Asset allocation for children

[paul17]

What asset allocation would you use for your children savings ? Something they could start using once they are off to college. About a 15 years time frame but ideally they could keep it longer and use it for a house downpayment for example. This is not to cover college cost.

How would you do it differently whether you are contributing the maximum tax-free gift (28k per child) vs. smaller amounts (few thousands per year) ?

I was thinking of using Vanguard funds 90/10: 40% US, 35% Intl, 10% emerging, 15% US muni bonds.

[ajm184]

Not sure I would change an asset allocation based on the amount unless your children were getting a maximum tax free gift for a period of 10 or more years.  My allocation would be 55% VTSAX (Vanguard Total Stock Market) and 45% (Vanguard Total International Stock Market).  If the portfolio gets to $250k - $300k in contributions, then maybe throw 5% into a Total Bond Fund.  You could also do a value tilt if so inclined (ala DFA) given the children's age.

[Molar Mechanic]

I don't "gift" any money to my kids.  They can get my money when I die or at least am so comfortable in retirement that money is secure "till the end",.  I do contribute to my kids education and I also employ my kids in my business and allows us to fund a Roth IRa in their name.  All of their money goes into stocks.  Why all stocks?  I believe that over any given time frame, stocks will to best.  (not every time frame, but on average, its the best option).  For college, if timing bites us in the ******************, I can cover the difference, if we win the law of averages, then great.  For their rIRA plans, they have 50 years to grow with 0 risk of loss (they don't even know that money exists), so I'll go for the best long term gain.

 

As far as gifting them money, you should either be late in life, or so wealthy that the estate tax is an assured problem.  Otherwise, keep control in your name.  You just might need it one day.

[FIREshrink]

we do 90-100% stocks in both 529s and their UTMAs.

[Donnie]

I see no reason to gift assets to young children as a parent. If your kids have assets, invest 100% in equities. I would weight much more heavily towards US, like 70-30 US-international.

[adventure]

Why on earth would you have any bonds?

[paul17]

why overweight the US ? It's already at 50% of total equity, how much higher can it go ?

[paul17]

Why on earth would you have any bonds?

 

• Rebalancing opportunity


• Reduce volatility (probably not much if 90/10)


• Draw on bonds first if there is a need to use some of the money

[ajm184]

I saw this portfolio as more of a very early retirement fund contribution for your children, hence the all equity asset allocation.  With children (i.e. < 18 yo), their life expectancy/drawdown far in the future makes an all-equity portfolio compelling imo.  It appears that in re-reading the OP, you envision rather than retirement, the children would have the opportunity to use these funds for a house, wedding, etc.  For a potential drawdown in 15 years, I would construct it similar to a 529; very aggressive (all equities) for about 7 years, then escalating contributions in bonds.  The issue in my mind is the you would need to make relatively even contributions over the timeframe.  I am being aggressive in the absence of a clear use/timeframe.

[Kamban]

ajm184 wrote:

I saw this portfolio as more of a very early retirement fund contribution for your children, hence the all equity asset allocation. With children (i.e. < 18 yo), their life expectancy/drawdown far in the future makes an all-equity portfolio compelling imo.

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I also contribute to UTMA for my daughter as a very early start for her retirement plan. I plan to contribute to her education. I would expect her to earn enough and save for expenses like a house, day to day expenses etc. Maybe an estate to bequeath to her if we can't use all of our money before we kick the bucket.

[Zaphod]

paul17 wrote:

Why on earth would you have any bonds?

 

• Rebalancing opportunity


• Reduce volatility (probably not much if 90/10)


• Draw on bonds first if there is a need to use some of the money

Click to expand...

If youre starting a fund for kids, their time frame is multiples of the average. Even in a normal investment span most should start all equities. The longer it is the more important that is and the larger contribution it makes.

Volatility doesnt matter over this time frame.

Rebalancing doesnt matter as you will be doing that with contributions for the first decade or so.

Draw preferences, not sure that should rule your allocation model.