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Author: sierrasprings Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Roth for daughters - what fund Date: 1/23/2004 8:38 PM
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To encourage daughters (23 and 21) to begin to save and become familiar with investing I opened a Roth for each and told them I would match their own contribution each year up to $500 each. Obviously I am hopeful that they will continue to put in funds and learn about investments. Not knowing what to do, I purchased Vanguard Wellington and Vanguard Total Stock Index for the Roth accounts - any suggestions re what I am doing - what to put in for the very long haul and how to manage this re changes ? Thanks - I am a new member here with limited knowledge re investing.
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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38709 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/23/2004 10:12 PM
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Alas, you contributed first and asked questions later.

You should have opened Traditional IRAs, since your daughters are in a low tax bracket now. Also, TIRAs remove the temptation to spend the money, since withdrawals are taxed and penalized. And your kids must have as much earned income as you contributed (actually gifted to them). Your choice of funds was good, though.

Nick

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38710 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/23/2004 10:22 PM
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Sorry I was doing two things at once: You correctly bought them a Roth since they are in a low tax bracket now. So, in sum, you did pretty well! Now you have to get them in the habit of contributing...maybe you should match them dollar for dollar.

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Author: sierrasprings Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38711 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/23/2004 10:57 PM
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Thanks - actually I am matching dollar for dollar up to $500, but I don't think I expressed it quite like that - your way of stating it is clearer - one daughter has started an automatic deduction from her checking account - $50 every other month which is a start. . hopefully they will learn what I did not learn - save early and often.

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38712 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/23/2004 11:41 PM
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hopefully they will learn what I did not learn - save early and often.

Show them a chart that shows how easily they can become millionaires if they start investing early. Then show them how much harder it is if you wait.

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Author: sierrasprings Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38713 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/23/2004 11:43 PM
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Great idea - I have seen those - any idea where I can find a rather compelling one ?

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38716 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 6:40 AM
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Great idea - I have seen those - any idea where I can find a rather compelling one ?

No, I don't. But it's not hard to show various scenarios in Excel.

Maybe someone else knows of something that is made up already.

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38717 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 10:28 AM
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sierrasprings...

To encourage daughters (23 and 21) to begin to save and become familiar with investing I opened a Roth for each and told them I would match their own contribution each year up to $500 each. Obviously I am hopeful that they will continue to put in funds and learn about investments. Not knowing what to do, I purchased Vanguard Wellington and Vanguard Total Stock Index for the Roth accounts - any suggestions re what I am doing - what to put in for the very long haul and how to manage this re changes ? Thanks - I am a new member here with limited knowledge re investing.

Excellent! In my opinion, the two funds are perfect (VTSMX) and (VWELX)and the Roth IRA is the best choice for an investment vehicle for them as well. Well Done!

Because they are still very young, I believe the larger portion of their porfolios should be in the broad-market stock fund (VTSMX). This is the risker of the two, but that's what youth is all about - they can stand the risk. It's a tradeoff - generally speaking, more risk equals a higher return over time.

http://www.quicken.com/investments/charts/?p=VTSMX%2C+VWELX&B1=Go&choice=on

If you haven't checked out the neat little "Risk/Reward Chart" provided by Vanguard, I've provided the link for you:

http://flagship5.vanguard.com/VGApp/hnw/FundsStocksOverview?type=PIWANTTO4

Again, I think these young ladies are very fortunate to have you as a parent!

Regards,
Bill


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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38718 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 10:55 AM
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To encourage daughters (23 and 21) to begin to save and become familiar with investing...

Let me be a desenting voice. (Note, the following is a little over the top for dramatic effect. Nothing personal.) Hello?!?!? Your daughters are 23 & 21, in otherwords adults. I assume they are out of college and fully on their own. I might talk to them and encourage them and show them where/how they can be millionaires, but to fund them at this age? Maybe if they were 13 & 11. This slightly smacks of enabling/dependence. "The Millionaire Next Door" has a chapter on dealing with kids and money. Basically, give the kids a good raising and college if needed, but teach them to manage/earn their own money or they will never appreciate/earn their own money.

Otherwise, its a nice gesture but a potential slippery slope.

JLC

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38719 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 11:31 AM
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Because they are still very young, I believe the larger portion of their porfolios should be in the broad-market stock fund (VTSMX). This is the risker of the two, but that's what youth is all about - they can stand the risk. It's a tradeoff - generally speaking, more risk equals a higher return over time.

Hmmmm. I am much older than they, and I have approx. 10% of my money in VEXMX, "riskier" yet.

cliff

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Author: Frydaze1 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38720 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 11:34 AM
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Great idea - I have seen those - any idea where I can find a rather compelling one ?

Here's a chart at the bottom of this article:
http://www.fool.com/money/401k/401k01.htm
The article is on 401(k)'s and what a difference it makes to start 10 years earlier, but the concept is the same.

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38721 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 12:00 PM
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Let me be a desenting voice. (Note, the following is a little over the top for dramatic effect. Nothing personal.) Hello?!?!? Your daughters are 23 & 21, in otherwords adults. I assume they are out of college and fully on their own. I might talk to them and encourage them and show them where/how they can be millionaires, but to fund them at this age? Maybe if they were 13 & 11. This slightly smacks of enabling/dependence. "The Millionaire Next Door" has a chapter on dealing with kids and money. Basically, give the kids a good raising and college if needed, but teach them to manage/earn their own money or they will never appreciate/earn their own money.

I disagree. He said that he was providing *matching* funds, and only $500 at that.

The best way to get a desired behavior is to reinforce it with a reward. In this case, he is rewarding a positive behavior. It is completely different from the cases described in The Millionaire Next Door, because in the book, spending beyond one's means was the behavior being rewarded, not investing for retirement.

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38722 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 12:35 PM
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I disagree. He said that he was providing *matching* funds, and only $500 at that.

Matching funds are great. I've done that for my kids' Roths from when they started working in their teens until fulltime salary/real life. The part that concerned me was the "I opened Roth accounts for them" piece. I showed them or helped them is what I would (and did do) for someone over 18.

The children and only the children are responsible for their tax and other financial concerns and no account should be opened without their prior knowledge and approval. IMHO, of course.

rad


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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38723 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 3:23 PM
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The children and only the children are responsible for their tax and other financial concerns and no account should be opened without their prior knowledge and approval.

I didn't even know that you could do it without their knowledge and approval.

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Author: sierrasprings Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38724 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 4:15 PM
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All good points and appreciated. However, I think that in my situation proceeding in this way was the way to go. I had talked to them before, explained what I thought they should know about credit cards, about saving, about compound interest, about budgeting, about spending for graification, etc. and assume that some of that got thru - certainly the credit card apsect - not so lucky with the spending habits. However, it was only when I explained what I proposed to do re a Roth, and only when the account was opened (with their consent) and only after they had a password to go in on-line to see what was in there, that I saw the light really go on. Now they are asking quesions, checking the account, doing their own calculations, reading about "money issues" and even talking to their friends about it. One has begun direct deposits (one is in college and one just graduated last month and they have very limited earnings right now from part time college jobs - they have worked all thru college)and the other one asked about direct deposits yesterday. I have also begun to e-mail them articles re financial matters and on and on and on. And my older daughter asked me last week why they never taught any of this in school. So, while it may not have been the optimum way to proceed, it has had the desired effect. I will send them the charts to demonstrate visually what I have been telling them about starting early . . .

The matching was necessary, I think, to launch this. . .they were spenders before, but now I think they will also save a bit. .

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Author: ngcpa Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38725 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 5:30 PM
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Sierrasprings:
You should be commended for what you did.
Norm

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Author: knitmom One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38726 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 5:51 PM
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I applaud you, for one! Just the kind of education I wish my parents had given me. I'm doing what suits my situation: I'm asking my 16 to save 1/2 the $1000 to open a Roth, and while he's living at home, to make regular deposits as well (small). I'm afraid I've already talked waaaay past the tolerance for my daughter, 14, who doesn't even want me to breath a word about money until she has a job and has to think of it. Do I talk too much? Hardly, in my mind, it's mostly telling my consumer daughter what's within our means. I think 'walk around the block' she thinks 'Health Club membership'... with her, I don't know what I'll do.

Knitmom

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Author: dsemmler Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38727 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 6:06 PM
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I applaud you, for one! Just the kind of education I wish my parents had given me. I'm doing what suits my situation: I'm asking my 16 to save 1/2 the $1000 to open a Roth, and while he's living at home, to make regular deposits as well (small). I'm afraid I've already talked waaaay past the tolerance for my daughter, 14, who doesn't even want me to breath a word about money until she has a job and has to think of it. Do I talk too much? Hardly, in my mind, it's mostly telling my consumer daughter what's within our means. I think 'walk around the block' she thinks 'Health Club membership'... with her, I don't know what I'll do.

Our boys are 5 and 2 and I am starting them with the habit of whenever they receive cash as a gift or for doing extra chores, they need to set a minimum of 10% aside and put into savings. The rest of their money they can spend as they see fit, which usually means Hot Wheels cars or GI Joe but that is okay. I am trying to get them used to saving a portion of their "earnings" so it will not be foreign once they do begin making money.

I also commend SierraSprings for making the effort to get her children, regardless of age, interested in saving. Personally, I wish my parents had talked more about finances when I was a child or just getting out of school. I think what you are doing is great.

dt

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Author: sierrasprings Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38728 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/24/2004 6:27 PM
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I hear you - what used to drive me crazy was the "we're going shopping" (from daughters and wife) What do you need to get? says me. Nothing. What do you need? Nothing. Do you know that people typically wear the same 25% of their wardrobe no matter how many clothes they have ?- so you don't need clothes, right? No, but we might find something. And they usually did. "It was on sale" was a frequent refrain. But at some point, when it was their money they were spending they began to have a bit more discipline, particularly when their account balances were so low they couldn't do certain things. I have had my issues too, I spend more than I need to in book stores or hardware stores - followed my wants instead of my needs. I guess what is needed is to get them to change behavior just enough so that the change (saving) becomes a habit. I appreciate the charts that others have provided in this thread and I have sent them on to my daughters. I think modeling the behavior you want and gentle reminders and providing resources (information) will have some effect. There is great book, by the way, that I really like, not really what kids or young adults will read though - although I did get them to read the introduction - The Simple Living Guide, by Luhr.

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Author: navarchjd One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38748 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/26/2004 7:03 PM
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Only $500....if you have any more of that "only" stuff laying around I'll take some :-)

I think there is some value in the original comment. At what point do we let our kids learn from experience. I for one think that the longer we bail them out, subsidize their adult spending habits or protect them from real world life where decisions have repercussions the less incentivized they are to take charge of their own life. These are not kids who need to be guided but young adults who should be starting to recognize the value of good advice when given. I agree there is behavior modification here but I'm also not positive exactly what behavior is being reinforced here. The danger that the message sent is..."don't save anything and I'll give you half...love Mom & Dad" is real. I think kids often see our actions through entirely different filters than we intended. What is to stop them from seeing the contributions to a Roth as free new car cash in the future since contributions can be withdrawn at any time?

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Author: sierrasprings Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38755 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/26/2004 10:09 PM
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I do understand where you are coming from - but still think that by priming the pump I got them to focus on savings. It is a modest sum given to two daughters who on their own got jobs and worked while in college and thru the summers - sometimes holding two jobs. That gave them their spending money while in college - and enabled them to buy their books. . . I did not want them to come late to the savings table (as I did) but instead wanted some vehicle to kick this off. . I think it worked and is working. I am not sure I would have had the same success in getting their attention by only abstract advice . . the Roth is the opening. . . now we discuss money in the Roth context and much broader. I have no concern whatsoever that they will withdraw the money for a car or whatever. . . they are very responsible - they just did not know much about retirement savings or options. . . I was much much much older than they are before I had a clue. I think this is working out much better than I had hoped.

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Author: familyceo Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38771 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/27/2004 1:34 PM
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"You should be commended for what you did". Amen!!!

Hubby and I started Roths for our boys when they were 17. We *gasp* funded them to get them started on saving, investing, etc.
The oldest son (24) will graduate college in May, lives at home, works 2 part-time jobs plus receives the GI bill so he deposits $120 a month into his Roth in lieu of rent. I took him to our financial planner 2 years ago when he finished his army stint and had this set up. He has learned that "you can't spend what you don't see".

The youngest son (21) will graduate in May of 2005. He does not have extra $$ to be able to contribute to his Roth. We are not contributing anything more at this time since we are *another gasp* paying for his college education. Once he graduates and starts a job he and I will visit our trusted financial planner and go over his Roth with him. He is expected to contribute at that time since he will have NO student loans. Yes I firmly trust he will since this is an agreement we made when he started college.

I figure this is "our money, our choice" to fund Roths and pay for educations. It's just like living frugally, I do that and it's my choice. And hogwash to those who say you're not teaching them anything by doing it for them. If done properly you've taught them alot.

ceo



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Author: marcusfan One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38774 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/27/2004 2:15 PM
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I agree that this is a great idea. I did this with my boy. I own a fireworks business that he has worked in since he was 14. When I paid him at the end of each season, I told him I would match anything that he put into his IRA. I told him that I would do this for him until he turned 21 and then he was on his own.

I am happy to say that he is now 25, contributes the max to his 401K and contributes the max to a Roth IRA every year. I can only wish that someone had taught me this lesson when I was younger and that I didn't have to work so hard to accomplish what I could have accomplished just by the passage of time.

I think you're doing a great thing for your daughters. Remember, education isn't only about the 3 R's but also financial education and you're doing your part. Good job.

Marcusfan

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Author: MTBer One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38819 of 76398
Subject: Re: Roth for daughters - what fund Date: 1/29/2004 7:24 AM
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<<I for one think that the longer we bail them out, subsidize their adult spending habits or protect them from real world life where decisions have repercussions the less incentivized they are to take charge of their own life. >> navarchid

I think there is a balance to be had. My parents kindly paid for my undergrad and graduate school. Working in a relatively low paying profession(non-profit counseling agency), they continued to help me with a few expenses such as car maintenance, etc. until my income allowed me to pay for such things and still be able to pay the rent!

Although even at this point I could probably still receive some assistance from them for certain needs(like if an unforseen large cost for my car popped up...it appears to be ALL about the car for Dad!), I don't. I have never carried a credit card balance, nor accrued any kind of in foolish (ah, the OTHER definition of the word!)debt. Investing is of the upmost importance to me.

So, I think that it depends on the child and on the child's upbringing. Not in all cases of parents assisting their adult children financially, early on in their child's career, creates a sense of long term entitlement in their children.

-Amy

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