Advising teenage daughter

[stephenson]

Fidelity to take advantage of better ... well, better everything re service, IT and modeling tools.

Buy ITOT inside a Roth and forget about it.

 

[JT90505]

In their teens we helped our kids set up Roth's in target retirement funds, providing 'matching' funds for their contributions.

One was interested in individual stocks and Bitcoin and is playing with money outside the Roth. One has no interest and is sticking with target retirement and index funds. If they have questions we answer, but otherwise are letting them experience and learn on their own.

 

[2HOTinPHX]

I would recommend she watch some of The Money Guy Show videos on you tube or their website. They do a good job of explaining things and have some good charts to show things like the power of compounding interest. Wish I was 17 again and could start over.

These are a couple of my favorites. If you don't want click on links google THe Money Guy Show Why Most Americans Are NOT Retiring as Millionaires! (Here's the Solution)

or watch short version of this..from 8 minutes on..includes a very nice graph.

The Money Guy SHow:10 Commandments of Creating Wealth! Again at 7:30 they discuss the power of compounding interest with a great graph. Who knew that one dollar invested at age 20 could grow to 88 at age 65. It cuts to 45.00 if you wait till age 25.
https://www.moneyguy.com/2021/11/10-commandments-of-creating-wealth/

This is also a great video for young ones too but some of it maybe a little controversial. This guy is Graham Stephan and he is younger but pretty entertaining.

Or Google Graham Stephan The Millionaire Investing Advice For Teenagers.

A real eye opening PBS classic: The Retirement Gamble (full documentary) | FRONTLINE

Then there is this everything on one index card list...

 

[2HOTinPHX]

Would also suggest watching Retirement Plans: Last Week Tonight with John Oliver. Warning some unnessary profanity used but still worth a watch.

 

[2HOTinPHX]

You could also have her watch some Dave Ramsey Debt Free screams where people share there stories of getting out of piles of debt. Might inspire her to never get in debt in the first place.

From Dave "We buy things we don't need with money we don't have to impress people we don't like.”

 

[meleana]

Have her do a Roth in a total stock fund for now or one of those retirement funds for the year she would be turning 65, which would still be invested in all stocks right now anyway.

 

[jasg]

Another vote for a Roth and a total stock index fund. Perhaps a 10 or 20% Bond index so she can see how they perform during market swings.

In addition to automatic investments, perhaps you can show her the value of employer matches before she gets a 401k qualified job. If you can afford it, offer to match her contributions, ideally so she can max out the annual Roth limit.

 

[HMMY]

I don't think a 17-year-old needs any fixed income unless she has an immediate need for cash. My teenagers' brokerage accounts are 100% in equities in VT. Their short-term cash needs are in their savings accounts. I prefer the Life Strategy accounts in tax deferred.

 

[Avocadorunner]

Is she thinking of a TIRA or a Roth?

$4k is plenty to research and purchase a few individual stocks and maybe some VTI so she can watch and compare.

Many years ago I learned the 4% Rule from radio host Bob Brinker. He advised to never have more than 4% of assets in any one stock. That requires 25 stocks to properly diversify to reduce individual stock risk. Based on this rule, your daughter doesn't have enough money to properly diversify the stock portfolio. I'd advise her to allocate between Vanguard's Total Market and International funds or ETFs.

 

[charliep]

Don't Be Too Cautious

When she is young and single, I suggest both a Roth as others do and an aggressive growth fund like VGT and VCR at Vanguard or equivalents at Fidelity.
As I write this on 1/21/2022 the five-year return for VGT is 132%, for VCR is 93% and VTI is 62%. I constructed Excel graphs to show the results of compounding growth to my boys when they were in high school and college. My youngest, now a Marine, does the same for all the young Marines who report to him. I believe in age-appropriate investing and young folks should be as aggressive as they can tolerate.

 

[RockLife]

Honestly since her income is low, have her put it into a Roth so it can grow tax free. Doesn't seem like she needs a deduction of a regular IRA.


Also, I'd have her put it in VTI or mix of VTI and SCHD.



Maybe she will get into the habit of putting some in every year

This is exactly what I was going to say. There are three possibilities:

Taxable - makes it too easy to break into when there are hard times, and has tax implications
Tax-Deferred - TIRA - tax break now, but probably doesn't need it
Tax-Free - Roth - will give you the tax break later when you want it / need it

The other advantage of the Roth is that she doesn't have to learn anything about the tax rules now or in the future (unless the crooks in Congress change the rules). She can learn about compound interest and market swings and all the other issues while deferring the burden of learning about taxes.

 

[imnontrad]

This is a great time for her to get educated.
Sit down with her and lay out possibilities and places where she can do her research. then let her decide where to invest. At the same time, you create a "paper portfolio" of how you would have invested and then have a "competition" seeing which one does better after 1-2 years. If she picks the equities, she will be more interested and more likely to continue on her own.

 

[RockLife]

I just want to add to this how very impressed I am that a 17 year old is thinking so far ahead. Please tell her the smart folks on the retirement board (and also guys like me) think she's doing pretty awesome.

 

[MC Rider]

At 17 I was going every payday to the record store and buying Emerson Lake and Palmer vinyl. King Crimson, Black Sabbath, Deep Purple, etc. Now and then a High Times magazine. You get the idea.


It seems none of this was any sort of investment. Go figure.

 

[ERD50]

You could also have her watch some Dave Ramsey Debt Free screams where people share there stories of getting out of piles of debt. Might inspire her to never get in debt in the first place.

Please, NO!

Learn that debt is a tool that can be used wisely when the opportunity presents itself.

I've listened to his show and some of those people made some very bad decisions, because "getting out of debt" was suddenly the only thing that mattered.

And DR misleads people with his devious misapplication of "arithmetic average gains" (50% down followed by 50% up is an average gain of 0%!) and "compound rate of return" (1 * 0.5 * 1.5 = 0.75, which is 25% DOWN). They are not the same, and I think he's too smart to not know that, so that leads a bad place.

Not a fan.

-ERD50