Best investment for a baby?

[Peaceful_Warrior]

No, I don't mean a coward... I mean... for a newborn. I'm guessing a CD or bond of sorts, but considering the bond part of my portfolio is in private LLC investments with significant minimum investments, his money isn't going there.

Basically, here's the deal: We save all of our change, and then every few years we count it and invest it on behalf of our son (so this is the first time we're doing this as he is now 5 weeks old). We plan to continue doing this until he reaches some arbitrarily decided age after he's learned a bit more about money after which he'll be able to do something with it.

So, that said -- what options out there are the best right now for something like this? Chances are he'll get the money from it around age 14-16 (particularly if he decides he wants his own car).

 

[MooreBonds]

Pen Fed currently has 7 year CDs yielding 6.00% APY, with a $1,000 minimum.

 

[Brat]

Fully fund a college savings plan first

I don't think bonds are where you want to put investments for 15 years. Vanguard total stock market or a global index fund (or ETF) would be what I would do. If you want a balanced vehicle Wellington would be a strong candidate.

 

[Peaceful_Warrior]

I guess I should clarify -- right now it's about $200 in loose change to start with. Probably every few years, we'll add another $200 or so from additional change.

Also, no guarantees our son will go to college... depends what he wants in life, but I don't want to get stuck with a fully funded college plan that I have to take hits on for withdrawal if he doesn't go (and I don't take enough classes to make it worthwhile).

 

[Brat]

I think the plans can be used at community colleges too. Don't brush them off before taking a look. The plans provide for transfer to other children too.

You can't do much with $200. Why don't you ask family members to contribute to a savings account and keep the baby gifts to a minimum. When you have enough then invest it. Send a note to all the contributors when you do that.

 

[lrak]

I-bond?

http://www.savingsbonds.gov/indiv/planning/plan_gifts.htm

 

[terminator]

With $200 or so I'd get a CD, a bank's money market account or a savings bond depending on the minimums of the first two at local banks. To me, for that amount, the money market account or the savings bonds would be best because then you can forget about it and not need to spend time and energy finding a place to reinvest it. I'd lean toward finding a money market account because then you don't have to worry about buying odd amounts since CDs and savings bonds usually require even dollar amounts.

 

[cute fuzzy bunny]

I looked at all the education/college savings plans and decided to take a pass on them too. Our tax profile just isnt going to be high enough when we're in our early 60's to need to play games with the college dollars.

You might look at the small-cost investment programs like sharebuilder, or using a money market/cd to build enough to make a minimum investment in a mutual fund with a reasonably small subsequent purchase amount.

Make sure you understand the tax implications of putting investments in your childs name...

 

[FinanceDude]

Make sure you understand the tax implications of putting investments in your childs name...

Yeah, LARGE irrevocable gifts to my kids that they have full access to between the ages of 18-21 "ain't my cup of tea"................

 

[Peaceful_Warrior]

Good ideas - I hadn't thought about that at all, but that would work.

Also, hadn't thought about the tax implications -- definitely food for thought.

A funny thing with this is because of the link below to savings bonds, I saw a link for Lost Savings Bonds. This is only relevant because as a child nobody taught me what Savings Bonds were... all I knew is I kept getting $25 gift certificates that I couldn't spend anywhere!

So low and behold, I threw them away or lost them. Now, it appears they may be able to recover them for me which would be a nice small chunk of change. Not a lot, but at this point probably a few hundred dollars.

I guess we'll see!

You might look at the small-cost investment programs like sharebuilder, or using a money market/cd to build enough to make a minimum investment in a mutual fund with a reasonably small subsequent purchase amount.

Make sure you understand the tax implications of putting investments in your childs name...

 

[cute fuzzy bunny]

Yeah, LARGE irrevocable gifts to my kids that they have full access to between the ages of 18-21 "ain't my cup of tea"................

Another reason why I decided to just pay Gabes college out of our regular portfolio. If he turns into a little jerk...no soup for him!

 

[Brat]

If my frail memory is working you could buy savings bonds in your own name and set them aside for your child's education. If cashed to pay for post-high school education the interest is tax free (at the moment) fed.

Also, if your tax rate is low you can declare the interest annually (keep a copy of the return) or you may be able to re-register the bond when you want your child to use the money and s/he pays tax on the accumulated interest when cashed.

If you register the bond in the baby's name then s/he can cash it and spend it on whatever they want. But, they can't cash it if they don't know it exists. You can keep it tucked away until you choose to present it. In the future, if Treasury's bond search capacity enables folks to search for outstanding bonds based on SSN then you could be outed.

 

[cute fuzzy bunny]

Thats exactly true.

My dad has a pile of them in dual-owned in his name and mine. One of my challenges once we get to that point in time is to see if theres any way those can be used for gabes education. I suspect not, but its worth a shot.

 

[Lusitan]

Another reason why I decided to just pay Gabes college out of our regular portfolio. If he turns into a little jerk...no soup for him!

This is a point I am also considering as to whether I will establish one these plans for my son (6 weeks old). I believe that the account owner retains control of the assets and can change beneficiaries (so, for example, if my son gets no soup, or if he doesn't want to go to college, presumably I could switch it to another child ...)

I'm still weighing whether it's worthwhile. I missed the tax-deferred cut-off for my state's 529 plan, which follows the calendar year, so I'll probably put off the decision until next year anyway.

 

[FinanceDude]

This is a point I am also considering as to whether I will establish one these plans for my son (6 weeks old). I believe that the account owner retains control of the assets and can change beneficiaries (so, for example, if my son gets no soup, or if he doesn't want to go to college, presumably I could switch it to another child ...)

I'm still weighing whether it's worthwhile. I missed the tax-deferred cut-off for my state's 529 plan, which follows the calendar year, so I'll probably put off the decision until next year anyway.

With regards to 529 plans, it is true you can change beneficiaries yearly, and you remain owner. If they never go to college, nobody in the family down to cousins goes, you can cash it out and pay penalties on the GAINS, and have it reported as income for that year.

A pretty good option, but not the only one to consider..........

 

[Peaceful_Warrior]

FD - just to clarify -- is the 529 the same as IRAs in that you can pull out the contributions tax/penalty free at any time?

If so, that may encourage me to open one.

Also, can't the funds also be used for my own education should I go to get an MBA or Master's? Or is that a different kind of fund?

With regards to 529 plans, it is true you can change beneficiaries yearly, and you remain owner. If they never go to college, nobody in the family down to cousins goes, you can cash it out and pay penalties on the GAINS, and have it reported as income for that year.

A pretty good option, but not the only one to consider..........

 

[bright eyed]

If my frail memory is working you could buy savings bonds in your own name and set them aside for your child's education. If cashed to pay for post-high school education the interest is tax free (at the moment) fed.

Also, if your tax rate is low you can declare the interest annually (keep a copy of the return) or you may be able to re-register the bond when you want your child to use the money and s/he pays tax on the accumulated interest when cashed.

If you register the bond in the baby's name then s/he can cash it and spend it on whatever they want. But, they can't cash it if they don't know it exists. You can keep it tucked away until you choose to present it. In the future, if Treasury's bond search capacity enables folks to search for outstanding bonds based on SSN then you could be outed.

Also consider - if you put the savings, bonds whatever in the kids names - when the schools calculate financial aid - they use a 50% calc of the kids $/savings to say what portion will go toward school, whereas if the $ is saved in your name a smaller % is used - so it could tip you from being eligible from financial aid - and many families are on the edge of qualifying or not.

 

[SingleMomDreamer]

I've got a 9-year old. I invest in a college plan for her. But in addition to that, I automatically transfer $20 of every paycheck into a savings account for her. It's not much but it adds up to $520 per year. When it reaches around $400, I take it to Scottrade, where I have a guardian account set up for her. I pay the $7 transaction fee and plop it down into an investment that she can relate to. Her Disney stock is up 24% since we bought into it last year and this year we put money into Western Union, which we use to transfer funds to family in Ukraine. She can relate to the investment, I have total control over it, and she learns a little about the stock market. That's my recommendation.

 

[cute fuzzy bunny]

There was a mutual fund that catered specifically to kids by investing in the companies that provide products and services they're most familiar with. I forget the ticker, and the ER was ridiculous (and the performance so-so), but following singlemomdreamers points, perhaps looking through that funds holdings or doing a similar thing to what she points out would be a good start through one of the stock buying services that lets you buy in fractional shares. I dont care much for the fractional share companies, as they're not always giving a particularly good deal, but...

 

[Peaceful_Warrior]

I like that idea a lot! My wife says we should do it.

I've got a 9-year old. I invest in a college plan for her. But in addition to that, I automatically transfer $20 of every paycheck into a savings account for her. It's not much but it adds up to $520 per year. When it reaches around $400, I take it to Scottrade, where I have a guardian account set up for her. I pay the $7 transaction fee and plop it down into an investment that she can relate to. Her Disney stock is up 24% since we bought into it last year and this year we put money into Western Union, which we use to transfer funds to family in Ukraine. She can relate to the investment, I have total control over it, and she learns a little about the stock market. That's my recommendation.

 

[FinanceDude]

FD - just to clarify -- is the 529 the same as IRAs in that you can pull out the contributions tax/penalty free at any time?

If so, that may encourage me to open one.

Also, can't the funds also be used for my own education should I go to get an MBA or Master's? Or is that a different kind of fund?

Yes, under CURRENT tax law, you can pull out the money federal tax-free, and also tax-free in a number of states. What Congress will do after 2011 is not clear, but there will be pressure to keep things status quo, particularly since there' s state govt. oversight on these.............

Yes, the funds can be used for you to get a grad degree, or your wife. That is a MUCH different world than custodial accounts like UTMA/UGMA.

 

[Peaceful_Warrior]

Thanks for the additional info!

I guess the 2011 thing isn't such a big deal in my opinion... worse comes to worse, once we see the tax laws will change I can pull out the contributions before then and let the profits ride.

Yes, under CURRENT tax law, you can pull out the money federal tax-free, and also tax-free in a number of states. What Congress will do after 2011 is not clear, but there will be pressure to keep things status quo, particularly since there' s state govt. oversight on these.............

Yes, the funds can be used for you to get a grad degree, or your wife. That is a MUCH different world than custodial accounts like UTMA/UGMA.

 

[spideyrdpd]

Could look into a
DIRECT INVESTMENT
Folio Services, DPPs and DRIPs
http://www.wall-street.com/directlist.html