Starting a brokerage account for my 12 y/o son

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
mule-tech
Posts: 10
Joined: Fri Feb 12, 2021 1:32 pm

Starting a brokerage account for my 12 y/o son

Post by mule-tech »

I'm finally at a place where I can open a custodial brokerage account for my 12 y/o son. The goal of the account is to increase the overall balance through capital appreciation and dividends so that one day it can be used to pay for school or simply get a start on life. Maybe he'll keep it (vs liquidate it) and keep adding to it. Up to him at that point.

I was thinking of starting the fund with about $2000 and add to it every month or every quarter, depending on how finances work out.

I want to invest in ETFs to keep things simple. Two approaches come to mind.

First
Simply invest in the three major indices.

1) SPLG for the S&P 500
2) DIA for the Dow Jones
3) ONEQ for the NASDAQ

DIA is kind of expensive and would be interested in lower priced alternatives. Maybe skip it all together?

Otherwise, I would split the $2000 between these three and each symbol would have its turn being added to.

Second
Diversify quite a bit with the trade off of having less of each security.

1) SPLG for the S&P 500
2) DIA for the Dow Jones
3) ONEQ for the NASDAQ
4) SOXX for exposure to semiconductors - lower priced alternative?
5) IGV for exposure to software
6) XLRE for exposure to REITS
7) KBWB for exposure to banks
8) BIZD for exposure to BDCs
9) PTY for a steady monthly income to feed the account.

That's probably all I could sanely manage without becoming a stock collector. :wink:

Any thoughts or feedback? Alternate ideas?

Thanks!
Flyer24
Moderator
Posts: 3265
Joined: Sun Apr 08, 2018 4:21 pm

Re: Starting a brokerage account for my 12 y/o son

Post by Flyer24 »

Another option is to do just one fund like VTI (Vanguard Total Stock Market).
runninginvestor
Posts: 584
Joined: Tue Sep 08, 2020 8:00 pm

Re: Starting a brokerage account for my 12 y/o son

Post by runninginvestor »

Fidelity just started offering Youth Accounts for ages 13-17, depending on how close your child is to 13 that may be an alternative. I'd also recommend a broad market total stock fund, like VTI.

Edit: there's also overlap in this 3 indices. So investing in all 3 could give you unintended over or under exposure.
https://endlessmetrics.substack.com/p/s ... or-indices
KlangFool
Posts: 21569
Joined: Sat Oct 11, 2008 12:35 pm

Re: Starting a brokerage account for my 12 y/o son

Post by KlangFool »

OP,

1) A better idea would be to invest in your account. And, when the kid is older and started working, give the money to them to be invested in their Roth IRA.

<<I want to invest in ETFs to keep things simple.>>

2) This is more complicated. How do you plan to rebalance between the ETFs? One mutual fund like

Vanguard Star Fund
https://investor.vanguard.com/mutual-fu ... file/VGSTX

Or

Vanguard Life Strategy Growth Fund

https://investor.vanguard.com/mutual-fu ... file/VASGX

are easier.

3) Is his college education fully funded? If not, this may impact his financial aid eligibility.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
delamer
Posts: 11822
Joined: Tue Feb 08, 2011 6:13 pm

Re: Starting a brokerage account for my 12 y/o son

Post by delamer »

Isn’t most of the Dow also in the S&P 500? Although apparently the Dow is price-weighted.

Agree with VTI. Or you could go with Total World Stock Index (VT).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
dbr
Posts: 36362
Joined: Sun Mar 04, 2007 9:50 am

Re: Starting a brokerage account for my 12 y/o son

Post by dbr »

There is no purpose to getting "exposure" to those factors, nor is "income" a factor in the return on those investments.

Whether or not this is the most effective way to save for college tuition compared to a 529 or such is a different issue. Effect on qualification for financial aid should be looked at The appropriate asset allocation for money that is to be used beginning as soon as six years from now, and less as date of use approaches, is probably not all stocks.

As a step up on a lifetime of investing I would say VTI is a no-brainer.
User avatar
Wiggums
Posts: 4075
Joined: Thu Jan 31, 2019 8:02 am

Re: Starting a brokerage account for my 12 y/o son

Post by Wiggums »

I would go with a single all-in-one fund or VTI
slickracer
Posts: 62
Joined: Sat Dec 26, 2020 10:00 am

Re: Starting a brokerage account for my 12 y/o son

Post by slickracer »

iShares AOA is a nicely diversified all in one ETF.
desconhecido
Posts: 58
Joined: Sat May 08, 2021 10:46 pm

Re: Starting a brokerage account for my 12 y/o son

Post by desconhecido »

I would guess that you have two purposes. The obvious first is to give your son some investments that will provide him with future money. The second, I would think, would be to get him into understanding and appreciating investing and investing philosophy and goals. Perhaps starting off simple with just one etf, like VTI or VOO would fit that bill. Or, perhaps the majority in VTI and some in something a little VUG or VGT just to add something with a bit more risk/reward.

Whatever choices you make, it sounds to me like you are doing a good thing.
TJat
Posts: 146
Joined: Tue May 04, 2021 6:51 am

Re: Starting a brokerage account for my 12 y/o son

Post by TJat »

Noble goals, but are you at a point where you’re maxing your retirement and savings before gifting large amounts of money to your son?

I’d also echo the unanimous sentiment to contribute to a total market fund instead of worrying about all those exposure segments. Read the wiki here for guidance (and have your son read it too)
MarkBarb
Posts: 732
Joined: Mon Aug 03, 2009 11:59 am

Re: Starting a brokerage account for my 12 y/o son

Post by MarkBarb »

I keep it simple and just buy VTI in an UTMA account.
User avatar
Watty
Posts: 22982
Joined: Wed Oct 10, 2007 3:55 pm

Re: Starting a brokerage account for my 12 y/o son

Post by Watty »

KlangFool wrote: Sat Jun 12, 2021 3:04 pm 1) A better idea would be to invest in your account. And, when the kid is older and started working, give the money to them to be invested in their Roth IRA.
+1000

That would also allow you to not give him the money if he is not ready for it. I have known people who had kids with drug or alcohol problems or who were just not responsible and giving them access to a significant sum of money the day they turned 18 or 21 would have literally been a disaster.

One of the best things that you can do for your kids is to make sure that your finances are in order and they do not have to support you some day. I have known people who have had to financially support their parents and they love them but that can be really hard for them, and especially for a spouse who sees a lot of a families resources being used to support the inlaws.

You may be doing great now but if you are not to the point where you can easily retire today then it is too soon to be giving your kid thousands of dollars to invest. Weird stuff happens and your plans may not turn out like you hope.
Grt2bOutdoors
Posts: 23884
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Starting a brokerage account for my 12 y/o son

Post by Grt2bOutdoors »

desconhecido wrote: Sat Jun 12, 2021 4:07 pm I would guess that you have two purposes. The obvious first is to give your son some investments that will provide him with future money. The second, I would think, would be to get him into understanding and appreciating investing and investing philosophy and goals. Perhaps starting off simple with just one etf, like VTI or VOO would fit that bill. Or, perhaps the majority in VTI and some in something a little VUG or VGT just to add something with a bit more risk/reward.

Whatever choices you make, it sounds to me like you are doing a good thing.
+1. I agree. Financial literacy is lacking in this country, perhaps globally. Just stick with VTI, do not add to complexity by purchasing a different slice that participates in the same group of equities held in VTI. You could do fine, holding that one ETF - VTI or you can choose to do a 2-3 fund approach, but I would not hold more than 3 ETF's unless you are planning on diversifying away from large cap exposure to perhaps VIOV or IJS which hold small cap value equities.

A typical 3 Fund ETF portfolio - VTI, VXUS, BND. That mimics the famous 3 Fund Portfolio on the forum. If you wish to buy into small value or any of those other ETF's that your child may want to consider, then hold no more than 10 percent in those holdings but let the broad based index funds represent the core of the portfolio.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
ivgrivchuck
Posts: 798
Joined: Sun Sep 27, 2020 6:20 pm

Re: Starting a brokerage account for my 12 y/o son

Post by ivgrivchuck »

mule-tech wrote: Sat Jun 12, 2021 2:48 pm Any thoughts or feedback? Alternate ideas?
I'd recommend VTI (70%), VXUS (30%). A good starting point.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
runner3081
Posts: 4324
Joined: Mon Aug 22, 2016 3:22 pm

Re: Starting a brokerage account for my 12 y/o son

Post by runner3081 »

Since the kid is 12, maybe let them take 10-20% of the money for "play money". Might add some enjoyment for them.

When we started the UTMA for my daughter at age 8, I explained to her index funds, but also asked what she wanted to invest in. That happened to be Disney and Mattel (Barbie). We put about 15% and bought a few of those stocks and went index for the rest.
KlangFool
Posts: 21569
Joined: Sat Oct 11, 2008 12:35 pm

Re: Starting a brokerage account for my 12 y/o son

Post by KlangFool »

runner3081 wrote: Sat Jun 12, 2021 4:42 pm Since the kid is 12, maybe let them take 10-20% of the money for "play money". Might add some enjoyment for them.
runner3081,

Learning to budget and save should be the first step. Our kids are given a few hundreds up to one thousand each year since they were born. It is their money. We kept it for them but they could spent it on anything that we did not want to buy for them. The rest are saved and invested in our account. We gave the money back to them to be invested in their Roth IRAs when they were older.

They graduated college with 20K to 30K worth of investment in their taxable and Roth IRA accounts. They were invested in the Vanguard Life Strategy fund. They do not "play" with their investment. They just saved and let it grow.

So far, they are saving 1 year of expense every year. At their saving rate, there is no reason to play with their investment. They could be early retired in 20+ years.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
MarkBarb
Posts: 732
Joined: Mon Aug 03, 2009 11:59 am

Re: Starting a brokerage account for my 12 y/o son

Post by MarkBarb »

If they have any income, open a Roth. When our kids started their first jobs, we matched their income with a Roth contribution. Nothing like having 40-50 of tax-free growth.
edudad
Posts: 42
Joined: Wed Mar 24, 2021 10:47 am

Re: Starting a brokerage account for my 12 y/o son

Post by edudad »

I did a similar thing, but earmarked the funds in my wnn accounts. Funds VTI and VXUS, that's it. On a long term, they win.
Topic Author
mule-tech
Posts: 10
Joined: Fri Feb 12, 2021 1:32 pm

Re: Starting a brokerage account for my 12 y/o son

Post by mule-tech »

First, I want to say thank you for all the replies here! I didn't expect so many so soon. :happy There's lot of great information here.

I really appreciate the mentions of ETFs like VT, VTI, and VSUX. Sometimes I end up burrowing so deep into my own ideas that I don't know what I could be missing. A quick glance of those funds on Seeking Alpha shows they have delivered very good long term performance.

One reason I want to open a custodial brokerage account is because I really don't know what my son may end up doing. Maybe he will go to a traditional 4-year university for a bachelor's degree or maybe he will decide to enlist. Perhaps he will choose lower cost community college to start out at or maybe he will go to a trade school. A brokerage account seems like it would be the most flexible. I understand there are some tax benefits but at the same time we'd be free to do whatever we want with it when the time comes. Who knows ... maybe he'll just take that account and keep adding to it because his big six figure salary will easily cover and crush any student loans he may get. :wink:
runninginvestor wrote: Sat Jun 12, 2021 2:58 pm Edit: there's also overlap in this 3 indices. So investing in all 3 could give you unintended over or under exposure.
https://endlessmetrics.substack.com/p/s ... or-indices
That Venn diagram is super cool! Is there an online tool available to the public for generating more of these charts?
desconhecido wrote: Sat Jun 12, 2021 4:07 pm I would guess that you have two purposes. The obvious first is to give your son some investments that will provide him with future money. The second, I would think, would be to get him into understanding and appreciating investing and investing philosophy and goals. Perhaps starting off simple with just one etf, like VTI or VOO would fit that bill. Or, perhaps the majority in VTI and some in something a little VUG or VGT just to add something with a bit more risk/reward.

Whatever choices you make, it sounds to me like you are doing a good thing.
A lot of our family dinner time conversations revolve around finances, markets, and politics. All dangerous subjects :D but wonderfully fun topics to discuss. My son knows about the brokerage account and is really eager to get it opened. It feels like it gives him a sense of confidence and control vs. just letting the world fly and slide by.
Watty wrote: Sat Jun 12, 2021 4:29 pm +1000

That would also allow you to not give him the money if he is not ready for it. I have known people who had kids with drug or alcohol problems or who were just not responsible and giving them access to a significant sum of money the day they turned 18 or 21 would have literally been a disaster.

One of the best things that you can do for your kids is to make sure that your finances are in order and they do not have to support you some day. I have known people who have had to financially support their parents and they love them but that can be really hard for them, and especially for a spouse who sees a lot of a families resources being used to support the inlaws.

You may be doing great now but if you are not to the point where you can easily retire today then it is too soon to be giving your kid thousands of dollars to invest. Weird stuff happens and your plans may not turn out like you hope.
Valid point and question! Thankfully, our finances are OK. I am 44 years old, divorced but remarried. We life debt free except for a 30-year mortgage which we recently modified the rate to 2.875% and my child support requirements. I am able to contribute to my 401(k) and HSA accounts and also set aside some cash in my savings accounts. My company offers a discounted stock purchase program that I also max out. I sell that (stagnant) stock and move the funds into my IRA where I have invested in companies like Microsoft, Google, Amazon, Phillip Morris, Bank of America, ... and even Tesla. :!: No crypto or NFT here, though.

Obviously we have expenses like property tax, house upkeep, utilities, etc and we do fit some stereotypes. We bought our 2004 GMC Yukon used, a lot of our clothes come from Goodwill but we splurge at Walmart when it's back-to-school season.

Right now I have about $460k across my accounts. Past life and divorce didn't help that number in many ways. Will I "get there" when I'm 60 - 65? I can only hope.
runner3081 wrote: Sat Jun 12, 2021 4:42 pm Since the kid is 12, maybe let them take 10-20% of the money for "play money". Might add some enjoyment for them.

When we started the UTMA for my daughter at age 8, I explained to her index funds, but also asked what she wanted to invest in. That happened to be Disney and Mattel (Barbie). We put about 15% and bought a few of those stocks and went index for the rest.
My son is totally into 3D printing. He had a Creality Ender 3 which he worked to death. He has printed everything from vases to figurines to roller coasters (in chunks) to a whole laptop (in several chunks - and colors!). I told him he could pick 1, maybe 2, ETFs or companies to invest in after he's researched it a bit and after we review it. This would be like 1 or 2 shares to play around with. We'll see how that pans out.

Sorry for the long post ... but, thank you for reading! :D
runninginvestor
Posts: 584
Joined: Tue Sep 08, 2020 8:00 pm

Re: Starting a brokerage account for my 12 y/o son

Post by runninginvestor »

mule-tech wrote: Sat Jun 12, 2021 6:41 pm
runninginvestor wrote: Sat Jun 12, 2021 2:58 pm Edit: there's also overlap in this 3 indices. So investing in all 3 could give you unintended over or under exposure.
https://endlessmetrics.substack.com/p/s ... or-indices
That Venn diagram is super cool! Is there an online tool available to the public for generating more of these charts?
https://www.etfrc.com/funds/overlap.php

Allows you to do 2 funds at a time (I think you need to register for the free tier to get more info on the underlying stock overlap).
StealthRabbit
Posts: 597
Joined: Sat Jun 13, 2009 1:25 am

Re: Starting a brokerage account for my 12 y/o son

Post by StealthRabbit »

Watty wrote: Sat Jun 12, 2021 4:29 pm
KlangFool wrote: Sat Jun 12, 2021 3:04 pm 1) A better idea would be to invest in your account. And, when the kid is older and started working, give the money to them to be invested in their Roth IRA.
+1000

That would also allow you to not give him the money if he is not ready for it. ...
This,^^^^

Put 12 yo to work, preferably for neighbors!

Match 100% into Roth (vti & vxus, or similar)

Have them start a business or two, plan, cook specialty meals 2x / month for family and friends (for a fee) ... Seek to earn enough for max Roth contribution. (Our kids sold a lot of eggs, fresh squeezed cider, lamb, produce... and had businesses and worked for neighbors and participated in our finances, planning, tax prep, travel bookings, budgets...and designed and built their own homes before HS age )

Contribute to their Roths as long as you are able. We stopped when kids left home at age 18.... That should have been continued, since we weren't starving, tho on single earner low income.
User avatar
F150HD
Posts: 3838
Joined: Fri Sep 18, 2015 7:49 pm

Re: Starting a brokerage account for my 12 y/o son

Post by F150HD »

Fidelity just started offering Youth Accounts for ages 13-17, depending on how close your child is to 13 that may be an alternative. I'd also recommend a broad market total stock fund, like VTI.
how old do you have to be to purchase stocks/ETFs etc? 18? (or so I thought)

Fidelity site states A brokerage account owned by teens 13 to 17 that's built to start their investing journey. They can trade most US stocks, ETFs, and Fidelity mutual funds in their own accounts.

from FAQ

Is the Fidelity Youth Account a joint account or custodial account (i.e., is it a Uniform Gifts to Minors Act (UGMA) account or a Uniform Transfers to Minors Act (UTMA) account?

No, the Youth Account is a teen-owned brokerage account. It is owned by the minor, who makes all the investment decisions. This is unlike an UGMA or UTMA account where the custodian makes the investment decisions.


https://www.fidelity.com/go/youth-account/overview
KlangFool
Posts: 21569
Joined: Sat Oct 11, 2008 12:35 pm

Re: Starting a brokerage account for my 12 y/o son

Post by KlangFool »

OP,

My daughter worked at a minimum wage job during summer while in high school. She earned about two thousands. She knew how hard she had to work to get that two thousands after tax. Meanwhile, for that year, her portfolio (Vanguard Life Strategy Growth Fund) earn a lot more than her summer job. She learned a very important lesson. It is possible for her saving and investment to earn a lot more than her job. And, the best thing about her saving and investment was she did not have to do anything. It just earn money for her everyday.

Good saving and investment strategy does not require any work.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
User avatar
retired@50
Posts: 6220
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Starting a brokerage account for my 12 y/o son

Post by retired@50 »

mule-tech wrote: Sat Jun 12, 2021 6:41 pm ...
A quick glance of those funds on Seeking Alpha shows they have delivered very good long term performance.
...
My company offers a discounted stock purchase program that I also max out. I sell that (stagnant) stock and move the funds into my IRA where I have invested in companies like Microsoft, Google, Amazon, Phillip Morris, Bank of America, ... and even Tesla. :!: No crypto or NFT here, though.
...
My son is totally into 3D printing. He had a Creality Ender 3 which he worked to death. He has printed everything from vases to figurines to roller coasters (in chunks) to a whole laptop (in several chunks - and colors!). I told him he could pick 1, maybe 2, ETFs or companies to invest in after he's researched it a bit and after we review it. This would be like 1 or 2 shares to play around with. We'll see how that pans out.
...
Welcome to the forum mule-tech. :happy

Based on your post, it appears you're a stock picker, and not a true Boglehead. So, I suppose my input would be to ask, how do you want to teach your son to invest?

While it's certainly possible to "make money" by investing in individual stocks, and possibly a lot of money (with the associated higher risk), the issue is that over the long term, as some of those individual stocks become "stagnant" as you put it, as an investor, you start to fall behind the index (S&P 500 or Total Market Index).

The real lesson on Bogleheads is to follow the Boglehead investment philosophy and "stay the course". The lessons a 12 year old may draw from a couple of successes or failures early on will leave an indelible impression. Best of luck.

See link for details: https://www.bogleheads.org/wiki/Boglehe ... philosophy

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

Regards,
This is one person's opinion. Nothing more.
Post Reply