Investing $10k - Where Should I Put It?

[Loren_Ver]

I want to invest 10K for my 15 year old child (not to be touched for the next 40+ years). Planning on putting in 5K each in fidelity's Newest zero fee MFs  FZROX & FZILX .
 
What are your thoughts?
 
thanks!

[SilverAg47]

Unless it is in a Trust the money will become you son's at age 18 in most states. I would recommend seeing your attorney before going any further than the planning stage.
 
You choices are good but without the legal framework this can be a disaster in the making.

[petdereves]

I doubt that freshlyminted$$ has a problem with that, but there is a thing called a Crummey trust. In that, there is a window of time at age 18 where the beneficiary could take control of the money, but is likely not to to stay in the good graces of the donor.

Crummey Trust - Wikipedia

I just mention that as a possible point of interest. You are not actually going to do that with a $10,000 account.

[Sequoia]

I think you are doing well.

Will you keep title for the 40 years, or will you pass title, and let him pay taxes on the distributions?

Ideally you would figure a way to let him own them in a ROTH.

[ProudFoot]

Agree, if you can do it in a Roth is best way to go - ok with your funds especially if you intend, as I assume, to be hands off. As far as legalities are concerned, you know your child - so assumming thats positive I would not use a lawyer - adds cost, adds overhead, adds complication and frankly, with the $$$ amounts your talking about its not important.

[Marty998]

I am curious what you consider as an important $$$ amount. Based on $5K/yr for 40 years is $200K + $10K initial investment or at least $210K in total gifting. That does not include if more the 40 years are gifted and/or the $5K/yr is not increased due to inflation or a happy parent.

[ProudFoot]

Marty998 Yes, but he is starting with the child at 15 - are you going to maintain control and lawyer overview for 40 years i.e. until they're 55 ??? I really hope not

[Marty998]

The truth be told, YES. I have a daughter and a son. I created sizeable Trusts for each of them and they MAY receive distributions at 35, 40 and 45. The idea being that they need to prove to themselves that they become established members of society, There are no specific positive goals like make a $1M, get married, ... Rather that each will be given the opportunity to receive a higher education and then they get a job, set up house somewhere and pay their bills. There are negative points that will forfeit the trust like committing a felony that sends them to jail, expecting to receive the money to support a drug, alcohol, gambling or other dependent habit.
 
The Trusts have a spendthrift clause that prevents spouses, creditors and others from seizing or attaching the Trusts. The distributions based on the Trustees judgement on they MAY rather than SHALL distribute at specific times except the final distribution. This is to preserve the funds for my children should they become entangled in a bad situation and someone could think they may profit from my child's predicament.
 
Both my children know about the Trusts and my son has already declined the first distribution because he says he does not need it and wants it to grow. My daughter tells me she will be doing the same. They both have thanked m e for the Trusts and the conditions because each felt if they had access to the monies before time they would have BLOWN the proceeds.
 
Again, I ask would you turn over $25K to someone without restriction at 18? (minor at 15 gets $10K + $5K for the next 3 years) Is that a New Mustang or Camaro coming down the street with my son inside?

[foobar]

Ideally for that long of a period into adulthood, the money would be in a ROTH IRA.
If you (or someone else) can employ and pay your child and they declare $15k income over the next couple years, they can contribute to the ROTH. You can give them a gift to match their deposit so he (or she) doesn't feel like they've been working for nothing. In the ROTH it grows tax free for 40 years with no taxes due ever. If it's not in something like an IRA, your child would have to deal with and report taxes/capital gains every year which might be a disincentive to keeping them for the long haul.
 
Also, I'd consider a high quality growth fund in the mix like TRBCX.   Maybe 40% FZROX, 30% TRBCX, 30% FZLIX.  Compare a chart of ITOT (similar to FZROX) and TRBCX to see why:

[DaMa]

Good idea, but I can't see how you could do it without a legal trust. There are so many things between now and 40 years - not the least college, first home, wedding, career. .. Else, the only way I can see this working is if you have an exceptionally good relationship and shared philosophy about long-term financial planning. Our theory has been you do what you can for children, launch them into life and help them along the way as they merit. I am certainly not smart enough to make a 40-year plan.