Single fund/investment for young person

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the_wiki
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Single fund/investment for young person

Post by the_wiki »

I have kids that are at and approaching the age where they will be 18+ and working a little and I want to get them started with the habit of saving with a Roth IRA. Given they will be starting small and investing maybe $40-50 a month at this stage, I think something easy like a single mutual fund would make more sense and be a lot easier for them to manage. Mutual fund because it is easier to invest in small cash chunks vs shares, mainly. But that also presents some problems where thing like VTWAX or VTSAX have a $3000 buy in.

Any recommendations for a single fund for this case?

I've sort of looked at these ones:

SWTSX - Schwab total stock or SWPPX - Schwab SP500 could work, but they won't have any international exposure. Maybe that is fine at this phase?

VASGX - Vanguard Life Strategy Growth is $0 minimum, but it has 20% bonds which seems high for 18-19 year old.

I guess maybe they could also go with Robo Advisor for simplicity. Betterment has a no minimums to start up. The fees are likely to be just a few bucks a year at this stage.

Target date look good, but Vanguard's has a $1000 minimum and most of the others end up with a higher fee than Betterment would. (like AAOTX is .81%!)

Someone suggested M1 finance to make ETF "pies" for these accounts. But looking over them they have a $500 minimum and they charge $100 for transfer, $100 for closure, and $20 for inactivity. So it seems like their fees could destroy a massive portion of a small IRA.
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retired@50
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Re: Single fund/investment for young person

Post by retired@50 »

the_wiki wrote: Thu Aug 18, 2022 11:57 am Any recommendations for a single fund for this case?
If you want to stick with Vanguard, you could suggest the target date funds (like 2070). These have a $1,000 initial buy-in with $1 subsequent purchases. OR, you could get them started on an ETF which you can buy for the price of a single share.

Since the distant target date fund is mostly stocks anyway, there really isn't much performance lag when compared to 100% equity. Plus, it's always a solid well-balanced, low-expense ratio, portfolio that teaches the importance of savings rate over the desire to play games and try to pick winners like US or International stocks.

Regards,
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homebuyer6426
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Re: Single fund/investment for young person

Post by homebuyer6426 »

The whole shares requirement for ETFs is a Vanguard (and some other brokerages) thing. You could do an ETF in a Fidelity Roth IRA with fractional shares.
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Re: Single fund/investment for young person

Post by Jack FFR1846 »

My son who is 26 and has worked as an engineer for 2 years has 401k and Roths in VTI and SCHB. Until he hits $100k invested, he won't add anything outside of US equities. I think he quoted Charlie Munger who recommended that. I know I recommend that.
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MarkRoulo
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Re: Single fund/investment for young person

Post by MarkRoulo »

the_wiki wrote: Thu Aug 18, 2022 11:57 am I have kids that are at and approaching the age where they will be 18+ and working a little and I want to get them started with the habit of saving with a Roth IRA. Given they will be starting small and investing maybe $40-50 a month at this stage, I think something easy like a single mutual fund would make more sense and be a lot easier for them to manage. Mutual fund because it is easier to invest in small cash chunks vs shares, mainly. But that also presents some problems where thing like VTWAX or VTSAX have a $3000 buy in.

Any recommendations for a single fund for this case?
I did this with my son when he was very young. The idea was just to give him exposure to the idea that (a) you can/should save money, and (b) you can/should invest a chunk of what you save.

I went with Schwab because Schwab funds didn't have minimums. I selected Schwab 1000 and some Schwab international index fund (don't remember which ... maybe there is only one?). You could do the same (an 18 year old can handle two funds ...). Or just go with Schwab 1000. Or something similar. For your purposes international doesn't matter. It will/might in the future but isn't critical now. Alternately, two funds with one statement isn't terribly complicated either.
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Re: Single fund/investment for young person

Post by KlangFool »

the_wiki wrote: Thu Aug 18, 2022 11:57 am
VASGX - Vanguard Life Strategy Growth is $0 minimum, but it has 20% bonds which seems high for 18-19 year old.
the_wiki,

This one is good enough. It is a bad idea to be 100% of anything. Let's make sure that they do not pick up this bad habit.

Please check out the following URL

https://investor.vanguard.com/investor- ... allocation

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retired@50
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Re: Single fund/investment for young person

Post by retired@50 »

the_wiki wrote: Thu Aug 18, 2022 11:57 am VASGX - Vanguard Life Strategy Growth is $0 minimum, but it has 20% bonds which seems high for 18-19 year old.
Where did you read that this fund has a $0 minimum?

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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the_wiki
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Re: Single fund/investment for young person

Post by the_wiki »

retired@50 wrote: Thu Aug 18, 2022 12:37 pm
the_wiki wrote: Thu Aug 18, 2022 11:57 am VASGX - Vanguard Life Strategy Growth is $0 minimum, but it has 20% bonds which seems high for 18-19 year old.
Where did you read that this fund has a $0 minimum?

Regards,
Etrade shows no minimum initial or additional investments. Maybe they have a special deal?

https://www.etrade.wallst.com/v1/stocks ... country=US
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ruralavalon
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Re: Single fund/investment for young person

Post by ruralavalon »

I suggest an IRA for each child and beginning with iShares Core Aggressive Allocation ETF AOA link. No initial minimum, and low expenses (ER 0.15%).
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carminered2019
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Re: Single fund/investment for young person

Post by carminered2019 »

My daughter is 26 and she is 100% in VOO and March 2020 low did not scare her with 100K+ account. Best is to have young people test their risk tolerance when they have little.
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enad
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Re: Single fund/investment for young person

Post by enad »

the_wiki wrote: Thu Aug 18, 2022 11:57 am ...

Any recommendations for a single fund for this case?

...

Someone suggested M1 finance to make ETF "pies" for these accounts. But looking over them they have a $500 minimum and they charge $100 for transfer, $100 for closure, and $20 for inactivity. So it seems like their fees could destroy a massive portion of a small IRA.
You could do a variation of the "2 Funds for Life" whereby you'd use 1.5 x Age for the TDF and the rest in a US Small Cap Value. The variation would be to use VWELX (Vanguard's Wellington Fund) which is a solid balanced fund.

For an 18 year old then, 1.5 x Age = 27% in VWELX and 73% in AVUV (Aventis US Small Cap Value ETF). If you invested at Vanguard the minimum cost would be low, easily under $150.

Once the value of the account exceeded $1200 you could sell VWELX and purchase the appropriate TDF fund i.e. Target Retirement 2070 (for those planning to retire between 2066 and 2070), or Target Retirement 2065 (for those planning to retire between 2061 and 2065). The Target Date funds will provide exposure to the Total US Stock Market, Total International Stock Market, Total US Bond Market and Total International Bond Market and it's internal composition will automatically readjust until it reaches its final composition which is what is held in the Target Retirement Income fund.
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the_wiki
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Re: Single fund/investment for young person

Post by the_wiki »

enad wrote: Thu Aug 18, 2022 1:13 pm

Once the value of the account exceeded $1200 you could sell VWELX and purchase the appropriate TDF fund i.e. Target Retirement 2070 (for those planning to retire between 2066 and 2070), or Target Retirement 2065 (for those planning to retire between 2061 and 2065). The Target Date funds will provide exposure to the Total US Stock Market, Total International Stock Market, Total US Bond Market and Total International Bond Market and it's internal composition will automatically readjust until it reaches its final composition which is what is held in the Target Retirement Income fund.
That's a point I had not considered. Maybe just go with SWPPX until it hits enough cash to get into VTWAX or the target date 2070.
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enad
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Re: Single fund/investment for young person

Post by enad »

the_wiki wrote: Thu Aug 18, 2022 2:34 pm
enad wrote: Thu Aug 18, 2022 1:13 pm

Once the value of the account exceeded $1200 you could sell VWELX and purchase the appropriate TDF fund i.e. Target Retirement 2070 (for those planning to retire between 2066 and 2070), or Target Retirement 2065 (for those planning to retire between 2061 and 2065). The Target Date funds will provide exposure to the Total US Stock Market, Total International Stock Market, Total US Bond Market and Total International Bond Market and it's internal composition will automatically readjust until it reaches its final composition which is what is held in the Target Retirement Income fund.
That's a point I had not considered. Maybe just go with SWPPX until it hits enough cash to get into VTWAX or the target date 2070.
I agree. I incorrectly included VWELX in there but that fund has a $3,000 minimum. Only other way to do it would be 1 or 2 ETF's if the dollar amount is small i.e. VT @ $93.71 per share and AVUV @ $79.51 per share.

Another problem that Vanguard and others are missing out are when there ETF is trading for more than $50-$75 per share. They could do a 2 for 1 or 3 for 1 stock split. It harms no one that owns it and allows younger people (who don't have large account balances to begin with)
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Re: Single fund/investment for young person

Post by Nebraska_Drought »

I did this with my son when he was in his later teen years and was working. We did a taxable account with Vanguard and started with the STAR fund, as it had a lower minimum investment. He did that up until he was 20 and then cashed in most of the STAR and went to a ROTH IRA using the Vanguard total stock market fund 100%. He has summer jobs/internships that let him put around $5K a year into his ROTH and he still has a taxable account at Vanguard that he is using to put "future use" money into (car/house initially). This year's market lesson is that things will have negative return years and that you are in it for the long-haul in your ROTH and even in his taxable, it is more down the road than immediate. I will do the same for my daughter, but she is in HS and not had the same job opportunities, so we mostly use a high yield savings account for the time being as she will not have any college expenses, like my son. Both have 100% of their college paid for
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Re: Single fund/investment for young person

Post by NYstrip »

One can basically buy the market via SPTM for less than $53 a share. Should be an option via most online platforms.
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Re: Single fund/investment for young person

Post by the_wiki »

Well I was showing her my E*Trade and some fund options and how she might buy funds or make a portfolio and I think it overwhelmed her a bit. Then we looked at betterment and she liked the idea of just being able to transfer money over as easy as if it were a savings account and then just having it invested automatically. Fees are going to be like $3 for what she is doing this year. I think it will be good enough to get some habits going and build up her first few thousand.
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Re: Single fund/investment for young person

Post by dogagility »

the_wiki wrote: Thu Aug 18, 2022 11:57 am Any recommendations for a single fund for this case?
I'd open a Fidelity account and invest the money in FZROX. It's a US total stock market index mutual fund. No fee fund. No minimum investment.

If you want some international too for kicks and giggles, then FZILX would be my suggestion. No fees. No minimum.
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Re: Single fund/investment for young person

Post by Mr. Rumples »

dogagility wrote: Fri Aug 19, 2022 5:51 am
the_wiki wrote: Thu Aug 18, 2022 11:57 am Any recommendations for a single fund for this case?
I'd open a Fidelity account and invest the money in FZROX. It's a US total stock market index mutual fund. No fee fund. No minimum investment.

If you want some international too for kicks and giggles, then FZILX would be my suggestion. No fees. No minimum.
Agree. At 18, the point is to get started. Later, as they learn and watch they can make changes.
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Re: Single fund/investment for young person

Post by galawdawg »

I'm going to make a few suggestions that may be at odds with what others have mentioned.

1. Do not start with a robo-advisor or a brokerage like Betterment. If you want to pass along the Bogleheads investing philosophy then start them at a brokerage where they can invest in a wide-range of low-cost index funds at no cost other than the fund's expense ratio.

2. Do not start with any Fidelity Zero funds (such as FZROX) or other similar proprietary funds. They cannot be transferred in-kind to any other brokerage so they would be "locked in" at Fidelity if you do that.

3. Avoid Vanguard (the brokerage, not the funds). You want them to have 24/7 responsive customer service, online chat and the variety of investment options available at brokerages like Schwab and Fidelity.

4. At that age, there is no need for bonds if you want them to start investing for retirement. I also wouldn't recommend a target-date or blended fund. Those have higher costs and again, a single stock index fund at their ages would be completely appropriate. So just select a single low-cost broad based stock index fund. I'll mention a few Schwab funds since that is my brokerage. I like SWPPX because it is low-cost (0.02% ER) and just $1.00 minimum investment. For more diversification you can also look at SWTSX with an ER of 0.03% and you can invest as little as $1.00.

5. I prefer mutual funds and one advantage they have is that the NAV is set once a day after market close, thereby eliminating the temptation to frequently trade which, for some, can be a problem with ETFs as the price fluctuates throughout the trading day. But go ahead and look into broad-based stock index low-cost ETFs and for those, you may want to consider Fidelity. While Schwab does not yet offer the ability to purchase fractional ETF shares, Fidelity does.

Hope that provides some food for thought! :beer
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Re: Single fund/investment for young person

Post by dogagility »

2. Do not start with any Fidelity Zero funds (such as FZROX) or other similar proprietary funds. They cannot be transferred in-kind to any other brokerage so they would be "locked in" at Fidelity if you do that.
OP's kiddos are investing in an IRA, so using the proprietary funds is not an issue. Can sell at any point without any tax implications.
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Re: Single fund/investment for young person

Post by MattB »

MarkRoulo wrote: Thu Aug 18, 2022 12:28 pm I went with Schwab because Schwab funds didn't have minimums.
This is a good suggestion. I started with Schwab when I started investing 10 or 15 years ago. No fees. No (or minimal minimums. And no other problems.

I don't know what fidelity has for minimums, but that would probably be a reasonable suggestion as well.
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Re: Single fund/investment for young person

Post by Nebraska_Drought »

3. Avoid Vanguard (the brokerage, not the funds). You want them to have 24/7 responsive customer service, online chat and the variety of investment options available at brokerages like Schwab and Fidelity.
Only if you feel you "need" this type of responsiveness. A young person is going to be in it for the long haul, especially if they have parents guiding them to this type of savings/investing at a young age. As a long-time customer of Vanguard (over 25 years now) they have and continue to win me over with no complaints on my end. For the record, also have a Fidelity account for my 401K and my wife is with TRowPrice for hers and none of them stand out as being any different/better/worse. In my 25 years with Vanguard, I have transferred over 2 401K's to roll-over IRA's with no issues. Started an account for my child...no issues. Started Roth IRA's for myself, my wife, and son....no issues. Never have had an account problem or issue nor have I needed 24/7 responses to anything I was doing. All the things you list are nice, but not needs. Vanguard has run a true and straight ship since I have been with them and never once have I thought I should be somewhere else. Again, long-haul experience that I hope to have with them for at least 40-50 years more !
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