Question for the board for investing inherited money for daughter

Patrick1

My 26-year old daughter received $50,000 inheritance from a deceased aunt. She is interested in investing it in a growth fund. She has a ROTH IRA account but this $50,000 would be in a taxable account. I was thinking of investing it in index funds or ETFs reaching for a diverse portfolio. I would very much appreciate any insights or advice from others on this matter regarding investing. All comments appreciated. Patrick

Ted

@Patrick1: I highly recommend SPY.
Regards,
Ted

bee

Sorry for your loss.

One thought for the inheritance:

Open a taxable account at the same institution (Fidelity, Vanguard, T. Rowe Price) as her Roth IRA.

Over the next few years she can make contributions from the taxable account into the Roth IRA. In ten years or so she will have an additional $50K in her Roth IRA and be well on her way to doing the same one day for her nieces and nephews (trump free...oops tax free).

davidrmoran

RPG. Maybe leave some as cash in case she wants or needs to buy something. And yes, depending on her earnings, she can incrementally move it into a Roth over time.

Patrick1

Thank you very much for your thoughts. I had thought of the S&P 500 or Vanguard's total market index. I think moving it each year with a contribution to Roth IRA is great idea. Keeps the money growing tax free. I go back and forth between mutual funds and ETFs, can't make up my mind, I read where ETFs are trading vehicles and mutual funds are more solid (less trading), investment vehicles. I read where John Bogle is not an ETF fan. Anyway, more issues to work through.

msf

Whatever she does, remember that brokerages have promotions. Make sure she asks about that when she opens the account, otherwise she might lose the bonus.

https://rewards.fidelity.com/offers/friendsandfamilyoffer1

Be mindful of her risk tolerance. What sort of investments does she have in her Roth? I may be an anomaly, but I found my risk tolerance went up after a few years of investing. Before then I would never have invested in a rocket-fuel-type fund.

So until knowing more, I'd lean toward Ted's type of investment. Pure equity, but not a growth equity fund. Though if I were going with a single index investment, I'd go for more breadth, either something like VTSAX/VTI (if limiting to US market), or VT for global exposure.

If one wants to stick with SPDR (State Street has a better proxy voting record), there's THRK (domestic R3K) and ACIM (MSCI All Country World Index).

If you want to spice that up, add an EM fund (since VT is heavily weighted toward developed countries) and/or a small/mid cap fund (VTSAX is mostly large cap).

msf

ETFs psychologically encourage trading (since you can sell them any time of day), but that doesn't mean they have to be used that way. In fact, the Vanguard ETFs are just other share classes of their "regular" funds. So VTI and VTSAX are different share classes of the same fund, and you're buying a piece of the same underlying portfolio.

A thought on moving the money from taxable to Roth. One can only contribute cash to an IRA. So from a tax perspective, it would be better to add new money to the Roth than to sell some of the taxable investments and pay taxes on the gains.

davidrmoran

@Patrick1
See the thread elsewhere about typical SP500 vs equal weighting for pros and cons and why I suggested RPG to your dau.

shipwreckedandalone

If it were my money at her age, I would wait for the next recession. I would use a global index for 80% and 20% SSO. Another reasonable suggestion would be a target fund using indexes. You need a Roth IMO. Caveat Emptor. Very sorry for your loss and good luck.

msf

I respectfully disagree with the use of SSO, or any leveraged fund, as a long term holding. Leveraged funds are precisely the vehicles designed for traders.

See FINRA Alert: Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors
https://www.sec.gov/investor/pubs/leveragedetfs-alert.htm

shipwreckedandalone

No you're right. Typo. I meant VGIT 20%. (or a target date fund with bond allocation included which should be around 10-20% at her age). I was in two different conversations at the same time with SSO. The target date fund resolves any rebalance debates down the road IF the asset size where to grow substantially. When/Where she establishes a cost basis is important from a long term compounding viewpoint.

TSP_Transfer

Unless your daughter wishes to make/upgrade a housing purchase in the next 5 years,growth is the word !

T. Rowe Price Global Technology Fund PRGTX ( 10% )
https://www.google.com/finance?q=MUTF:PRGTX&ei=48r1V-CDHtXLjAH27bDQDw

T. Rowe Price Health Sciences PRHSX ( 10% )
https://www.google.com/finance?q=MUTF:PRHSX&ei=vcr1V8DGJ8T2jAGTt67QDg

iShares S&P SmallCap 600 Growth (Etf)(NYSEARCA :IJT (36% )
https://www.google.com/finance?q=NYSEARCA:IJT&ei=Zcr1V_jyIIKK2AbS2IW4Bg

SPDR S&P 500 Etf Trust(NYSEARCA: SPY (30%)
https://www.google.com/finance?q=NYSEARCA:SPY&ei=Fsr1V5CXPMWr2Abc5bqwAQ

iShares Barclays Aggregate Bond Fund(NYSEARCA: AGG (10 %)
https://www.google.com/finance?q=NYSEARCA:AGG&ei=EMn1V5C-L8Gs2AaYraygCg

100 shares @ $21.00 :ROIC (4%) One of @Scott's mentions a while back.
Retail Opportunity Investments Corp(NASDAQ :ROIC
..specializes in the acquisition, ownership and management of necessity-based community and neighborhood shopping centers on the west coast
https://www.google.com/finance?q=NASDAQ:ROIC&ei=98j1V6GGMszEjAGq-YLIAg

Millennials
Here's some info on the Millennial Generation .The two Etf's mentioned do not have enough assets or volume to be viable at this time,but bear watching.
Which Millennial-Focused ETF Deserves Your Investment Dollars?
investing in this segment’s needs and preferences should be intriguing.

As this group has the prospect of comprising 75% of the workforce by 2025, it surely emerges as a long-term bet. As per research by Global X, millennials now earn about $2 trillion, with income projected to grow to $8 trillion by 2025.

Probably this is why issuers got busy in launching millennials’ focused ETFs. First Global X and then Principal Exchange-Traded Funds brought about two such products, namely Global X Millennials Thematic ETF (NYSE:MILN) and Principal Millennials Index ETF (NASDAQ:GENY).

http://etfdailynews.com/2016/08/28/which-millennial-focused-etf-deserves-your-investment-dollars/

STB65

While I know I'm a one trick pony, for my grandchildren and children's investments that I'm funding, I'm using VMVFX. ER 0.27. It trailed the S&P this year, but doubled its global stock peers, according to M*. The track record is short, but Vanguard's heritage is relatively long, and they select managers carefully.
If you are looking at 30 years before you become cautious (your daughter, I presume, although I wish you well), I think some of the money should be averaged in there. I'm waiting for a significant drop to add more, but as GRT and River Road Independent Value liquidate, I tell my children to put the proceeds there. Vanguard isn't perfect, but how much effort does your daughter plan to devote to managing her money, and how good is she at it?

rforno

I would stay away from thematic niche ETFs which tend to be very thinly traded and/or fail to attract enough assets and end up shutting down.

For a long-term growth portfolio, much of what TSP_Transfer said isn't too bad - own PRGTX and PRHSX myself. Or you could just DCA into index funds, or something like Vanguard Lifecycle Growth. Or, or, or....

00BY

How about Mid cap or smid cap. You could go with PARMX or PRSVX. She might like the ESG screens at Parnassus or the stability of a t rowe price mutual fund.

BenWP

For an allocation fund whose performance has hugged the return of the S&P 500 for the past 10 years, go for the Bruce Fund (BRUFX). It's by far my biggest MF holding.

bee

BenWP said:

For an allocation fund whose performance has hugged the return of the S&P 500 for the past 10 years, go for the Bruce Fund (BRUFX). It's by far my biggest MF holding.

Don't you wish Bruce Fund offered a cash position? I have my H.S.A with Bruce and would like to park some of my money in a cash position instead of having to redeem shares when I need to pay for health related expenses.

I do love the Spartan website. Old School. I have automated my contributions by using the bill pay services offered through my bank's checking account and I have learned to tempered my enthusiasm for redemptions since the US mail is the only method available for receiving withdrawals.

I'm hoping all of these "old school hurdles" are too much trouble for the "above average high tech" investor to except and it remains the fund less traveled.

MikeM

@Bee, why don't you just carry 2 HSA accounts. Open up a cash account with your bank or credit union for what you think you will use per year and keep the rest invested. I think you can do that though not 100% sure. I did have 2 accounts with 2 different banks after I changed jobs.

bee

@MikeM...good thought. Thanks.