Hi! I am new to this board and new to investing. I have researched a lot of companies that offer DRIPS and was prepared to invest money for my children in them....then someone said that investing in Mutual Funds would be a better route to take. My children are 10 and 14 and they would be putting approximately $25-$50/ month in a plan. What recommendations do you have. I don't want to pay out money in commisions and fees since they are investing such a small amount each month. However, if they start investing at a young age the power of time will be on their side. Any suggestions would be appreciated.
Hey Gambler:For my money, Drips are the way to go. Less than 10% of all managed mutual funds beat the S&P 500 in any given year, so you're always left wondering whether or not this will be your fund's year to come out on top. And with that wonder comes a hefty price. Even no-load funds have expenses ratios of 1.5% and up, and because they're actively managed, portfolio turnover generates tax expenses that erode net-net performance.If you do go the fund route, consider an index fund. The funds are mechanically managed to mirror a major indexes such as the S&P 500, and are less expense- and trade-intesive. That means more of your pricipal is at work, and you know that you're going to match the market, year in, year out. Another way to "buy the averages" is with SPY--an index derivative. A Fool search will lead you to plenty more on SPY, which can be purchased fairly cheaply through www.buyandhold.com.However, it sounds like you're going to need more than market-matching returns to get those kids through college. Sensible, market-beating performance is what this port is all about, and a one-time fee of $15 to $20 is all it costs to become an "installment investor" in the companies favored here. All and all, I've decided Drips are the better way to go for my money. Hope this helps you determine the best route for yours.
I'm with ptinv, all the way. 90% of managed funds typically lose to the average of 500 stocks. Individual investors can find the elite companies to invest in and have the advantage over the S&P 500, and to a much greater extent, managed funds. If one doesn't wish to look into individual stocks, then an S&P 500 Index funds makes sense.Fool on!Vince
Considering their age and $ amounts, I'd go and open an Educational Roth IRA and buy an index fund (S&P 500 preferably). Just find one with very low fees and no loads.Marv
I forgot about Roth's, great idea, madmarv. And thanks for the fish words, Vince.
I have researched a lot of companies that offer DRIPS and was prepared to invest money for my children in them....Due to this sentence, I would suggest that DRiPs might be your best route. This is not necessarily the case for everyone. Opening an S&P 500 Index Fund is a perfectly acceptable way to go about things, and companies like Vanguard will not set you back in the major way that actively managed funds will. For those with no desire to research their own choices, this is an excellent route.However, it seems to me that you have decided to do some of the legwork yourself. In that case, you will be able to reap the benefits of doing better than the average. It takes some work, but if you are willing to do this (and it sounds like you are), then you will have the opportunity to do better than the index funds.Cheers -george
For someone who decides to go with both DRIPs and Mutual Funds, I was wondering how much, the ones out there that have done so, of your portfolio do you recommend investing in the Mutual Funds.
ConsaAnn: I was wondering how much, the ones out there that have done so, of your portfolio do you recommend investing in the Mutual Funds.ConsaAnn-Hello and welcome to The Fool.No one can tell you definitively how much money you should invest in mutual funds vs. how much you should have in individual stocks. Here are some guidelines, though, I would use to help with this decision:1) Only invest in individual stocks in companies that you believe have a chance to outpace the S&P 500 (or some other broad-based index) over your investment horizon. If the stocks can't outperform, you are better off with an index fund.2) I would only invest in index funds-- that is, funds designed to mimic a certain stock market index (e.g. S&P 500, Wilshire 5000, etc). These funds are not flashy, but will consistently outperform 90% or more of managed mutual funds because of their low turnover and low management fees.3) When buying individual stocks, limit your selections to the number of companies whose performance you will realistically be able to follow over your entire investing horizon. This means that you should at least be able to peruse 3 10-Q's per year, read all major press releases, and spend a couple of hours each year with the annual report/10K. This will get you ever more familiar with your companies and allow you to really feel like an owner of the business, not just a stock trader.4), and most important, invest in individual stocks only up to your comfort level. If you can't sleep at night worrying about one of your company's new strategic initiatives, its time to funnel some of that money into the index fund. If you compulsively check your portfolio 10-12 times per day because you are worried about your stocks, its time to buy funds. (Remember, there is a difference between following your portfolio and obsessing over it.)None of this really answers the question you asked, but I hope it helps you to make your decision.Steve
I would do both.But I don't know of mutual fund that lets you invest less than 1000 for kids.I would stick with DRIPsMy choices would be1. Intel, INTC2. Enron, ENE3. Exxon EXOM4. Coke KO5. 3m MMMMutual fundVanguard S&P 500.www.vanguard.com
gambler33:Although I think its great that you're teaching your children to invest at an early age, you should be aware that assets your children own/hold in their name(i.e., stocks, mutal funds, etc.) are counted against your children in terms of their eligibilty for federal loans/aid for post-secondary (e.g., college aducation).Assets that are held in the parents name, aren't counted as "severely" for aid eligibility.FWIWunikorn
For someone who decides to go with both DRIPs and Mutual Funds, I was wondering how much, the ones out there that have done so, of your portfolio do you recommend investing in the Mutual Funds.I do both, and I allocate as follows: I put in $2000/year in a mutual fund IRA, and the rest gets put into individual stocks. Although earlier, I did also put some more money into a taxable index fund when I had a larger lump sum (gift) to invest, I had fewer Drips started and I was a bit less confident.The reasons I like a fund for the Roth are as follows. There is a hard limit on how much can be contributed per year, so I want to make the most of it without undue risk. A fund gives instant diversification, lowering risk. Commissions would eat me alive to get comparable diversification with individual stocks (since few Drips have an IRA option, the ones I've seen have fees for that, and otherwise mixing IRAs and Drips is nearly to dream the impossible dream). Additionally, even an index fund is somewhat less tax efficient than long-term holding of individual stocks, so the tax shelter of the IRA is more beneficial when used for a fund.Now, there is a bill pending that would increase the IRA contribution limits. If this gets passed and signed (and I really hope it does), I will probably change my strategy slightly. I will still want to fully fund my Roth, but I may put future money into a Foolish Four strategy while leaving the existing mutual funds, or perhaps split the money between them somehow.Anyway, that's what I do. What I would recommend depends on how much time you have devoted to studying your companies, and how good you are at analyzing them. For the less sophisticated investor, or the one who just has other things to do, putting most of the money in an index fund is a good idea. Never go on an adventure without a hat!Indyhttp://users.interconnect.net/indy/
Dear Gambler,When I decided to start saving for my retirement, I did not have much money to invest and I wasn't yet aware of DRIPS.I looked around for mutual funds that allowed people to get started with a small amount of money and I made my choice from there.A few years later I heard about DRIPS and started investing in them. As I gained confidence, I opened an IRA brokerage and use it to invest in stocks that do not have DRIPS. I also have an account with BuyAnd Hold.comI have to say, that the DRIPS are my favorite way to invest. Putting performance aside, there simply aren't that many mutual funds out there that will let you either get started with a very small amount of moneyand/or contribute small amounts monthly.DRIPS, in my humble opinion, are the budget-investor's dream. There's a wide variety to choose from, many without fees--and there are many that allow you to get started with very little money up front.Keep researching--and good luck to you!
Consann:I have a mixture of outright purchases, DRiPs, and mutual funds. The funds are in my SIMPLE IRA and Roth IRA accounts, and both are maxed for contributions: $6k for SIMPLE and $2k for Roth. I invest at least $200 per month into the DRiPs and rebalance the outright purchases annually with an addition of at least $1k from my company bonus.Hope that helps.Jenn
Unikorn:You wrote: Although I think its great that you're teaching your children to invest at an early age, you should be aware that assets your children own/hold in their name(i.e., stocks, mutal funds, etc.) are counted against your children in terms of their eligibilty for federal loans/aid for post-secondary (e.g., college aducation).Assets that are held in the parents name, aren't counted as "severely" for aid eligibility.Comment: This is true, assets in children's names are counted towards the Federal Student Aid calculation at a rate of ~35% while the family contribution is 5.65%. This is useful for the truly LOW INCOME parents that must rely upon the Pell Grant for funding the education. All families are eligible for the Federal Guaranteed Student Loan Program, as well as the PLUS program. We should be encouraging families to save for their retirement first and then for the kids educations with the hope that starting early will get enough saved for the tuition without relying on the FREE monies earmarked for the economically disadvantaged families.Jenn
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