When my daughter was born nearly 5 years ago I set up a savings account for her. I fund it with any monetary gifts she gets (at least until she realizes I’m taking all her birthday money), all my loose change ($100-$200 per year) and $1 per day. I’ve got about $3800 sitting in an Ing Direct account accruing a whopping 1.1% APY. So, what can I do to help it along a bit? The best CD Ing has is 1.5% on 60 months, that hardly seems worth it.
Every time I look into investing I get overwhelmed. Mostly due to A)my unfamiliarity with all the terms and B)The incredible amount of options there are.
I think my best bet, at the moment is to try and put some of this money into something that’s more or less hands off. Sure, I wouldn’t mind having some control over it, but, like I said above, I’ll be overwhelmed if I’m in control of every aspect of what goes on with it. Make sense?
At the moment, my regular savings account isn’t at a place where I’d feel comfortable locking all of this money away. Even though I promised myself I wouldn’t touch it, I still need it there in case something would happen that I’d blow through my personal savings.
So, any thoughts on what I could do with, say, $1000-$2000 of it? I was thinking of a 529 plan through EdVest, if for no other reason, it appears as though you get a tax deduction on the amount you put into the savings and they waive all (some?) of their fees if you set up an automatic investment plan (can you transfer money, automatically, from ING to Edvest?). My thought was to put $1000 in now and transfer $15 from ING to them each month. $15 is the minimum you can auto-transfer per month to have the $20 annual fee waived and it would be half of what I put into her savings each month. Just based on that, it seems like a nice tax break, but I have no idea what they pay out in interest, and again, I get overwhelmed looking at lists of numbers and having no idea whatsoever what the all mean. Also, they mention that they aren’t FDIC insured and may lose value. When I see that, I wonder if I’m just better off leaving it in my ING account where it’s guaranteed to, at worst, not grow, it’s 100% liquid and I don’t have to think about it.
If you are new to investing, it might be worthwhile to do a little reading just to familiarize yourself with the basics. Investing for Dummies is a good beginners’ book (not that I am implying you are a dummy). Having a little grounding will help you evaluate any advice you receive.
As far as specific advice, I will leave that to the experts who will be arriving shortly…
Talk to a financial planner. Don’t go to a bank. If they can’t talk you through some ideas and explain things well to you, find a different one that you feel comfortable with. Financial planners cold call people all day, they love when someone calls them especially if it is someone they can develop a relationship with that will presumably grow over time- like starting early and wanting to develop a full college/first house portfolio. (Prudential, NorthwesternMutual, the list goes on and on for companies that can help.)
Can’t you do some stock buying through ING as well? Put a little of it in stocks- to learn about how they work as well.
I’ve little or nothing in the way of specific advice to offer, except to caution you that direct and indirect fees will eat into the returns of a small investor. If you talk to a “free” financial planner you’re likely to get less than you pay for. With incremental stock buying, you may end up with 13.4 shares of Campbell Soup, and a need to check your mail frequently for fee-free redemption offers when it spins you off 1.191 shares of Vladimir Pickles!
It sounds like one of your issues is a desire to segregate the funds for her in a way you can’t touch. If I thought gold prices would continue to rise forever, I might recommend buying a jewelry or bullion item, especially since inconvenient bookkeeping is minimal when you buy or sell. I do not recommend gold (though my opinion is worth no more than you’re paying for it!) but maybe that example can prod you into thinking of something that makes sense to you.
For personal investing, the two most trusted companies for mutual funds Vanguard and Fidelity. Both of them have been around for a long time, have an excellent reputation, and have very low fees. In particular, they don’t charge transaction fees, so you could put money in once a month (or more often) and it wouldn’t cost you anything. They do have fees applied to the money you keep in the funds themselves, but those are usually only a small fraction of a percent, so a neglible amount considering how little you’ll be investing.
If you want to invest in something that will beat the 1% amounts you can get in savings accounts or CDs while still being safe, bonds are probably the way to go. Funds such as Vanguard’s Long-Term Bond Index Fund or Intermediate-Term Bond Index Fund purchase a mixture of government and corporate bonds that earn a return of about 5% per year. Prices can fluctuate a little bit, but they don’t take the wild swings that stock prices do. Hence, your investment wouldn’t lose very much money even if another recession occurs.
Eeeeek. I talked to a financial planner in 2003. I have put money into my 401K, IRA, a mutual fund, and real estate. Now in nearly 2011, I am still the loser in every single one of these transactions. I would have SO much more money today if I hadn’t done any of those things (to be fair, everything but the real estate is just about to break even now).
I know that you’re supposed to do these things with a view to the long run, but if your long run is waiting till your young daughter is out on her own and needs the money for college etc, you might just stick with the CDs…
I am not a financial planner, but I put $5k into a 529 with Fidelity a few years ago and am pleased to report that it is now worth a little more than $5500. This is for my god-daughter who won’t be accessing the account for another 15+ years, but I am pleased at the projected level of return.
EdVest sounds similar to what we set up for our niece and nephews. The money we put in can be used tax-free, as long as it’s for a qualified higher ed use. Added bonus, it looks like at least the “tomorrow’s scholar” plan has
For 4 grand, it’s not worth your time to talk to a planner. Like ITR Champion said, buy into an index fund, the cheapest one (in terms of fees) you can find in the area you want. Long term, the best return has been the stock market, though with larger ups and downs than bonds.
I’m in a similar situation, minus the daughter and with slightly less $$. I also have an ING account and I’ve been looking into their Streetwise mutual funds. I’m not sure if ING USA has this, but it’s been running in Canada for a couple of years. It seems fairly easy to set up and has a low MER at 1%. You can also set up an automatic contribution, similar to the normal ING savings account.
I have made a lot of money in the last thirty years investing in funds. It seems to me about everything you need to know can be gleaned from the replies above i.e. a bond fund or an indexed fund from Fidelity or Vanguard or T. Roe Price.
Another vote for Vanguard - they seem to have the lowest fees. Not sure what their minimum investment is though.
You can also look into DRIP’s - dividend reinvestment programs. These are operated by each company through an agent (like Mellon). You would have to pick several companies over a range of industries in order to be properly diversified, but it’s something to look into and keep in mind for the future.
Another recommendation for putting it into a 529 plan at a brokerage like Vanguard. Depending on how much risk you are willing to take with the money they have a number of options, although something like their vanguard growth portfolio would be appropriate for her age. Their funds tend to carry $3000 minimums.
