Daughter would like to invest- where to begin?

[sunshineandpinot]

My 13 YO completed a COVID vax trial and earned a little over $2K (with a bit more to come, finishing this summer.)  She's decided she wants to invest the money and of course we're very happy with that decision. I don't handle our investments (my H does) but I'd like a little input from this group on how/where we should start. She says she just wants to buy Amazon and Tesla stock. Not sure where she came up with those two but ok. I'm wondering if it would be smarter to invest in a mutual fund or the stock index (I'm really clueless, I'm sure there is a better term?) Our investments are with Fidelity so we could start with them? I'm assuming she'll add a little bit to it each year and it will be fun to watch it (hopefully) grow.
Thanks for your thoughts!

[dr.girlfriend]

Feb 26, 2022 10:58:44 GMT -5 sunshineandpinot said:

My 13 YO completed a COVID vax trial and earned a little over $2K (with a bit more to come, finishing this summer.)  She's decided she wants to invest the money and of course we're very happy with that decision. I don't handle our investments (my H does) but I'd like a little input from this group on how/where we should start. She says she just wants to buy Amazon and Tesla stock. Not sure where she came up with those two but ok. I'm wondering if it would be smarter to invest in a mutual fund or the stock index (I'm really clueless, I'm sure there is a better term?) Our investments are with Fidelity so we could start with them? I'm assuming she'll add a little bit to it each year and it will be fun to watch it (hopefully) grow.
Thanks for your thoughts!

If it's earned income can she use it to fund a Roth or is there an age restriction?

Apparently Fidelity has a "youth account":  www.fidelity.com/go/youth-account/overview-b?imm_pid=700000002093957&immid=100885&imm_eid=ep63786945500&gclid=CjwKCAiAvOeQBhBkEiwAxutUVMkLY89R8PtF99ZwNQazBa8PXlgyjCIwoSHdBy0Yofi9XXXJdd029hoCKvoQAvD_BwE&gclsrc=aw.ds&adobe_mc_sdid=SDID%3D35B688873639D399-61DB7FC1DB2F2B0D%7CMCORGID%3DEDCF01AC512D2B770A490D4C%40AdobeOrg%7CTS%3D1645929387&adobe_mc_ref=https%3A%2F%2Fwww.google.com%2F

[sadlebred]

I think your daughter is a very smart young person!

[seeyalater52]

Feb 26, 2022 21:36:54 GMT -5 dr.girlfriend said:

Feb 26, 2022 10:58:44 GMT -5 sunshineandpinot said:

My 13 YO completed a COVID vax trial and earned a little over $2K (with a bit more to come, finishing this summer.)  She's decided she wants to invest the money and of course we're very happy with that decision. I don't handle our investments (my H does) but I'd like a little input from this group on how/where we should start. She says she just wants to buy Amazon and Tesla stock. Not sure where she came up with those two but ok. I'm wondering if it would be smarter to invest in a mutual fund or the stock index (I'm really clueless, I'm sure there is a better term?) Our investments are with Fidelity so we could start with them? I'm assuming she'll add a little bit to it each year and it will be fun to watch it (hopefully) grow.
Thanks for your thoughts!

If it's earned income can she use it to fund a Roth or is there an age restriction?

Apparently Fidelity has a "youth account":  www.fidelity.com/go/youth-account/overview-b?imm_pid=700000002093957&immid=100885&imm_eid=ep63786945500&gclid=CjwKCAiAvOeQBhBkEiwAxutUVMkLY89R8PtF99ZwNQazBa8PXlgyjCIwoSHdBy0Yofi9XXXJdd029hoCKvoQAvD_BwE&gclsrc=aw.ds&adobe_mc_sdid=SDID%3D35B688873639D399-61DB7FC1DB2F2B0D%7CMCORGID%3DEDCF01AC512D2B770A490D4C%40AdobeOrg%7CTS%3D1645929387&adobe_mc_ref=https%3A%2F%2Fwww.google.com%2F

I’m pretty sure from researching this myself for my own kid’s participation in a clinical trial that trial compensation isn’t considered earned income for the purpose of funding a Roth.

[dragon's breath]

I hate when I cannot find an official link with a clear answer on something.

Clinical trial income has never been listed on any "earned income/compensation" list I've seen. When you look it up, all you get are message boards. So, the best I can come up with from one of those is that the Turbo Tax/Intuit message board gives a "verified expert" flair for some commentators (but not sure exactly what that means). However, one of their "verified experts" agrees that it is not earned income for IRA purposes, even if it may be taxable:

"What that means is that it would be subject to income taxes... It also would not qualify the participant for the earned income tax credit or any other tax benefit that is dependent on earned income such as an IRA deduction."

ttlc.intuit.com/community/retirement/discussion/income-question-does-income-from-a-medical-study-have-to-be-reported-if-so-how/00/418923

So, since Roth IRA is not an option, it would have to be a taxable account, unless you want to put it in a 529. With a low income, she can have 0% gains taxes, so not much to worry about.

Once she does have earned income, she could start moving the money from the taxable account into a Roth IRA, since money is "fungible" and it can come from wherever, as long as she has actually earned the amount in that year.

I'd stick to well known brokers like Vanguard, Fidelity, and Schwab. While a couple hand picked stocks isn't bad, if she's interested in investing already, I'd have her start to learn about total stock funds (look up the JL Collins stock series online, free, it has much of the same info as his The Simple Path to Wealth book). Also, if the investment choice is solid (not picking a bunch of single stocks, etc), then looking up "Bob, the World's Worst Market Timer" is also a good read to allay fears when there is a dip, or even a crash, in the market. It's less relative when someone has tried to do a bunch of risky stock picking.

Both ETFs and Mutual Funds can be good choices. ETFs are easier to move between broker accounts with other brokers, and you don't get charged extra fees by using another broker's product (like buying VTI in Fidelity, where as you would be charged extra fees to hold VTSAX in Fidelity).

[fn2187]

FYI fidelity recently started offering a youth trading account for 13 and older. We just started it. It’s awesome!! They offered $50 free as a bonus. DD has the app and logs in and can trade herself but Its all on my log in as well as an authorized user. It also comes with a debit card for cash. The card has the child’s name on it.

www.fidelity.com/go/youth-account/overview?imm_pid=700000002093957&immid=100886&imm_eid=ep63786945503&gclid=EAIaIQobChMI1YfBgarl9gIVdgytBh3l2gcMEAAYASAAEgKKs_D_BwE&gclsrc=aw.ds

[niq]

Very forward thinking of your daughter!

I would ask her to separate 3/4 Real Investments (savings accounts, index funds, etc.) from 1/4 Play Investments (YOLO stock picking).

I really need to find a version of The Best Investment Advice You'll Never Get/A Random Walk Down Wall Street/Where Are All The Customers Yachts that's geared towards teens.

EDIT: Rule 4 of The Index Card: Why Personal Finance Doesn't Have To Be Complicated probably explains why stock picking is for Fun Money at the right level.

[Wallflower]

Ditto niq - Helping your daughter understand how important it is to be diverse with her investments should be an important part of her learning about investing. Letting her split, whatever the percentage, with the smaller portion in individual stocks that suit her interests, is a good way to approach it.

And good for her, getting started early!! Hooray for sunshineandpinot Jr.!!!

[niq]

A coworker who used to teach middle school suggested I Will Teach You To Be Rich.

www.amazon.com/Will-Teach-You-Rich-Second/dp/1523505745/ref=sr_1_1?crid=2LRCWTRFT7BMU&keywords=i+will+teach+you+to+be+rich&qid=1648490613&s=books&sprefix=I+will+teahc+%2Cstripbooks%2C142&sr=1-1