College Kids and Roth IRA investment choice

[Lordosis]

I agree. Teaching them savings is the most important. But it would do good to learn how to handle volatility expected in an aggressive portfolio. Time to toughen up cupcake!
If they screw it up much better to figure that out early with a portfolio in the thousands to tens of thousands range then later on.
I know everyone's advice is always to wait until you have been through a major downturn so I may get some disagreement with this stance.

[Anne]

fatlittlepig wrote:

LOL giving a college kid a lecture in asset allocation is kind of pointless. Better yet to put the money in 100% equities and expose them to the concept of investing. Too many choices will likely result in wrong decision making.

Click to expand...

Lol if you don't think a college kid can handle learning about asset allocation why even send them to college?  Will all the other new concepts they're exposed to be pointless too?  Better to let them learn how to make choices on their own while the stakes are low.  I see too many people who don't start investing because they are frozen with doubt of how to decide what to do.   The world is full of choices.  Decision making is a skill that too many people don't develop, especially when someone else always makes the decision for them.

[fatlittlepig]

Anne wrote:

fatlittlepig wrote:

LOL giving a college kid a lecture in asset allocation is kind of pointless. Better yet to put the money in 100% equities and expose them to the concept of investing. Too many choices will likely result in wrong decision making.

Click to expand…

Lol if you don’t think a college kid can handle learning about asset allocation why even send them to college?  Will all the other new concepts they’re exposed to be pointless too?  Better to let them learn how to make choices on their own while the stakes are low.  I see too many people who don’t start investing because they are frozen with doubt of how to decide what to do.   The world is full of choices.  Decision making is a skill that too many people don’t develop, especially when someone else always makes the decision for them.

Click to expand...

My mom introduced me to investing by putting some of my money I made in college into a mutual fund. Sounded cool to me at the time what did I know I wasn’t interested it just sounded good, I’m convinced that this early exposure to investing is something that led me to be comfortable with investing and now since I have been an attending I’ve invested aggressively.

The best way is to keep it simple. If you tell the kid hey blah blah you might lose your money and it might go down and tell them about all sorts of asset allocations-most kids will say hey I don’t want to lose any money put me in the most conservative allocation, hey maybe I should just do savings account. U don’t want to scare people away from investing too much information can do that unnecessarily and then they will become doctors who are afraid of the stock market.

[Anne]

fatlittlepig wrote:

Anne wrote:

fatlittlepig wrote:

LOL giving a college kid a lecture in asset allocation is kind of pointless. Better yet to put the money in 100% equities and expose them to the concept of investing. Too many choices will likely result in wrong decision making.

Click to expand…

Lol if you don’t think a college kid can handle learning about asset allocation why even send them to college?  Will all the other new concepts they’re exposed to be pointless too?  Better to let them learn how to make choices on their own while the stakes are low.  I see too many people who don’t start investing because they are frozen with doubt of how to decide what to do.   The world is full of choices.  Decision making is a skill that too many people don’t develop, especially when someone else always makes the decision for them.

Click to expand…

My mom introduced me to investing by putting some of my money I made in college into a mutual fund. Sounded cool to me at the time what did I know I wasn’t interested it just sounded good, I’m convinced that this early exposure to investing is something that led me to be comfortable with investing and now since I have been an attending I’ve invested aggressively.

The best way is to keep it simple. If you tell the kid hey blah blah you might lose your money and it might go down and tell them about all sorts of asset allocations-most kids will say hey I don’t want to lose any money put me in the most conservative allocation, hey maybe I should just do savings account. U don’t want to scare people away from investing too much information can do that unnecessarily and then they will become doctors who are afraid of the stock market.

Click to expand...

The "best way" is going to depend on the person.  Some people will respond better to one approach while others will respond better to another.  I guess you just have to know the individual you are trying to help, and know how to explain things to them without boring them or scaring them.

If your mom had placed 100% of your money into VTSAX in 2007 and that was your first investing experience you might have learned a different lesson if you didn't really have an understanding of why she chose that.  If you're talking about a 7 year old that's one thing but a 20 year old is able to grasp these concepts.  I fully knew that things could go up or down and this money wasn't going to be used for 40 years or so.  That approach was useful to me.

[Kamban]

pulpsnatcher wrote:

Ubetcha they have some skin in the game. This year we went 1:1. While not seasoned investors, they clearly understand the power of compounding with time.

Click to expand...

I felt that if i waited till college they might already have pre-formed opinions which might be incorrect and harder to change. So I started the investment approach in middle school and Roth in high school.

By starting the UTMA in middle school they cannot touch the investments till they are 18 and at the same time 7+ years of investing 30K each year will show them the annual growth and risks and rewards of being in the market long term. By also promising them full college education costs and some living expense allowance they do not have the temptation to withdraw that sum and blow it in college or later. It might even become their retirement account if left till age 65+. Luckily they have had personal finance class in 9th grade where she scored 100%, so she has a good solid foundation in personal finance.

She has also started to learn about the value of work and earning money and investing it in Roth. If she invests all earning fully, I replace the amount that she can use to spend as she wishes. So far her spending has been for minor things at Amazon and Walmart.

I have kept investments simple. No bonds, 100% equities. I have divided the amounts into 1/3 large cap, 1/3 mid caps and 1/3 small caps, instead of total stock market. I want to show her how for one year or two the large caps might do well but small caps lag and at other times the small caps might roar while the large caps barely move. At the end of the day I feel that going into detail about asset allocation is a bit too much. Just invest in index, invest starting at a very early age, do not touch it or spend it, and watch it compound. That is all there is to investing.

We can guide and teach them to the best of our ability but how they will react as adults is unknown. But it is better to teach and invest for them and fail than not to do anything and just give advice and hope for the best. At least that is the way I look at it. My greater fear is her spouse or significant other spending her money. For that, she and I might need to look trusts for her.

[pulpsnatcher]

These are all truly valuable points and well taken.  My initial thoughts in having them invest was to develop a behavior ~ thus hopefully avoiding investment paralysis.   While saving a portion of their earned income is important and necessary, saving without investing is folly.