November 17, 2004

• If I have a sex change, can I become your niece?
• Take that money to the dog track and let it ride. Or better yet, the kitten track.
• Open a 529 plan for her. [More information]
• Gosh, $1000 is a huge ammount of money. Even with inflation I never got anywhere near that as a kid. I just hope that she appreciates what a kind uncle you are.
• Uncle Argh, why have you forsaken me, your nephew? *cries*
• Hey Uncle Argh, Remember me? Your other niece?
• I would say get in touch with a good financial advisor, but then I'm not the DIY investor-type, and I've had good results with mine. My grandmother put away $1000 for my education when I was born and it grew to $10000 when I turned 18. I'm incredibly grateful for it now, and even it hadn't grown quite so much, every little bit helps these days, as getting financial help from anyone else in my family is pretty much out of the question. So what you're doing is awesome. I recently reinvested a portion of it in a specific growth fund, which was recommended by my advisor, and I'm seeing a decent return every month. I'm in Canada, and I went for a BMO dividend fund, if it helps.
• Oh, I should mention that seeing as you're likely to go for something a little more long-term than me, and could probably afford to lock it in for a set period of time, I'm sure there are better options. You should, I think, expect a growth rate of at least 10% annually, as that's what I'm getting at the moment. Again, though, that's Canada and it's a short-term investment, so your situation will differ.
• I'd just go safe and boring - bonds and the like. By the time she's an adult, it'll be a pretty big stash even with a low ROI.
• My grandparents started buying me bonds from the moment I was conceived, practically, for my college fund. By the time I went to college, it was enough to pay my rent all four years and have a couple thousand left over. (I got a scholarship for tuition.)
• I think you'd be advised to invest in something with moderate risk and relatively high return -- assuming you've got 10 years before you want to cash it in, you can tolerate some fluctuation. A balanced fund or something like that. Maybe the parents could put it in an RESP (another Canadian thing) -- get a tax break for money that's specifically intended for education... Caveat: I'm not an investment advisor, or even particularly good with money.
• If you're into the stock market at all, you might pick up 50 or so shares of a stable company which pays good dividends. You can set up an account in her name and with yours as trustee. which would give you the ability to buy or sell in her behalf till she comes of age. Have the dividends reinvested to buy more shares. Not sure about biotech - my brother keeps trying to find one which will take off and just keeps losing money. It's really a gambler's choice, from my standpoint. Can be a bit of a gamble, but pretty much of any investment is. It kind of depends on what your tolerence for risk is. Bonds and bond funds are way low risk, but the return can be pretty puny in comparison if the stock market is going up. On the other hand, most of the stocks I manage for my mother are at or above where they were before the y2k downturn, so you might be buying high for stocks. Depends on your optimism. CD's and other interest rate indexed/money market funds that I'm aware of haven't been doing all that well for the last few years since the Federal Reserve has been cutting interest rates till recently. Even at best, they're better than regular savings but won't give you anything near 10%. CDs will come back if the Fed gets agressive on raising interest, though, but you'd want to buy those at the top of the interest rate curve. So much to think about! And pretty confusing. Plus, since this is a long term investment, you don't want to get to freaked out by momentary up- or downturns. calimehtar mentioned balanced funds (combination of stocks and bonds.) The one I invested in has done the best of the funds in my IRA over the years. You really need to start reading respected on-line sites that give financial advice. Motley Fool is one I've enjoyed, but there are lots of others. Relying on an individual stock broker or financial advisor has been chancey, in my experience, if you haven't done some research first. Most of the on-line sources do seem to agree that, if your going to buy stocks, you should look for ones which you are informed on. Buying the latest fad can be a disaster. And, the required disclaimer. All that is based on personal experience, but I'm definately not an expert.
• Thanks for the advice yall. It's kind of important to me she gets something I never had (cue violins). We done growed up poor. I got lucky selling a few paintings last year and was able to give her some bucks. She's the only kid in my immediate family so she gets spoiled. ramix and davidmsc send me an address and I'll send you something special
• $1,000 for a 3 year old? I'm 17 and the most I've ever had at once is 400. And we're not poor by any stretch of the imagination.
• Argh - don't listen to anyone griping. This is really beautiful of you, and I hope that she appreciates it when she is older. That said, I have heard bad things about Canadian RESPs - namely that you can loose the interest if the child doesn't go to university quite soon after high school (I didn't go until I was 21, and my mum said I probably couldn't have used an RESP because of it). So you would want to read all the fine print - and maybe look for something more flexible. It also may be that she will use the money for something else - non-university training (my friend did computer animation, loved it), starting a business, getting going in art - which an RESP might not allow. I'm really conservative with money, so I would go with something that you are positive will never loose principle - my favorite is just the wonder of compound interest. Since she won't need the money for a long time, that's probably best. I'd even think that maybe you would come out ahead over stocks, the way industries can go up and down. Stocks just take so much micromanaging. Even with a mutual fund, you can end up loosing - my mum lost a lot of money from her only retirement savings in the last big dip of the stock market. $1000 at 5% compound interest for 15 years = 1979.93. That's pretty damn good for a sure bet.
• I'd put the money into a managed fund for several reasons * Management fees are relatively low compared to brokerage. Brokerage is payable when buying AND selling a particular asset. Most fund managers will charge only an entry or exit fee with ongoing fees relatively minimal. * Managed funds are exactly that. Professionals are there, actively managing your investment for you. This means you don't have to be particularly market savvy or spend hours poring over the financial pages. *Dividend payments which are often payed out quarterly or half yearly can often be reinvested, free of charge, back into the fund. * Different levels of risk can be catered for through different funds. Some funds will invest a large proportion of funds in cash and bonds, others in international equities. There are a wide variety of options available. And, on the topic of risk, if you niece is three and you plan on giving her the money for her 18th, I would suggest stocks and property rather than Bonds. Your investment timeframe allows a more aggressive strategy with the possibility of higher returns.. Remember- it's time in the market, not timing in the market.
• No, that must have come out wrong. davidmsc and ramix really do get gifts for being my instant relatives. I have wonderfullll things for you. Anyone else want something fun mailed to you, just send me an email. I'm emptying an estate this week and there's lotsa goodies to be had. It's mostly crap but it's make you smile kinda crap. I feel like Monty hall this week. I like my new meds Mmmmm
• Oh, Argh, I want. I want! And maybe you could send a few of the meds, too.
• Swap you for Tim-Tams! (Yes, I owe multiple people Tim-Tams now.)
• Just a few suggestions... --Don't invest in (HOT INDUSTRY X) unless you really understand it. Remember when everybody was investing in Internet stocks because it was the next big thing and only a fool would be left out? I agree with Path--"I understand this specific company and I think it will prosper" is a good reason to invest. "Oooh! It's biotech! That's hot!" is not. --For those of us who don't have the expertise to analyze a company's balance sheet and business plan, mutual funds are a great way to go. --If you invest in a managed fund, make sure you look at its performance relative to the broader market over a very long period of time (5-10 years, say.) But also note that if the fund's current manager only joined the fund a year ago, results over the past 5 years won't tell you much about his abilities. --Seriously consider investing in an "index fund"--a fund that just buys a big sample of all the stocks out there. Rather than trying to beat the market, these funds just mirror the market. Remember that very few fund managers are able to consistently beat the market. So why pay them a fee to do as well as or worse than an index fund? You can also buy index funds that mirror specific markets (a health index fund, an Asian index fund), so if you want to make a bet on a specific part of the world economy doing better than the others, but you don't know enough to pick a specific company, this is a way of doing it. --When you are comparing the performance of two different funds, don't forget to look at the fee they charge. A fund that charges a 5% management fee has to do proportionally better than a fund that charges 2%. --Don't just view this endowment as a way of funding her education. View it as part of her education. Buy at least a few shares of some stock that will be meaningful to her--Disney, for example. (When I was thirteen, somebody gave me a few shares of stock in a company my dad was working for, which meant my dad was working for me! How cool was that? ) When you think she's old enough to understand it, you can explain to her that she owns part of the company, and gradually introduce her to some basic concepts of investing. When she's older still, you can start letting her play an actual role in the decision making process. If you want more info, Peter Lynch's book is supposed to be good. And don't miss Warren Buffet's letters to his shareholders. They are free online, and will give you some great insight into the mind of the most successful investor in the world.
• Having just poked around Berkshire Hathaways website a bit more, I'd recommend you start with The Owner's Manual before you start on Warren B uffet's letters.
• I say CDs. You could get a whole bunch for $1000... I'd definitely recommend picking up the new Isis album, the DFA compilation... The new Joanna Newsom album's pretty sweet. guffaw
• I second the idea of starting a college savings plan, especially one with tax benefits to you or her parents. With tuition on the rise, it's never too early to start saving.
• Some pointers from someone who works in the industry: First off, avoid short term bond funds like the plague! Right now interest rates on short term notes (less than 1 year) are yielding about 1.5% or so. Considering that the average fund's management fees are a minimum of 1.25%, you're only netting 0.25% after fees at best. Plus, you're taking on risk that interest rates don't rise. Since the Fed has starting raising rates again, I'd say your profit potential on a short-term bond fund is about nil. Second, be wary of bond funds in general right now. As rates rise, bond funds lose principal. Rates are starting to rise, as I said above, and the gains you'll get in interest payments won't likely offset the losses to the principal you'll take. In many cases the long term investor can wait out these losses since, barring a default, the bonds will eventually be paid back at par value. However, since rates are so low, most bonds are now trading over par, so you'll inevitably take a loss. Third, this may sound obvious, but many many people make this mistake. If you're putting money into a tax-free account like a 401k or a 529, don't use that money to invest in municipal bonds. Munis are already tax exempt, and thus yield less than a regular bond. If you invest in munis through a tax-free account, you get none of the benefits but earn less. Personally, I'd recommend a small basket of reputable, low-fee mutual funds, some index funds and some large-cap. You won't likely beat the market, but you probably won't underperform it by much either. Definitely put it into a 529 if you're planning on helping your niece save for the future. One final thought: you might want to hold consider the effects of this administration's proposed new personal savings accounts. You'll most likely be able to somehow roll traditional IRAs or 401ks into these new plans, and my guess is that if the plans are given the OK, there will be a lot of money flooding into the stock market. Sorry for the long-windedness. I just hate it when people get taken for a ride by Wall Street because they just don't have the right information. If you have any more questions, ask away.