't draw me in, but maybe that would be a choice. I understand what the SD, Beta,Sharpe ratio etc are but don't know how to interprete it totally.I'm open to active or index as the list shows. At about this time I'm ready to choose based on the MARTIAN ratio --- what a green guy from outer space would do! Feel free to rank them or tell me to eliminate someor suggest tools to help me decide.
Thanks very much in advance!
Gingersnap

hawkmountain

Hi Gingersnap,
OK, this is a Roth which means she has 40+years for it to grow.
FWIW, and I am 71 BTW, is to steer clear of any bond component and go with blue chips all the way. My vote is Vanguard's VDIGX.
Other stuff can be added later, but I think this is about as rock solid as possible. Why? Presumably the companies are increasing dividends; presumably they are healthy.
I use this fund as a core for my kids and grandkids.
Good luck to you!
best, hawk

scott

I think it would actually be a good idea to sit down and discuss the process with her and maybe allow her to make a choice or two. I think it's fantastic that you are giving her that gift, but I think it's one of those things where it's a good thing to have her be a part of the process and learn so that she can use that knowledge down the road. I don't have any issue with being on the conservative side at this point in time - I've been going more conservative in the last week or two - but I would suggest some international exposure.

TSP_Transfer

Growth and the phenomenon of compounding combined with the years your loved one has on her side.
http://www.schwab.com/public/schwab/investing/investment_help/investment_research/mutual_fund_research/mutual_funds.html?path=/Prospect/Research/MutualFunds/Summary.asp?symbol=CPOAX
Schwab Mutual Fund OneSource®
(no-load, no-transaction-fee)
Growth Manager of year with outstanding record in his 10 years as manager. Some International exposure.Lots of names a young person can relate to
Security Name
% of Portfolio

Facebook, Inc. 8.65%
Google, Inc. 7.24%
Amazon.com, Inc. 6.69%
Illumina, Inc. 5.38%
Athenahealth, Inc. 3.74%
Priceline.com, Inc. 3.60%
Valeant Pharmaceuticals International, Inc. 3.18%
Mastercard, Inc. 3.15%
Visa, Inc. 3.09%
Intuitive Surgical, Inc. 3.08%
Also Starbucks,Apple,Christian Dior,Tesla,Twitter,Salesforce, etc.
http://quotes.morningstar.com/fund/f?t=CPOAX&region=usa&culture=en-US

No-load @ Schwab with $1000 min/$100 AIP . 1/3 of gift in CPOAX. Balance in RSIVX
with plan to dollar cost average from RSIVX into CPOAX over 2-5 years?
http://quotes.morningstar.com/fund/f?region=USA&t=RSIVX

mrdarcey

I think I understand where you're coming from here, but I'm not convinced it's the right place. Sure, stocks are fully valued at this moment. But there seems to be thin value in bonds. And, anyway, your daughter has a 40+ year horizon.

I'd avoid balanced funds altogether, I'd especially avoid balanced funds that only hold domestic stocks (read VGSTX > VBINX).

Depending on the size of the gift, I'd look at either some sort of global fund that can be readily paired with a core bond fund (think DODWX, OAKGX, or VTWSX. I also like the suggestion of VDIGX) or just buying shares of a dividend growth stock. Coke looks a little under the weather lately. Consider what 100 shares of KO (or MCD, PG, JNJ, KMB, LKT, BHP or TROW, etc...) bought today would look like in 2054 with dividends reinvested.

If you are going to give a balanced fund, give a go anywhere fund with capital appreciation as a mandate. PRWCX, DODBX, VILLX come to mind.

davidrmoran

Have just done this with my daughter. 45+ years. I advise (if you have the options) half FSTMX and half FLVCX. Forget balanced. Else all FSTMX. Assuming you are still around, check in 10 years and if Soviero is gone or something, do something else with the FLVCX half. Otherwise leave it all alone, no matter the performance.

STB65

VTWSX or VT the ETF - ER .35 or .18 makes up for hot managers over 40 years. Ask her to read one of William Bernstein's books on investing and discuss it with you.
She can add some bond funds 10 or 15 years from retirement. She can add a mid or small cap global or global dividend fund lwhen she has the money as she gains experience, but this is the simplest, cheapest way to start, and I wish I had done so several years ago for my children (as I now am).

Dave

Since it's a long-term investment, my Vanguard recommendation would be to go a little more aggressive using either their STAR fund (VGSTX) as an auto-piloted allocation fund, or their Explorer fund (VEXPX) for a more aggressive small cap growth tilt. I hold both... And in the future she can add in their Wellington (VWELX) for some bond exposure.

Gingersnap

Hi Everyone,
Thanks for all the suggestions! After much reseach I have tentatively chosen VWELX for the first $3,000. That leaves $500 as her earned income was $3500. Should I open an brokerage Roth IRA account elsewhere such as Fidelity and buy one or two commission free ETFs?I realize that one can't own partial shares,but with only $500 I don't think buying stocks is going to make sense as the first 6.5% or more will go to commissions. Or maybe a Fidelity freeom fund which has a $500 minimum?The other options include putting it into VWELX and waiting until she's earned another $500 and then opening transferring over $1000 into a Star or Target retirment account. Is Fidelity is better for ETF's ,sector IRAS and brokerage? I'm open to any other ideas as to how to maximize this money. I'm feeling a tiny bit more confident thatnks to this board.Thanks so much!
Gingersnap

mrdarcey

Don't split the account, that's just going to lead to headaches. Put everything in Vanguard if you're sold on VWELX. They aren't as much a full service brokerage like Fido, but it doesn't really sound like that's what you want. You'll have NTF access to all Vanguard's funds and ETFs and cheap transaction fees for other things. With Fido you can get the iShares core ETFs, which give a little broader market-cap coverage, but six or one half dozen.

With an extra $500, I'd put everything in one fund. $3000 is their minimum on most investor shares, so no problem there. I like the foreign diversification you'd get from VGSTX a little better than VWELX. Prefer VDIGX even more, as I'm not a fan in bonds for young accumulators, but that's your call according to your risk tolerance.

Good luck!

rono

Hi Gingersnap,

Congratulations on having the wisdom and the ability to do this for your daughter.

The problem you'll face is that initially you'll have limited funds to invest and Vanguard and most other families have individual fund minimums. Vg is $3K. Some families are $2500. This makes it hard to create a decent asset allocation for several years. However, during that time you can get your daughter involved and take it on a project, not unlike making a stew (i.e. meat and potatoes first, followed by the veggies and later the spices and herbs).

You need to start with the basics - say 500 or total mkt equity idx. I'd throw the whole $3500 at the one fund and not split the $500 off somewhere. If you really must, open a brokerage account at vanguard and buy something there so you have one statement.

I would most certainly involve your daughter in the decision making process as soon as possible.

Keep it simple and be patient. As mentioned, she's on a 40 year timetable.

Good luck,

peace,

rono

lrwilliams

Hi,
Some info since I just went through this process opening Roth IRAs for my teens at Vanguard -- 1 k minimum in VGSTX and the Vanguard Target Retirement Series. We chose Vanguard Retirement 2045 (VTIVX) which is 63% domestic stocks, 27% international and 10% bond. They don't earn much each summer right now, so the intention is to let this sit for years. They can diversify later when they have more in the account.

I agree with the other posters who recommend choosing just one fund for the total $3500. Keep it simple.

lrwilliams

Gingersnap

Alright so I decided to do one moderate allocation fund! Since I operate under the scorched earth/leave no stone unturned mantra I've been pondering PRWCX. I looked at the FINRA calculator and the last five years she'd have 700.94 more with PRWCX than VWELX. I see that over ten years VWELX lower fees make the net after fees of only thirty three more with PRWCX and certainly a smoother ride with VWELX.PRWCX has come down in it's standard deviation, but still lost 5% or so more in 2008 meltdown and has more risk. I know everyone says go more aggressive for a younger person, but I want my daughter's first experience with investing to be positive. Also any thoughts about growth(PRWCX) vs value(VWELX) in making this choice?
Thanks everyone!
Gingersnap

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mrdarcey

Both great funds. The differences aren't just in the equity sleeves, though. VWELX seeks capital growth with current income a secondary objective, so holds mega/large dividend payers and lots of treasuries in a set 60/40 split. PRWCX seeks capital growth through stock-market like returns with preservation a secondary objective, so holds value priced stocks with corporate and some junk bonds. PRWCX also offers a little more tactical breathing room to its manager, who can hold some foreign equities and change the equity/bond allocation as well. PRWCX is higher risk, higher reward, but still with less volatility than the market in general. Both make fine core holdings.

Both funds also have attracted large amounts of AUM because of their success ($80BB for VWELX, over $20BB for PRWCX), and recently the manager of PRWCX appears to have sold out of the fund, though there could be many reasons for that. So at the risk of complicating this again, let me suggest an alternative for each:

MAPOX is a fantastic traditional 60/40 income fund specializing in midwestern American stocks with a flexible bond sleeve. It holds some mid and small caps, and has very slightly better numbers than VWELX with a fraction of the AUM. It also costs twice as much, though is still relatively cheap, and has zero NTF brokerage availabilty. There are worse things, though, than a Roth held at Mairs and Power, and eventually your daughter could branch out into the excellent growth or small cap funds.

VILLX is a quirky fund based in New Orleans that holds growthier mid and small cap fare and corporate bonds, though not much junk right now. The managers still have an eye for value, though, and the fund has a small amount of turnover. Think of a Primecap balanced fund. I believe they can alter the allocation tactically, but am not sure. VILLX is definitely the youngest, most volatile and priciest of the four funds, but it has thebstrongest upside of any of the four (check out the results for the past five years).

All four are MFO "Great Owl" funds, for whatever that is worth, and any would make a fine core holding. In terms of risk/return they'd rank VILLX/PRWCX/MAPOX/VWELX. I think eventually you could even pair VWELX/MAPOX with PRWCX/VILLX with a catch all foreign fund for a decent enough, simple three fund port.

Gingersnap

Thanks everyone. I think VWELX will be my choice for my daughter's Roth IRA. Less volatility and less gain in the beginning will be OK. In any case it'll hopefully get her started on the "stocks not shoes" path!

Ted

@Gingersnap: Great minds think alike, you've made an excellent choice with Wellington
Regards,
Ted

mrdarcey

Gingersnap said:

Thanks everyone. I think VWELX will be my choice for my daughter's Roth IRA. Less volatility and less gain in the beginning will be OK. In any case it'll hopefully get her started on the "stocks not shoes" path!

Best of luck. She's very fortunate to have a father to do something like this.