How can I help my 10-year-old with investing?
Q: My 10-year-old daughter received $100 and a Wall Street Journal subscription from her aunt for Christmas. She’s picked a few stocks to invest in, but we don’t know who to talk to in order to invest her money. Although it is “fun money,” she does plan to buy, hold and invest more in the future (from her allowance). Who do we call to get started?
A: You can open an account with an online discount broker. Because your daughter is a minor, you’ll need to establish an account under the Uniform Gifts (or Transfers) to Minors Act, naming yourself as custodian on her behalf. This makes the account hers, but with your oversight, until she’s 18 to 21 years old. But $100 is not enough, because you’ll want to buy several shares of each stock, and commissions will ding you for each transaction. You might want to give her some additional money to help jumpstart her effort. It’d be worth it — and read the WSJ each evening with her. She’ll get a great education from this exercise (and lots of wealth, too!)
Q: I am 67 and retired. I own some real estate that provides me with about $1,600 per month income and I collect $1,388 per month from Social Security. My wife is in better financial shape with an income of about $6,000 per month. We had a late-in-life marriage, kept our pre-marital property separate, and we split all our expenses.
We don’t want to move from the Washington area, but it is difficult for me to meet my obligations. I have about $89,000 in IRA and 401(k) plans, which I plan to start drawing from at 70-1/2, and about $60,000 in a money market. Part of my real estate is a rental townhouse worth about $500,000 with 12 years left on a mortgage of $166,000.
Recently, I sold some land and cleared $163,000. Is there some kind of investment that would generate additional income for me? All I need is another $1,000 per month.
A: You’re actually in fine financial shape, and I see no need for you to have to move. Simply invest the $163,000 into a diversified portfolio and draw the $1,000 per month from it. If the portfolio earns 7 percent per year, the account will last virtually forever. Even if the account earns only 5 percent per year, it will last 20 or more. When the account is finally depleted, you’ll simply turn to some of your other assets to replace or enhance that income.
You should neither to take any drastic steps, nor should you invest the money in an aggressive or speculative manner. All you need to do is obtain a conservative, well-diversified portfolio. The portfolios we build for retirees who need income typically comprise as many as 17 separate asset classes and are designed to provide them with the income they need while protecting them against the impact of inflation. Proceed in this manner and you should be fine.
One might think that the above advice is rather obvious, but because it appears to have eluded you, I suspect that you’re preoccupied with something other than the need for some extra income. I wonder if perhaps you’re bothered by the fact that your wife’s income is twice as high as yours, that by extension her investments are worth twice as much as yours and, as a result, you shudder at the thought of slowly selling some of the assets you’ve accumulated over your lifetime because doing so would only increase the disparity between your wife’s net worth statement and your own.
This is nothing to scoff at. If you don’t come to terms with your feelings, you’ll end up insisting to your wife that you both must leave Washington because you can’t afford to stay. If she’s aware of your finances, she might claim (rightfully, I might add) the problem goes away if you’d simply agree to sell some of your assets.