Investment help(for little man)

[gomer pyle]

A family friend gave us $250 to invest for our son(4). He wanted us to invest in something with compound interest and that little man would be able(if he wanted to) to pull out in his 20's(down payment on a house, car, etc..). I don't know anything about investments, I have a 401k and a Wroth IRA but they are through a company. Can I or how can I invest it myself? I looked on e-trade but was unsure. Anybody have any ideas or help?

[Jonnin]

all interest in the real world  is compound.   A straight savings account is compound interest. 

 

Bonds are probably a bit better.

 

Beyond an account or bonds, you can look toward stocks or mutual funds.  Or gold coins etc.  Trying to play stocks yourself will lose money in a hurry.  And the fees... eat the profits in a hurry.  A buck a trade, buying shares of cheap high risk stocks...  poof.  Ask me how I know :)

 

 

No offense but 250 bucks over 20 years.. it won't even double at todays rates.  In a bank account, it might even go red ... the fees for the account might eat the interest and then some, and LOSE value. 

 

You need something simple .. bonds maybe.  Or some nice item that appreciates... I had a guitar that doubled in value (over 20 years from 6k to 15K), for example... collectables can do that (all kinds of things).   Gold is risky, but safe too... risky cause its been high for a while, safe cause its never worth zero.  Odds are in 20 years a wad of gold will be worth more than it was today.

 

another thing.  If you put $10 away for the boy every month, after 1 year you would have 120 bucks.  2 years, 240.   20 years... 2400.  Nothing (well, almost, there are the occasional crazy returns investments)  you can do is going to help as much as putting a little with it every month over the long haul.  And if the little is invested along the way, getting interest...  that might become 3k, 4k in 20 years...  

Edited January 26, 2015 by Jonnin

[A.J. Holst]

You should be able to set up a Roth for your son through your bank or maybe credit union.

[DaveTN]

Anybody have any ideas or help?

Guns

[2.ooohhh]

a stock or a few different stocks with dividends and a dividend reinvestment option are fun to watch grow.

[Garufa]

Have you considered a college fund like a 529, especially if you are willing to put in a little yourself every month?

[nightrunner]

With $250, I'd buy some gold coins.

[R_Bert]

I am not an investor, but this really works for me -

 

Add as many $ as you can (example make it an even $1000) for initial.

 

Go to a Edward Jones or Wells Fargo investment office and set up an account for your son.  No-load mutual funds such as  Vanguard, & some bonds..

 

Set the account up to do automatic withdrawals, say $25/mo to start with, from your payroll or bank savings account.  Increase it every year.

 

You will pay a fee up front, but it will grow faster than you believe.  And, the documentation / monitoring is excellent.

 

Pay the taxes up front.  That way, when the market tanks, or you have a great need, you can pull the $. 

 

B.

[DaveTN]

If you decide to go that route you might want to go see this guy. He's with Edward Jones and has done better than anyone else I know of. He's also a nice guy.

Brian D Coleman
Edward Jones Financial Advisor
(615) 890-5122
1608 Williams Dr Suite 100
Murfreesboro, TN 37129

[runco]

Don't invest in shot glasses.  When I met my wife she had hundreds!  I said why, her family told they would be worth something someday.  They were right, it was worth a trip to the trash dump after a few years. 

[R_Bert]

Don't invest in shot glasses.  When I met my wife she had hundreds!  I said why, her family told they would be worth something someday.  They were right, it was worth a trip to the trash dump after a few years. 

or figurines.

[mootw]

Silver is cheap right now.  I'd buy some junk silver (pre-1964 quarters, dimes, half dollars).  Silver is actually a waning resource.  Love it at these levels.......

[btq96r]

With only $250 to start, at least a few places won't even let you open an account unless you agree to make monthly contributions along with it.  You will need to shop around to find one that will work for you.

 

I use Vanguard for about 85% of my investments, and I'm quite happy with them.  With 20-25 years to let funds grow, you can choose high risk now, where they put most of it in stocks, then over time, they gradually move over into safer investments like bonds.  Continuing to add money, even $10-20 a month. is the key.  With only $250 to start, you aren't going to see much come back through dividends. 

[peejman]

Have you considered a college fund like a 529, especially if you are willing to put in a little yourself every month?

Yep. I have a 529 fund for my boys through USAA. Many states offer 529 funds and you typically do not have to be a resident to participate.

529 funds have the benefit of being tax free as long as the money is used for education. They're also transferable should your child get a scholarship.


Take that $250 and add $50 per month to it. It'll become a sizable amount in a few years.

[Hiker]

US saving bonds?

[npgunner]

529 would be an option. Any type of retirement account (traditional IRA, roth IRA) would require him to have an earned income and file a tax return next year.  
traditional savings account or money market wouldn't be a bad idea.  any of these types of accounts can be opened from any place like a traditional bank (regions, etc.) or an investment company (edward jones, fidelity, etc.).  

[monkeylizard]

For $250 you really can't get much in the market. Most mutual funds have at least a $1,000 minimum. Index funds often have $2500 minimums.

 

I don't know how that might differ when they're wrapped in a 529. If there are no minimums, I'd suggest doing that. It will also save a bunch on taxes.

 

Even if you can get a 15% average return (S&P 500 indexes return around 15-16% on average*), it's only going to turn into about $4500 over 20 years which will have the equivalent buying power of about $2500 today. Not exactly lifestyles of the rich and famous, but it will help pay some school costs.

 

Savings account, US Treasury bond, money market account, or a CD are all bad investments for this. Those are all short-term vehicles for keeping cash liquid while only slightly offsetting some of the lost buying power by not keeping up with inflation.

 

 

 

*In 2008/2009 the S%P indexes took an almost 40% decrease. So you have to play the long game.

Edited January 27, 2015 by monkeylizard

[vontar]

my plan if I had a kid (fingers crossed) is to put at least half of my tax return into a fund.  finally decision to be made later.

[Patton]

Lead, pure lead. I am serious as can be. Buy it and stuff it under the house for 20 years. My wife is a banker and $200 is not enough to do anything with unless you are going to contribute that much or more every year. In fact, I don't think you have enough to start a 529 plan. Otherwise a 529 would be about the best option, but if inflation continues it will be equivalent to nothing. If not a 529 then CDs, but I almost guarantee you it will only appreciate slightly above the the rate of inflation.

Apparently all you need in Tennessee is a $25 contribution to start a 529 plan, but this is not liquid. He will only be able to use it for post education type activities or it can be tranfered. Edited January 27, 2015 by Patton

[Wingshooter]

Take that $250 and add $50 per month to it. It'll become a sizable amount in a few years.

This is probably what I'd do. Just use the $250 to open an account and direct deposit a fixed amount each month. That way you will see it grow, and it will be worth something in 20yrs (assuming the dollar still exists then). Gold, silver or guns are good suggestions, too

[vontar]

Patton is right, if you invest it, look at all options for withdrawing in an event it is needed for something else.

[Patton]

Patton is right, if you invest it, look at all options for withdrawing in an event it is needed for something else.

Yes, but what better incentive to go to school than being able to immediately cash in on it.

[vontar]

Yes, but what better incentive to go to school than being able to immediately cash in on it.

 

Right now we have no idea what the education system will be in 20 years.  Having funds locked into an education only fund limits options. 

What is the penalty on an unused 529 plan?

 

well now that I looked, not as bad as I thought it would be.

 

http://www.savingforcollege.com/intro_to_529s/what-is-the-penalty-on-an-unused-529-plan.php

[btq96r]

The OP never mentioned any college savings, so not sure how useful all the 529 plan discussion is.  Seemed, to me at least, that investing was focused on being able to pay for a big ticket item like a car, or down payment for a house.

 

Plus, for everybody's situational awareness, as good as the 529 plans are, they aren't safe from changes.  Doubt it happens under this plan, but changes could come in some way.

http://www.washingtonpost.com/business/economy/critics-pounce-on-obamas-plan-to-cut-the-tax-benefits-of-529-college-savings-plans/2015/01/23/43ea75bc-a2a8-11e4-903f-9f2faf7cd9fe_story.html

[Patton]

Investing in a 529 plan, and even paying 10% and taxes to withdraw for something other than college, would probably be the equivalents of continuously cashing in on matured 5 year CDs over the years.  Assuming that you could even start a CD with $250, and it would be a 2% APY at most anyway. 

I don't know your family's financial situation, but for the average family in Tennessee $250 is getting to be a noticeable amount of money. I hope that you do not have a revolving credit card balance, high interest loans, or even a loan with an interest rate over say 4%.  If I were you, and I trusted myself and my wife, I would just take the guys $250 and spend it frugally. I would in turn bump up my 401k contribution say a percent, and just give him a minimum of $1000 in 15years, 20 years, or whenever you hear him hint at a worthwhile need for it. Understand though that he will be asking for or need the money before you most likely are eligible to draw without penalties; unless you are over 40 now.