Hello, I just recently joined MutalFundObserver and hope this is an appropriate topic. I would like read some thoughts on some long term growth funds in which I can invest for 5 grandchildren (current ages 1-12). The purpose is for them to receive the money upon our deaths (or age 25, if we live that long). The money is not for education purposes as the parents are taking care of that, but for them to do with with as they like. We have saved amounts for them from $3,000 to $13,000 in 5 separate accounts. My Schwab advisor says it would be better to combine the five accounts into one which would then start off with $38,000 and allow funds with larger minimums to be invested in. I also wonder how many funds that amount of might best be split between, Thank you. alpha66
Comments
Welcome to MFO...have you given some thought to setting up mutiple Roth account in your name and designate these grandchildren as Roth recipients (beneficiaries of each account)? This would provide them with an inherited Roth IRA upon your death as well as access to the money (the contributions) at anytime while you are still living. They also would have access to all of the (contributions and appreciation) if they were to use it for education or buying their first home penalty free.
This Roth "gift" would grow tax free over two lifetimes.
1) MACSX Matthews Asia Growth & Income.
2) MAPIX Matthews Dividend "Value" Fund. The name is something of a misnomer. Anyhow, MAPIX has a splendid record. These Matthews funds will not disappoint.
Also: 3) TRBCX T. Rowe Price Blue Chip Growth and 4) OTCFX T. Rowe Small-cap, which carries a Growth profile these days. ....Click on the blue-colored links for access from different sources to charts, comparisons, etc.
My short-list of funds to look at:
T. Rowe Price Spectrum Income (RPSIX) - a low cost fund of funds, about 20% equities but also a slug of high yield and international bonds.
T. Rowe Price Personal Strategy Income (PRSIX) - a more stock-centered fund that combines funds and individual securities.
Northern Global Tactical Asset Allocation (BBALX) - a retail fund-of-funds that inherited the expense ratio of its institutional share class and that gained a lot more flexibility three years ago.
PIMCO All Asset (PASDX) - a go-anywhere vehicle driven, with great success, by Rob Arnott. It's a sort of benchmark-free fund of funds, which has quickly grown huge.
PIMCO All Asset All Authority (PAUDX) - the above fund, using leverage and charging more.
For what it's worth,
David
I also second David's mention of PAUDX.
1) Start with all equity at young age (or a long time before target) and over time reduce equity exposure.
2) start with a balanced portfolio and pretty much maintain the same balanced allocation throughout.
1) require you deposit and pretty much forget about it for a number.of years through thick and Thin. This requires higher risk capacity early on. Some people have problem maintaining this even at early ages.
2) Balanced portfolio makes it easier to maintain portfolio w/o panicking during those market declines.
I think a balanced or perhaps aggressive allocation is appropriate for young investors. It provides a gentler introduction to markets.
But what do you do if the portfolio is small and likely to be static? I guess my first impulse is risk management. I keep thinking about the T Rowe Price research on asset allocation and risk. If you go from a conservative portfolio with 20% stock exposure to a balanced portfolio with 60%, two things happen: (1) your average annual returns increase by 1.9% from 7.4 to 9.3% and (2) your volatility explodes - you quadruple the number of losing years you'd expect to experience, you deepen your average loss in a losing year from 0.5% to 6.8% and you double your standard deviation. (That original study was 2004, of the period 1955-2003.)
And so that was the balance: if I thought I could get 7.4% and feel like my legacy (or my inheritance, depend on your perspective) was pretty secure, I'd take it.
As ever,
David
- Therein lies the problem. Without a clear idea of how the $$ will be utilized, it's hard to recommend investments. If these kids are really bright, they'll understand the concept of "net-worth" and the benefits of having $$ or investments that are not earmarked for specific purposes. (It certainly helps in qualifying for a mortgage.)
Being long separated from gainful employment, hybrids have become my favorite flavor - for all the reasons David cites. However, if these kids are capable of closing their eyes and not concerning themselves with monthly or yearly fluctuations, I'd go with equity funds. (Consider index funds as low cost vehicles.)
Dollar cost averaging is a wonderful concept and would lessen - but not eliminate - some of the near term risks equities pose. Perhaps that's the approach you contemplate. If not, I'd check with Price (or the house of choice) to see if you could first invest the sum in a fund like RPSIX (Spectrum Income) and than have a small portion automatically transferred monthly into a growth fund of your choice (over perhaps 3 years). If not possible, than you could easily do that yourself. I believe (from experience) Price would not object to such a systematic approach on your part.
Hope you'll share your progress with the board. Regards, hank
I
I'd set up seperate UGMA/UTMA accounts or Roth accounts ( I believe they must have earned income for the Roth accounts )
As for the investments: I think i'd have two funds per child. Perhaps one AA fund and one global fund
PRWCX, FPACX, OAKBX
SGIIX, ARTGX
As PBull mentioned above...start out with UGMA/UTMA accounts and as the kids earn income use this gift account to contribute to a Roth account in their name. Babysitting and cutting lawns is earned income. My kids contributed to a Roth as well as helped pay for college by running a small concession business. I proudly tell those that ask...my kids earned their college degrees one hotdog at a time. By the time your grandkids reach college age and FAFSA needs to be filled out, these gifts will have been positioned in a way that is most beneficial to the entire family.
Something I came across that might be worth checking out. This is part 4 in this series of articles:
thechoice.blogs.nytimes.com/2012/01/12/kantrowitz-part-4/
$9500 in SCHX or SCHG Broad based Large-Cap Blend or Growth
$9500 in XLK Technology
$9500 in XLF Financials
$9500 in XLV Health Care
Regards,
Ted
PS Geez looks like I don't need a code name. Will change to real soon.
I am not a grandparent but a parent with some relatively recent experiences with dealing with money both set aside for long-term purposes by myself and my wife and by other people.
Things to consider:
I would suggest you think through some downside scenarios.
Kids can have issues that lead to various unexpected and significant expenses. Depending on the depth of everyone's resources, these issues could alter the ability of parents to fully cover school expenses (which sounds like the current plan, which all hope will go through). Depending on the extent to which you want to backstop them against the vicissitudes of life, you might well find you want to dip into the funds intended for longer term assistance in the nearer term.
To the extent this conservative always hope-for-the-best, plan-for-the-less-good approach makes sense to you, I would counsel against assuming an extremely long-term investment horizon for money for kids. High "risk tolerance" really means "high volatility tolerance", which when the rubber meets the road means "high willingness to lock in losses if the money is needed unexpectedly early". So think about this careful before you select funds with predictable short-term volatility.
Now, if pockets are real deep here, and you know you'll be just fine selecting volatile growth funds, my advice is irrelevant. But if my comments seem relevant, for 10 year scenarios I tend to like a balanced approach, with some flexibility. Funds l like are for this approach: are combinations tuned to your overall biases and goals of VWELX and VWINX, Manning & Napier Pro-Blend series funds, Dodge and Cox Balanced and FPA Crescent. For spice, if you agree with the long-term prospects for Asia, I like MACSX in a small dose; others here favor MAPIX. If you cleave more to an index fund portfolio, you can select your own mix of index funds or ETFs, or switch advisors to AssetBuilder, and have them construct an index fund portfolio using DFA funds.
Best of luck.
Your grandchildren are very fortunate.
Greg