Investment Gurus- I need advice

onewhippedpuppy · 12-09-2005, 08:43 AM

Question 1: With Christmas coming up, we suggested to my parents as part of our 20 mo old sons gift contributing to a savings account of some kind. When my wife was a child her grandparents bought her a savings bond every Christmas and B-day, but aren't there better options? What would be the best option for roughly a 20 year period of time? Bond vs CD vs mutual fund vs ?

Question 2: We plan on starting some sort of college/ general savings account, what are some good options? I know this may be somewhat state dependent, as they often advertise KS college savings funds, but before we go talk to our Waddel & Reed guy we'd like some impartial advice. We want something that will grow well with minimal taxes on the interest, but that doesn't have to be used for tuition when the time comes. Ideas?

Thanks!

Rodeo · 12-09-2005, 08:54 AM

Utah runs a really good college saving program. That's the one we use. The money grows tax free. And it can be taken out by the contributor anytime if circumstances change, as long as taxes are paid on the gain (I think). Your parents can put money in there too.

I was reading something about John Robert's (now Chief Justice Robert's) financial disclosures, and he uses the Utah program. Confirmed how smart I am

turbo6bar · 12-09-2005, 09:22 AM

How many dollars do you plan to invest?

onewhippedpuppy · 12-09-2005, 09:34 AM

We would like to contribute $100 a month to start, after I graduate from college hopefully we can bump it up some. My parents would like to contribute $50-$100 every b-day and Christmas.

Rodeo · 12-09-2005, 09:39 AM

Go to Utah's college savings plan site. Its perfect for your needs.

There are other websites that rate the various states' college plans, check those sites out too. Utah has always been in the top tier of state plans.

EdT82SC · 12-09-2005, 11:18 AM

Here is an article in Newsweek about 529 college savings plans:

http://www.msnbc.msn.com/id/9865075/site/newsweek/

turbo6bar · 12-09-2005, 11:57 AM

For monthly investments, mutual funds are certainly attractive. A no-load mutual fund won't charge fees to buy. You will pay some taxes at the end of the year. That's the downside with mutual funds--they can be inefficient with taxes.

I would say an 8-10% return is conservative, which means your investment doubles every ~7-9 years. In 18-20 years, your son will have a nice sum to help with education or other needs.

The Utah college savings plan does look nice.

vash · vash's Garage

good start. my parents saved everything. i had rocks and dirt as toys. frugal has hell, and i hated it. till she gave it to me for a downpayment on a california home. love those people!

onewhippedpuppy · 12-09-2005, 12:35 PM

Rocks and dirt, that's great. I was about the same, except my parents didn't save any either. I'm not repeating their mistake.

Moses · 12-09-2005, 12:35 PM

Quote:

Originally posted by vash
good start. my parents saved everything. i had rocks and dirt as toys. frugal has hell, and i hated it. till she gave it to me for a downpayment on a california home. love those people!

Wow! Great parents. Pretty smart, too.

tabs · 12-09-2005, 12:42 PM

How bout buying a Share of XOM or CVX , and putting the dividends into an automatic Dividend Reinvest program.

The share price is now around $60 a share...buy a block of 10 shares and add one every quarter...

Mother did that for me back in 1967...10 shares XOM and 10 shares CVX...$1500 total investment....today worth $31,000 (no dividend reinvest) plus both companys have paid a Dividend every quarter since 1967 ...today the divends are about $600 a year.

tabs · 12-09-2005, 12:44 PM

Quote:

Originally posted by vash
good start. my parents saved everything. i had rocks and dirt as toys. frugal has hell, and i hated it. till she gave it to me for a downpayment on a california home. love those people!

You had ROCKS and DIRT as toys....man at least you had toys...

onewhippedpuppy · 12-09-2005, 12:46 PM

What are XOM or CVX? How about a share of Porsche?

vash · vash's Garage

sad to say, two hellion boys can do some serious damage with rocks

mom was not proud..

tabs · 12-09-2005, 12:52 PM

Exxon Mobile = XOM

Chevron = CVX

You want a low Beta stock...not terribly risky, and with a PE ratio of about 12% on XOM how can U go wrong...price appreciation plus 1.9 % Dividend....not terribly exciting like watching the grass grow...but steady as they come...and thats what you want

You have to pay Income tax on the Dividend...unless the shares are bought under a Tax Deffered program...and no Capital Gain Tax until you sell the shares...regardless of the program..

Dixie · Dixie's Garage

You're really going to trust the feedback you get here?

There are many things that need to go into what is the best answer.

If you're young, perhaps a 529 plan would be best (Until Hillary does not extend Bush's tax package that is...) I bet Kansas has one, And I suspect Kansas even lets you deduct it off your State income taxes.

Then again, if you're older, and have small children, you'll want to concentrate on retirement accounts, and paying off your mortgage. Why? Well, you can always get college funding (loans, grants and scholarships) but you can't get a retirement loan. Plus, legally you have to take money out of your differed savings plan (based on your age). You can always use some for tuition. Keep in mind that the value of your residence does not factor into getting grants, but money you've saved for sending junior to college does.

Now if all you want is opinions on an investment choice, I'll give you one.

I-bonds.

Available at your bank
Government issued and backed
Indexed to inflation
Super safe
As I recall, current rate is 7%

turbo6bar · 12-09-2005, 02:04 PM

I like tabs' idea, but brokerage fees will eat up a fair portion of the investment. The best trading fees are ~$7 per trade, unless you go with one of the ultra-low fee brokerages like Interactive Brokers. However, IB has a hefty minimum balance.

I believe a plain vanilla Index or Total Stock Market fund is ideal. There is little to manage, and your return is equal to the market.

I would not use I-bonds for long-term investments. Your return is only 1% over inflation. For protection of assets, I-bonds are great. For wealth-building, I'm not so keen, but that's just me.
jurgen

onewhippedpuppy · 12-09-2005, 04:35 PM

For a bit more clarification, we're 25, don't own a house currently, and almost have our only debt (4Runner) paid off. We both have Roth IRAs, and a mutual fund, and as soon as we have the stupid 4Runner paid off we plan to contribute to them on a monthly basis. Tabs has a good idea, but I agree with the others, we are not yet able to afford to buy stock on a large enough scale to make it worth the fees.

I'll look into 529 plans for our college fund, but what would be the best route for my parents, chipping in a few hundred a year? Would it be worth them opening a CD for our son, or just buying bonds?

Rodeo · 12-09-2005, 04:57 PM

Unless your parents want a seperate account, they should just contribute to the college fund you establish. Otherwise, at the levels you are talking about, savings bonds are fine in my opinion.

With all due respect to some smart people here, opening a stock trading account makes little sense for you right now. Let a professional handle it in a fund.

Congrats on starting early. Keep it up!