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Need advice for 20 year old with $10k
Old 07-30-2008, 06:41 PM   #1
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Need advice for 20 year old with $10k

Our daughter has $10,000 that I have convinced her to move into a fund. She had $2500 that significantly outperformed $6000 sitting in her savings account, so she has entrusted the entire balance with me. I am thinking something fairly conservative, maybe 60/40 split.

I would like to get any suggestions on where to put this. I assume she may want it out in 4 years.

Thanks in advance for your suggestions!!
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Old 07-30-2008, 07:01 PM   #2
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I just put my 20 year old son into:

oakbx $1500 (about 40% bonds)
oakex $1000
oakgx $1000
ryvfx $1000 + $50/month automatic investment

All are held directly at Oakmark and Royce.

This is a little start at a slice-and-dice fund portfolio similar to something FundAdvice.com. It looks fairly well diversified in the Morningstar X-Ray for a tiny portfolio (until the auto investment overbalances it), though not exactly subdivided into standard allocations. With $10k you could do a little better.
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Old 07-30-2008, 07:06 PM   #3
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if time horizon is 4 years, I might suggest a diversified bond fund or balanced fund which is around 20-80 or 40-60.

RPSIX is a fund I own which fits that criteria (15-85)
PRPFX is another fund I own which is moderate allocation as well (this one owns commodities, so it's 30-40-30 (stocks-bonds-gold/silver)
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Old 07-30-2008, 07:15 PM   #4
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Thanks to both of you. I will take a look at those!
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Old 07-31-2008, 08:07 PM   #5
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20 year olds have way too many balls in the air. I'd suggest a money market account.
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Old 07-31-2008, 11:37 PM   #6
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Sounds to me like folks may be giving advice without knowing the full picture.

What are college needs, if any...
How much for an emergency fund (even/esp. a 20 year old should have one)
Time frame for needing the money?

The investment advice is likewise somewhat strange. It sounds as though folks are making several odd recommendations:

1) Taxable investing for a 20 year old
2) Expensive, managed funds
3) Bonds / combo bond funds in a tax-unfriendly location.

Assuming the 10k is not for immediate consumption (<5 years) I'd recommend:
1) Emergency savings portion of the 10k if not already established
2) Cash reserve for college needs if not already met
3) 'use' the 10k to increase contributions to 401k if working - indirectly. For example, use the 10k in reserve as a reason to contribute higher amounts to tax-deferred accounts
4) Roth IRA
5) Then, and only then, would I put money in a taxable account. I would choose only low-cost equity index funds, Vanguard is an excellent choice. Or, if you prefer a low/no-cost brokerage, buy VTI and VEU 50:50 and call it good.
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Old 08-01-2008, 09:13 AM   #7
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At the ripe old age of 24 , I say, if you can talk her into it, have her max out a Roth IRA this year. That'll leave her with $5000 to put into a bond fund. She will be able to get at the Roth money if she absolutely really needs it, but you can show her the amount of growth that money will get her if she just leaves it until retirement age.
Since she already has $6000 in a savings (or is that part of the $10,000?), she can use that in an emergency, right?
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Old 08-01-2008, 11:54 AM   #8
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If your daughter's time horizon is four years, then your question would be the same if she were 55 and looking to retire at 59 1/2.
If she can put some money into a Roth, I'd definitely be suggesting it. Just $2k at age 20 can be huge at retirement. I have a deal with my daughter, if she does car repairs, I pay half, but it goes into her Roth. She may want the money now, but she'll definitely appreciate it later.
As to the rest, I'd split it between a couple funds. My choice would be American Funds, but I'm sure you're gonna get Vanguard recommendations here.
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Old 08-01-2008, 01:46 PM   #9
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All good advice so far, just depends on how you like to invest. In our case, my son is in college, with $0 earned income, with at least two years to go. I've already told him 401k and Roth IRA should be used when available. And his current investment is about 1/3 of the money that has been sitting in a money market fund, so there is an emergency fund as well. I'm taking this opportunity, while he's still listening to me, to get him started with investing. It's a real portfolio.

There is obviously the indexed/active choice. So far I have preferred mostly active funds and they have performed nicely for me. On the other hand, there will always be funds that have been lucky in the past and may underperform the indexes in the future. I'm comparing my funds with indexes. If they don't continue to outperform over about 5 years I'll move farther towards indexing.
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Old 08-01-2008, 02:08 PM   #10
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Quote:
Originally Posted by Art G View Post
If your daughter's time horizon is four years, then your question would be the same if she were 55 and looking to retire at 59 1/2.
If she can put some money into a Roth, I'd definitely be suggesting it. Just $2k at age 20 can be huge at retirement. I have a deal with my daughter, if she does car repairs, I pay half, but it goes into her Roth. She may want the money now, but she'll definitely appreciate it later.
As to the rest, I'd split it between a couple funds. My choice would be American Funds, but I'm sure you're gonna get Vanguard recommendations here.
American Balanced or ICA would be boring as hell but effective........
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Old 08-04-2008, 08:27 PM   #11
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Thanks again for all of the good advice. The Roth makes sense, but it may be tough to convince her. She has some cash outside of this, so she is covered for emergencies, and has some income when she needs it. College expenses are covered, too.
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Old 08-04-2008, 10:39 PM   #12
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Try these guys they are GREAT

Bogleheads Investing Advice and Info
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Savings GITC
Old 08-05-2008, 10:47 AM   #13
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Savings GITC

You can put it in a Guaranteed Investment Trust Certificate. Its like a Guaranteed Investment Certificate but you get 7% back guaranteed.

You can do it alone or with RRSP as well.
If you want more information let me know.
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Old 08-05-2008, 11:57 AM   #14
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Thanks again for all of the good advice. The Roth makes sense, but it may be tough to convince her. She has some cash outside of this, so she is covered for emergencies, and has some income when she needs it. College expenses are covered, too.
Don't know if you'd want to, but what if you offered her some sort of match to put the money into a Roth. It may save you thousands one day.
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Old 08-05-2008, 06:28 PM   #15
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Thanks, good idea. That's how she got some of the pile by me matching! After a while, I couldn't afford it
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Old 08-12-2008, 01:43 PM   #16
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I definitely think maxing out a Roth would be my first choice.

For the more generic where to invest when they only have a little bit of money, I currently like to recommend ETF's with automatic reinvestment of dividends. These sites should let them open an account, make one purchase, and reinvest dividends with and for very little money.
http://www.sharebuilder.com
http://www.foliofn.com

Then probably invest in some combination of these ETFs.
  • Symbol ** Name ** Comments
  • VT ** Vanguard Total World Stock ** If I had to pick one equity fund, this is the fund I would pick.
  • VTI ** Vanguard Total Stock Market ** The US only broad index choice, if they want less international.
  • TIP ** iShares Lehman Treasury Inflation Protected Securities ** If they want to add some bonds, they probably should use a TIPs fund.
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