Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Grandchildren

edited November 2012 in Fund Discussions
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

  • Hi Al,

    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.
  • Hello, Alpha66...... Long-term growth funds you might choose from:

    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.
  • Just for reference: in first talking with a66, I suggested that a hybrid fund might be appropriate even for long-term investors. That reflected my view that Treasuries are horrendously overpriced, that stocks are no real steal and that cash is good mostly because it's neither stocks nor bonds. Having an inexpensive, broadly diversified portfolio whose manager had at least some room to reallocate capital on your behalf makes some sense to me.

    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'll add VWINX for the long haul.....return data here

    I also second David's mention of PAUDX.
  • dear alpha... for children ages 1-12 to hold? i would go with at least 80% equity. the cheapest kind. something like vanguard total market. i like many funds offered, but they are for us -- those well over 40 and those near or at retirement age. you don't invest like that for children, especially since you mentioned that the educational accounts are separately provided for. being in the industry that offers many asset allocation, alternative and income funds -- those in vogue currently -- i see the asset management professionals are piling into the cheapest equity funds for their children's/grandchildren's accounts. do as they do, not as they say.
  • Reply to @fundalarm: Absolutely agree. Good grief David, you are the advocate of funds like Grandeur Peak Global Opportunities (GPGOX), yet you are recommending balanced funds for 12 year olds?! I vote with fundalarm...at least 80% equities. Heavy equities. Yes, even DODGX, for one. High integrity, value fund...solid, but not perfect. Over long term, can't go wrong.
  • There are two different strategies that could be employed.

    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.
  • Reply to @Charles: Howdy. I guess I'm thinking less of asset class performance here than of investor behavior. It looks like this might be a one fund portfolio or a few funds with relatively light supervision. And while the recipients are young, the time horizon isn't huge. Alpha hopes to bequeath these no later than the time that (the eldest?) recipients reaches 25. While WAMVX or SFGIX (which I mention just because they represent my riskier non-retirement investments) might well be splendid choices for reasonably seasoned investors, for a small slice of a larger portfolio or for a black-box retirement portfolio with 20 years to grow, I was less sure of them as a grandparent's gift to a 20-something, "to do with as they like" (retire student debt, buy a home, start a family?).

    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
  • edited November 2012
    "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"

    - 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
  • Howdy ~

    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
  • Getting back to your generousity...Be sure you understand how this gift will impact other financial dynamics for your grandkids. Paying for college is a very large outlay. Often a FAFSA form is filled out to identify student need. Monies that are in the chid's name in taxable accounts will be used to identify their need. Your generousity might reduce their educational need putting more financial burden on their parents and your grandkids.

    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/
  • Dear alpha66: Since you mentioned Schwab here are my suggstions for you to consider. With the time frame you mentioned for your grandchildren, 12-15 year you want to be aggressive 100% in equities.
    $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
  • Thank you all. After digesting your comments I will act soon. alpha66

    PS Geez looks like I don't need a code name. Will change to real soon.
  • edited November 2012
    Reply to @David_Snowball: I love you man. I thought about it today too. Over last 20 years, balanced funds are only 1-2% lower in APR than stock funds (eg., DODBX vs DODGX). But if you really have 20 years, those 2-12 year old kids should be equity heavy, since a 1% APR delta over 20 years represents growth of 150%...a 2% delta represents 220%. Granted, historically, you gotta have the 20 years, since the volatility is quite a bit higher for those 1-2% APR deltas.
  • Reply to @Investor: Good points. Your Case 1) represents underlining assumption for these kids. I think even "balanced funds," like you suggest in Case 2) hold too much volatility for many retired folks (like me almost), who appeal more to the 2/3 fixed income and 1/3 equity conservative allocation.
  • Reply to @Ted: Sweet. I like this spread.
  • alpha66:

    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

Sign In or Register to comment.