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College Kids and Roth IRA investment choice

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  • Avatar pulpsnatcher 
    Participant
    Status: Dentist
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    Joined: 09/10/2018

    I have two daughters in college that have earned income.  We have set up an IRA account.  Does anyone have any reservation about putting their entire contribution in

    Vanguard Total Stock Market Index ETF VTI?

     

    #206052 Reply
    Avatar jz 
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    Status: Physician
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    Joined: 01/09/2016

    If the intended goal of these accounts is for use in 40 years, and they are braced for the wicked downturns, then VTI could work fabulously.   Will they have good behavior during the downturns?

    #206057 Reply
    Liked by Tim, Hank
    Lordosis Lordosis 
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    Status: Physician
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    Joined: 02/11/2019

    Are they even watching the market?  Would they contact you before selling everything in a panic?

    Is this for retirement or do you expect them to use it earlier?

    “Never let your sense of morals prevent you from doing what is right.”

    #206061 Reply
    Liked by SLC OB
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3988
    Joined: 01/08/2016

    I have two daughters in college that have earned income.  We have set up an IRA account.  Does anyone have any reservation about putting their entire contribution in

    Vanguard Total Stock Market Index ETF VTI?

     

    Click to expand…

    nope.

    #206062 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 560
    Joined: 06/18/2018

    Sounds smart. If you’re ‘parent matching’ their Roth contribution, don’t even give them the log-in credentials for the account, and it can be out of sight, out of mind for them for decades.

    #206075 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
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    seems fine, but a target date fund teaches about diversification.

    #206079 Reply
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 438
    Joined: 06/12/2017
    Does anyone have any reservation about putting their entire contribution in Vanguard Total Stock Market Index ETF VTI?

    Click to expand…

    None whatsoever.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #206089 Reply
    Avatar spiritrider 
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    Status: Small Business Owner
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    Joined: 02/01/2016

    As I am wont to do, I take a contrarian position on a young person’s AA.

    The only determination of a proper AA is not only the time factor of the investment. You should not be putting your view of what the ultimate return will be. College students have a totally different need, willingness and ability to take risks. 100% equities fails on all counts.

    College students should not only be learning about literature, creative writing and calculus. They should be getting be a personal finance education from their parents, because they certainly will not be getting that from college. This includes training wheels on investment and investment returns.

    Let’s get one thing out of the way. They have no need to take extreme risks. Their investment portfolio will be very small at the start and the amount of returns early are not particularly relevant. Their lifetime contributions will dwarf the first few years of returns.

    They will have an inherent willingness to take risks, because they are young and think they are immortal. However, you should be thinking about building their lifetime willingness to take risks, because nothing quite crushes that like massive losses early in their investing lifetime.

    College students have minimal resources, wealth and ability to withstand portfolio losses.

    This all leads me to believe that you should start young people off with moderate allocations and increase as they get older. I planned to start my girls off with balanced funds when they were teenagers and increased them to about 80:20 when they graduated college. The oldest one survived 2008 -2009 without hesitation and has a good understanding and tolerance. The younger one has experienced one of the steepest bull markets and freaked out over the minor correction in late 2015 – early 2016 and then again late last year. She has been resistant to any further increases in equity allocations.

     

    #206105 Reply
    Liked by Anne
    Avatar Panscan 
    Participant
    Status: Resident
    Posts: 902
    Joined: 03/18/2017

    100% equities since birth

    #206110 Reply
    Avatar pulpsnatcher 
    Participant
    Status: Dentist
    Posts: 43
    Joined: 09/10/2018

    I so appreciate everyone’s insight.  To , clarify, the question should have been written as the 2018 contribution.  I do understand the future value of investors being diversified.

    Thanks again.

     

    #206137 Reply
    Avatar Anne 
    Participant
    Status: Physician
    Posts: 1065
    Joined: 11/07/2017

    I’m kind of with spiritrider on this one, but I’ll take it a step further and say that your daughters should be actively involved in this decision, and be the ones to decide whether they have reservations or not.  I would have 0 reservations, but it’s not my money.

    I was in college when Roths first became available.  My dad taught me about them, encouraged me to start one, but left the choice up to me, both in how much I contributed and what I put it in.  He explained the basics about asset allocation and answered any questions I had, but let me do what I wanted to.   He did not offer a match (but I always knew if I called my parents for $ that they would give it to me–but did not want to have to make that call).  I had some earned income in college and med school but very little and needed most of it to live.  But I contributed a little, and it was basically like a test drive account.  And then I contributed the max starting in intern year.  If I relied on my dad to make the choices for me I think that would have been less than optimal in several respects:  I wouldn’t really feel in control of it, I wouldn’t have tried to learn more about it, when 2008 came and it went down maybe I would have been upset at him?  Or maybe not, because it turns out that didn’t faze me (still felt immortal and like I’ll never touch it at that point).  Anyways, I think college age is plenty old to start making your own decisions on this stuff–with some guidance of course, but ultimately it’s the (now technically adult) child’s decision.  JMO.

    #206138 Reply
    Hank Hank 
    Moderator
    Status: Attorney
    Posts: 1280
    Joined: 03/27/2017

    They should have skin in the game.  Offer them a 4 to 1 match, with the proviso that if they pull the money out, then they get no more matches going forward.

    I think investing $1,200 in order to get a $4,800 match is quite a fair deal.  However, they have to be willing to invest their own money for the long term and they can’t freak out over a temporary paper loss due to a downturn in the market.

    #206315 Reply
    Avatar pulpsnatcher 
    Participant
    Status: Dentist
    Posts: 43
    Joined: 09/10/2018

    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.

    #206319 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1296
    Joined: 02/11/2019

    Making a few thousand dollars a year in highschool and college will not have much impact on the financial well being of my kids. But hopefully seeing how they use it and guiding them early May make all the difference.

    “Never let your sense of morals prevent you from doing what is right.”

    #206322 Reply
    fatlittlepig fatlittlepig 
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    Status: Physician
    Posts: 935
    Joined: 01/26/2017

    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.

    #206324 Reply
    Liked by Tim

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