My son just turned 1.
As most people know, friends and family tend to gift money to a child on their birthday, because they do not know what is best to give them.
My wife and I want to be good stewards of this money, along with the money we put aside to invest in our son’s future (whether that’s college or not).
We have had a simple standard savings account for the money just to keep it separate, however I want to put it somewhere to give it opportunity to grow.
My first thought is an index fund through an electronic broker. Is this a good move? Any recommendations on which to go with?
The account is currently at $1000
@Kevin Robertson , look into a 529 education account. I have one for each of my kids. You can make tax-deductible contributions and manage the investments anyway you like: index funds, bonds, whatever. I'm not an FA (and you should definitely talk to one), but there are a lot of advantages over a simple savings or brokerage account.
@KevinRobertson another option to consider is a Coverdell ESA (Education Savings Account). As long as your earned income is not above the allowed thresholds and you are contributing no more than $2,000.00 / year / child, this is my favorite option. Have a good day!
@Kevin Robertson yes ESA or 529 check it out!
@Kevin Robertson and yes, after choosing your vehicle of choice I think investing the money in a simple all market index fund like VTSAX (my favorite option) or something that is indexed to the S & P 500 is the way to go. Set it and forget it instead of buying/selling a bunch of mutual funds over the years, etc.
We opened an 529 and a regular brokerage account for both kids. My financial advisor looks over all of them.
Agree with what others have said regarding 529 or Coverdell. There are some slight differences, one is that there is an income based phase out and a 2k a year limit with Coverdell.
Some of the investment vehicles are a little limited for 529s and are state specific. But, plenty of options.
I currently have a 529 as I decided that was best for our needs.