good investments for my son?

Question

My almost 3 year old son has a savings account and I want to do something else with that. I don't trust mutual funds as in my scrooge way of thinking, money should grow, not be risked. I get the concept of a CD, but the terms IRA and others confuse me. Can anyone help me figure out a way to invest a little of his savings for his future without having to deal with mutual funds?

okay scrooge was just a descriptive term here....no need to get defensive.

Answer 1

Wait now lets define a scrooge way of thinking

a Scrooge would not put money in a savings account and lose money to inflation every year. Inflation 4% annual average vs. savings 1% or less, a 3% loss every year, not very scrooge like.

A Scrooge wanting to avoid risk would put money in to an index no load mutual fund every month for 15 years and beat inflation over the long run. Mutual funds are only risky if you go for aggressive and/or short term.

You son is 3, that's 15 years till his is 18, that's a long time. Go for an index mutual fund with no load like the vanguard VTI. Over a 15 year period is should return between 9 and 11% a year. Sure one month it may be down 3% but over the long haul it will beat a 4% average inflation netting him about a 6% real growth on his money.

The best you could hope for is a savings like
www.emigrantdirect.com at 5.05% just beating average inflation by 1%. not much!

Answer 2

Well, if you want to take absolutely no risk...you should stick to the CD approach. The IRA's you mention are "retirement" accounts... not really for a 3 yr old( it would be a great build-up of money, but he couldn't touch it 'til he's almost 60 yrs old... I'm thinking there may be a few things he could use money for between now and then...school, marriage, house?? )
BUT... if you get familiar with funds and/or investing,you would come to realize that " risk" is not the big, scary, hairy monster that you think it is....or at least you shouldn't fear it so much.
Every pension, every 401k plan, every IRA, that millions and millions of Americans are invested in, has some kind of risk.You just have to accept that if you want the money to grow, you have to accept a little risk..... If you think the country and the world are going to continue to conduct business and trade and grow ... you're just becoming part of it by investing. If you think that another depression or market crash would destroy everything...just ask yourself ..." Gee, what would that little money in the CD's be good for anyway?"
Look into: http://moneycentral.msn.com/beginnerguide.asp?page=introduction
Find the funds or investments with LOW risk....invest...see how he does in two years, three... split some of the money into something just a little riskier....compare the two when he's 10 or 12.....
Well, you get the picture...
I hope he has a down payment on some nice income property when he's 16 !!
Real estate and investing.....90% of the really financially secure people in this country are into them.
Whatever you do, you'll be okay....because you are at least thinking about it way before some parents do. Hope you get all the hugs you deserve along the way !!

Answer 3

Why not an educational fund for college that will come from your income with tax free money??? That will immediately give you a tax shelter to reduce your taxes and allow him to build interest safely over the next 15 or so years. The best investment he can make is in his education. Also over the next 15 years, you should consider a 401K or Roth IRA for your own retirement. The sooner you start, the more your money will accumulate over time. If you want to know how money will grow for a savings plan (estimate 4%, 6%, 8% and 10% returns for comparisons) go to the "latte factor calculator" at www.finishrich.com. You'll find some sweet instant figures to compare what $10 a week, $50 a week, $50 a month, or whatever amount per week or month or year will do for your future by starting today. Your son will have a super advantage to wealth with a smart parent like you. There are some excellent library books that will help educate you. Rule #1 ... Don't invest in anything you don't know about. Might I suggest books by Suze Orman or David Bach, my personal favorites???

Answer 4

The easiest way to invest money in a safe, long-term vehicle is to put it in long-term government T-Bills. However, be sure to encourage your son to open a Roth IRA as soon as he gets his first leaf-raking job. The Roth IRA enables people to take earnings out tax-free upon retirement. As a youngster, there will be no disadvantage to putting money in a Roth, since young earners are (usually) in such low tax brackets to begin with). Yo may even want to hire your son to do some work around the home right now and open up a Roth IRA. If he "earns less than $9000 per year, he assumes no federal tax liability, even if you claim him as a dependent. in 2006, he (you) can contribute up to $4000 to the Roth... the deadline for depositing funds for the 2006 tax year is April 15, 2007.

Once the money is in a Roth (or any checking/savings account), go to Treasury Direct dot gov (http://www.treasurydirect.gov) to invest in T-Bills and Treasury Bonds. You can choose from varying lengths, from 28-days to 30 years. Here are the yields from the most recent auction:

T-Bills Issue: _ Period: ___ Discount Rate:
01/04/07 ______ 4 wk _______4.760 %
01/04/07 _____ 13 wk ______ 4.930 %
01/04/07 _____ 26 wk ______ 4.900 %

Treasury Notes/
Bonds Issue: __ Period: ____ Yield Offer:
01/02/07 _______ 2 yr ______ 4.765 %
11/15/06 _______ 3 yr ______ 4.666 %
01/02/07 _______ 5 yr ______ 4.704 %
12/15/06 ______ 10 yr ______ 4.580 %
08/15/06 ______ 30 yr ______ 5.080 %

The only caveat about treasuries is that the investment needs to be in units of $1000, up to a max of like $2 million or $20 million (some huge number) per individual taxpayer.

As the assets in the Roth build, you may want to allocate some of the funds into mutual funds... an index fund is an easy way to get into the market without needing to study anything. THe S&P500 was up 11% in 2006, and global markets were up even more. It is all about diversification. For your personal savings, try Citibank. They offer 5.00% interest on all money held in the regular savings account, SO LONG AS YOU SIGN UP On-Line (E-Savnings + e-Checking) and either have direct deposit OR pay at least 2 bills per month online (for free!)

Answer 5

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Answer 6

if you dont want some risk, certificate of deposit or cd would be the best. it has double compounded and almost no risk at all.

Answer 7

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