# Investing on behalf of 5-year-old



## Chris L (Nov 16, 2011)

My son, well, his parents, have been fortunate to stash away about $7k worth of cash from various gifts over his short life. We'd like to do something productive with it rather than park it in a dead end savings account. Not looking at an RESP though, at all. 

Contemplating an ETF(s)....?

I can invest it on his behalf in something. And I suppose I would need to pay the taxes on any gains as well since this is not 'earned' money, but just gift money from family.

Any ideas out there?

I can put it in my CAD cash trading account, but I would like to keep his funds separate to track it and also to show him the progress over the years. Currently, he's not 'saving' as much as before and might park $500-1000 a year _until he gets a real job_. Then he can start adding to the fund himself and theoretically take it over.

I have a basic couch potato fund...but maybe there is a broad market ETF out there where I can put it all in or maybe a couple ETF's? Trying to keep this simple, with a relatively small amount of money with a long 15+ year horizon. Do want to avoid much risk though. Can't bear to see this go to zero!

Thanks in advance for your consideration.


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## cainvest (May 1, 2013)

One ETF in CDN $ .... maybe VUN ?


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## Eclectic12 (Oct 20, 2010)

Capital gain appear to taxable in the child's hands so if you can maximise that, it will help tax wise.
Or a loan can be arranged.

http://business.financialpost.com/2011/03/22/giving-money-to-your-kids-can-cost-you/


Cheers


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## Just a Guy (Mar 27, 2012)

Why not a self directed RESP and get the 20% from the government?


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## Chris L (Nov 16, 2011)

Just a Guy said:


> Why not a self directed RESP and get the 20% from the government?


He can use the cash as he sees fit, for education or otherwise, but with the way things are going right now, there isn't a terrible amount of value to post secondary. However, that will be up to him to decide and this is just my current opinion. I do realize that he can still use it minus the 20% added by the gov. This may be a consideration moving forward.

Is one fund okay or should he have more than one?

VUN seems interesting. I don't own that one.


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## the-royal-mail (Dec 11, 2009)

I can't help but be a bit uneasy about this idea, esp given the reasoning given ("We'd like to do something productive with it rather than park it in a dead end savings account.").

I was 5-8 yrs old when my mother opened up a bank account for me and taught me to save, collect interest (at the time rates were very high) and watch the balance grow. I was taught about managing money and saving for what I want. Those are critical foundational skills that I strongly believe should not be underestimated. Remember in this case the value is not the amount of interest he collects, but in the skills of bank account, saving and money management concepts.

At least set up a HISA for him so the interest rates are automatcally updated with trends over time, then he can access it online (later when the time is right). In fact you could even set it up under your name in your online banking for now. The only downside is you'l be paying tax on the interest proceeds, but that will be a small amount of money.

In other words, don't teach the kid to run a marathon before teaching him to walk.


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## CPA Candidate (Dec 15, 2013)

Put it in a RESP, this is a no brainer.


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## Guban (Jul 5, 2011)

I assume that your son's parents' TFSA's are maxed out, I vote for the RESP's too. The lure of tax deferral and transfer along with the grant is too good to pass up. 

RESP's are pretty flexible too. They can be used to pay for all sorts of post secondary education costs, not just university and college.

Eclectic is correct that the capital gains can be taxed in your son's hands, but do you really want to explain to CRA why you did not include the capital gain portion of the ETF's distribution on your tax return, but did include the interest and dividends? The second generation income is also a pain to track.


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## Cal (Jun 17, 2009)

Chris L said:


> .....there isn't a terrible amount of value to post secondary....


I think the opposite in regards to education.


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## FrugalTrader (Oct 13, 2008)

Just a Guy said:


> Why not a self directed RESP and get the 20% from the government?


+1 for this idea. It's free money from the government, and chances are high that the child will do some sort of education after high school.


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## none (Jan 15, 2013)

^ Lets certainly hope so the child does. Even now your career prospects are severely limited without some form of post secondary education, i can only imagine 13 years from now.

Right now, I consider a high school diploma on par with a grade 10 education 25 years ago. Of course I have a PhD so of course I'm going to be STAY IN SCHOOL (and almost never leave  )


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## Rusty O'Toole (Feb 1, 2012)

Why not let the kid pick some stocks. I am only half joking. It has been proven many times that a monkey throwing darts can beat the investment professionals 9 times out of 10. Wonder what a 5 year old would do.


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## Mortgage u/w (Feb 6, 2014)

I'm with the others here. Invest your lump sum in an RESP to benefit from the automatic grant and let him watch that grow. Combine that with a savings account that he can add small amounts to so he can learn the concept.


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## Cal (Jun 17, 2009)

Rusty O'Toole said:


> Why not let the kid pick some stocks. I am only half joking. It has been proven many times that a monkey throwing darts can beat the investment professionals 9 times out of 10. Wonder what a 5 year old would do.


If they chose Disney they would do ok. http://online.barrons.com/articles/disneys-34-dividend-hike-delights-investors-1417728682


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## swoop_ds (Mar 2, 2010)

I forget the exact time ranges but you can basically liquidate an RESP in the first year if you withdraw from it in a smart way. Also, the money can be taken out of it if he doesn't go to school, but the grants get taken away and there are some penalties. I don't know that you'd be in that different of a spot vs not using an RESP in that case.


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## Chris L (Nov 16, 2011)

He's a saver which might be hard to believe. He gets money, puts it in his piggy bank and can use it whenever he wants for whatever he wants. He honestly never thinks about it, even though it's always right there. I think he's got over $100 in there. Big bills go into savings and he doesn't think about it again. No big deal, he's got everything he needs.

I'm not too worried that he's not understanding the message... but yeah, he doesn't grasp investing, but I'm passing info all the time.

If I put my will on it, it would eventually be used to buy some RE with a rental suite. I know I can't decide that for him, but IMO that would be better than buying him an education and if done right, the suite help pay for his education or whatever else he decided to do. That is if RE was affordable, but then who's to say that education will be affordable either. Cash is always useful. Anyway, that's my thinking. My street smarts beat out my book smarts money-wise 10/10!

I got an education and never used it, my wife did and does. So there's a 50/50 shot he will too! 

I bought RE right out of school and repeated. So...

We have an ING account for him already, but it's just sitting there right now.

Thanks for the ideas thus far. It's giving me some things to think about.


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## none (Jan 15, 2013)

Hardly 50:50.

it's important to separate your own personal experiences from the statistics, or, at the very least not to over weight them in your decisions.

Want to maximize the probability that your son ends up poor? Don't encourage education.

http://www.bls.gov/emp/ep_chart_001.htm

"I bought RE right out of school and repeated. So..."
An investment strategy that worked in the past won't necessarily work in the future.


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## Chris L (Nov 16, 2011)

none said:


> Hardly 50:50.
> 
> it's important to separate your own personal experiences from the statistics, or, at the very least not to over weight them in your decisions.
> 
> ...


Don't want to the to boil down to education or not, he can use the money for whatever he wants. But education might also not necessarily work in the future and he may decide, like in the not so distance past, to start a business from the ground up. I know plenty of unsuccessful educated people who found work outside of the schooling implying that their schooling didn't exactly help them. That said, education happens all the time and he's ahead of his classes already in reading and writing - so no worries. He's got street smarts and common sense. I'm not terribly worried about formal education, but it will be his choice if he wants to add letters to the end of his name.

Anyway, that's my personal values, but I don't want to umbrella the money under anything specifically. It will be up to him to decide so that's part of my reason not to put it in an RESP. Cash can be spent however one wishes. It's his money, so I wont decide what he does with it including going to school, but I need to be it's keeper for the time being.


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## none (Jan 15, 2013)

So child high interest savings account seems to be the obvious choice then.

Better yet, open up a TFSA (or another one) and keep his money in a child HISA separate in there - give him some of your TFSA room.

Best one I know (and what I have for my kid (not really, it's my savings slush fund but who cares really) is at: 

http://www.tangerine.ca/en/saving/savings-accounts/index.html

If you go that route use my orange key "Your Orange Key is 13831998S1" I think we both get $25 bonus if you go that route.

Best of luck.


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## My Own Advisor (Sep 24, 2012)

FrugalTrader said:


> +1 for this idea. It's free money from the government, and chances are high that the child will do some sort of education after high school.


+1 and then some. Take the governments' money! (they will only want it back at some point)


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## Plugging Along (Jan 3, 2011)

I am totally for the RESP because that is a gaurenteed investment of 20%. However, that being said, you are probably right in that he probably won't go to university. One of the largest indicators of a university education is the influence from the fathers side. If it's not that important to you, it probably won't be that important to him. I just hope you are right about the future that he probably won't need an education. 

That set aside, if you are determined not to do the resp, then you could open an In formal In Trust account, in his name Capital gains will be taxed in his tax bracket. Dividends and interest in yours. There is no limitations on when the money can be pulled out, however if it is while he is a minor, you must be able to prove it was for him. When he is 18, it is his to do with whatever he likes. 

You also made comment of handing over the account. The in trust account will be separate n his name, however until he turns 18, he will not be able to take it over. Minors are not allowed manage their own accounts legally. It still must be through a gaurdian.


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## Chris L (Nov 16, 2011)

If he has a specific interest, I would encourage him to collect the credentials to pursue them. We come from drifters and we find niches. That's 4/4 in my family and siblings. We've all started businesses and I was the first to go to Uni and I still ended up in the same place. If he wants to go to school, it will be for something specific rather than a general education. Anyway, that's just my opinion. I will help him do whatever suits his personality.

Trying to keep doors open, I'm not totally sure about the RESP. I don't know about the penalties, etc., but I will look into this.

Passing on the family business is RE. Mom, brother, grandpa, grandma (other side) me, etc. all in rentals.

As far as ING goes, it pays less than inflation so is almost sure to lose ground. But it's safe...

Maybe when he's 16 he can manage a rental. So we need a place to park the downpayment until then.


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## banjopete (Feb 4, 2014)

Although I completely disagree with your education beliefs, they are yours to hold. I think the environment of "working" has changed such an incredible amount and there are intangibles in an education which might not get you a job but they're things you learn all the same such as time management, meeting deadlines, dealing with pressure, and working in teams/with people. Further now especially there are few jobs that don't require designations, or specific streams of education to be even considered. The alternative to all of these is RE baron, and entrepreneur but both have good foundations in being intelligent, and knowledgeable, which aren't necessarily products of education of course but they tend to be encouraged in the cohort that goes to post secondary education.

I will go with the crowd however and suggest you look very carefully at RESP options. On top of the free money you are given, there is no obligation to use the funds until age 35 and as mentioned and should there be no use for the funds an obligation is to return the government's portion not the money made on it. Plus the funds can be used for a tremendous variety of post secondary educations, no just universities. Maybe your son would save himself money knowing electrical things, or plumbing, or book keeping, or any number of things related to the RE path. I'm sure there are things in your own experience where you've needed some skilled person to help you out with your RE empire no? No one says you have to have a full complete education to use the funds either, a class or two here and there count just the same.


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## Chris L (Nov 16, 2011)

I don't pretend to have the answers for him, and all points about education are well taken. Ultimately, it will be up to him to make those decisions for himself. I'll help him out best I can no matter what. There will be no strings with the money (education or otherwise) I just hope to be a good steward to it in the meantime.

I asked him what he plans on doing. He's been fixed on being a road construction worker (using a truck) for a few months lol


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## Just a Guy (Mar 27, 2012)

The kid is 5, I think we can cut him a bit of slack.

My goal, as a parent, is that none of my kids ever *have* to work. That being said, I expect all my kids to work, and have a good work ethic.

I've been teaching them about investing and running a business their entire lives. If they can develop passive income that allows them to choose what they do for the rest of their lives without financial worry, I'd consider myself very successful.

Of course, the rest of the world doesn't tend to see that as a good thing, and society as a whole is geared towards go to school, get a job, work and then retire...

My daughter recently had an assignment from school projecting where they'd be in 20 years...asked specifically what job they'd be doing...no concept that people may not be working in the future.

Of course, I've still set them up with RESPs and taken the money from the government. They are all smart kids, and will figure out how to use it I'm sure. Do I care if they get degrees, not really...I lived through that pressure myself. Do I dislike education, not at all I still spend time everyday learning new things...I've even taught a bunch of courses...but again, the general population won't agree with your choices...of course, the general population probably is doing a lot worse than you financially as well...

Just remember that point and keep your head down.


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## larry81 (Nov 22, 2010)

Considering the long timeframe, the best option is to go 100% equities in a RESP using 3 TD e-Series fund. The asset allocation would be adjusted to add some fixed income exposure every year.

33% - TD Canadian Index - e
33% - TD US Index - e	
33% - TD International Index - e

http://canadiancouchpotato.com/2010/11/05/taking-risk-in-an-resp/
http://www.boomerandecho.com/td-e-series-funds-just-beginners/


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## Chris L (Nov 16, 2011)

Thanks Just a Guy. We're 100% on the same page. I tried not to go too far down the rabbit hole on this one. But here we are.

We aren't wealthy by any stretch, but if my son plays right he'll have generational wealth to build or blow. Too bad (or maybe it's a good thing) that not everyone thinks this way. Half my parents (divorced now) did okay, but their current objective is to blow through it so we can all start from scratch again. Ugh. Oh well. All I can do is plan for those I care about.

One day we may wake up without a middle class (are we there yet?), famine, disease and so forth. In which case, a bit of wealth will certainly ease the pain.

Hard work, education (formal or not) is a state of mind. I have no shortage of either, but I'd like using my creativity where possible. Kudos to those who think differently even if it means you work really, really, hard for everything. My view of life is a little too jaded to send my son into the trenches without a helping hand.

Then again, his personality (culture, friends, etc.) will likely dictate his values so the future is always a gamble.

All I can do is my own part.


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## none (Jan 15, 2013)

Wow - I find the idea of providing for your adult children so amazingly bizarre. I see my job as a parent to set my kids up to be responsible adults. I will give him the tools and skills to make it on his own and create his own life. I hope my kid will not need financial handouts from me once he's an adult. I actually think that's what an adult is: someone who no longer needs to rely on their parents.

i dont expect financial help from my parents and once I'm done setting my child up for success (via and RESP) it's up to him to decide how to use the life tools I've given him.


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## Just a Guy (Mar 27, 2012)

Another thing you could do is set up a corporation and put the properties into it. Make your kid a different class shareholder so you can payout a dividend (or not) to them and they are a stakeholder so can benefit long term.

Financing properties within a corporation can be more difficult though.


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## Chris L (Nov 16, 2011)

none said:


> Wow - I find the idea of providing for your adult children so amazingly bizarre. I see my job as a parent to set my kids up to be responsible adults. I will give him the tools and skills to make it on his own and create his own life. I hope my kid will not need financial handouts from me once he's an adult. I actually think that's what an adult is: someone who no longer needs to rely on their parents.
> 
> i dont expect financial help from my parents and once I'm done setting my child up for success (via and RESP) it's up to him to decide how to use the life tools I've given him.


I like the idea of inter-generation wealth. I guess it's because I don't like the idea of sending my children into a world which actually seems quite bizarre.

I mean, we have Bieber and basketball stars and actors...our world doesn't exactly consistently value hard work.

Freeing him from certain life encumbrances permits him to pursue passions and earn a fair living.


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## none (Jan 15, 2013)

We can agree to disagree. I'm a large proponent of estate tax as a means to reduce multi-generational wealth that results in a very classist system. It seems unfair for people to get such a huge hand up (or a push down) simply because they happen to be born to certain parents. Of course, studies have shown that you have a much greater probability of inheriting your father's socio-economic status rather than his height so the system is obviously already set up to be unfair.

My parents have done their job. I didn't receive any money from them past University. I'd rather they live and enjoy lier lives and let me be the adult they taught me to be.


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## Just a Guy (Mar 27, 2012)

Inter-generational wealth doesn't have to be a gift...my kids are all involved, to some extent, in my investments. To each, as per their ability. They are involved in the businesses, in the real estate, etc. a lot of it they don't get paid for as they are treated as owners, and they benefit from it everyday.

It all depends upon how you raise the kids for inter-generational wealth. My kids don't expect to inherit, but they understand they are expected to contribute...its part of being part of a family.

If they want to pursue one or more of the paths I've taken, I'll help them out. Of course, none of them are adults yet, but they all seem to be turning out to be very independent and have a good understanding of how to make money and what's involved in it...they certainly never got an allowance for existing.


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