Investing my son’s money
My son is serving overseas with the Navy. He put me in charge of investing some of his savings. He already has an IRA and Roth he puts in every paycheck. He has many more years to serve, but would like to open a business when he gets out. He is 22 years old. I am afraid with this stock market to invest in that, but the CD’s I put money in at just under 2% is going down to 1% when it matures in October. He also will need to buy a new car if he lands up state side, but that won’t happen for 2 to 4 years. I listen to you all the time on WGN. My family rolls their eyes at my, “I was listening to Terry Savage on the radio and she says…..”
Terry Says
Haha — Thanks for the compliment. It’s hard to invest for someone else — though brokers and advisers do it all the time. The key is to keep in mind the needs/perspective of the person whose money it is — not YOUR perspective. And it helps to have history and perspective as a guide.
So first, let me note that you have two different responsibilities here. First, he needs to have some available cash for immediate needs when he gets out of the military. So a portion of that money – perhaps 1/3 — needs to sit in a low-yielding money market account at a bank.
I don’t know how he has invested his IRAs, but presumably most of it is in the stock market.
That’s a good idea. There has never, ever (since 1926) been a 20-year period in which you would have lost money in diversified portfolio of large company American stocks with dividends reinvested — even adjusted for inflation!
That “diversified portfolio” is the S&P 500 stock index. And you can buy a mutual fund at no cost to track that index at Vanguard.com.
So since he has a very long time horizon, it makes sense to invest regularly a set amount each month, without getting “scared out” even if the market goes down. In fact, when it goes down your fixed dollar amount buys more shares.
And you have the confidence to do that knowing that he has some cash set aside– not earning anything — but facing no risk.
The essence of financial planning is determining the balance between “risk” assets and “safe” assets — given your time horizon and emotional risk tolerance! HIS tolerance, not yours at this stage of life.
I hope this gives you some guidance. But it is HIS money and you should forward this message to him and let him make the decisions — while you handle the cash flow! If you can set up an automatic deduction from a MM account monthly to the stock mutual fund account, that would be easiest.
But it is HIS money, and his decision. Buy him a copy of The Savage Truth on Money (it’s linked at my website to Amazon or just search on Amazon) and the $15 will be the first step to making these decisions intelligently.
PS And send him my thanks for his service.
