Empty Nest Insurance- Start Your Kids with a Nest Egg


Today the news is full of stories of children returning home to stay after college.  The recession has certainly made it difficult for some to find jobs.  In some cases parents may also be making their homes a little too comfortable. With few rules, no expenses and no responsibility, who wouldn’t want to stay?

By starting children out early learning about saving and investing, and by giving them a little nest egg with which to start, you can dramatically reduce the chances that they will be knocking on your door, duffel bag in hand after college.

Starting an investment fund can be very quick and easy.  It simply takes a couple thousand dollars and some mutual funds.  If you start a fund about the time they are born, and add to it as they get those checks from relatives early on, and then match their contributions once they start to earn their own money, you can build up a substantial fund by the time they leave the house.  This is money they can then use when they have the unexpected expenses that always occur instead of running up credit card debt.
              

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The first step is to find a fund family with a low enough minimum.  I personally like Vanguard because their funds have very low expenses and the minimums for many of them are only a couple of thousand dollars.

You are looking for a fund that invests in a large number of stocks over a broad range of the market.  Good choices would be a largecap fund such as an S&P500 fund or a midcap or smallcap fund.  Selecting specific sector funds or ETFs is probably not a good idea since you want something you can hold for years rather than needing to move in and out of it, incurring capital gains taxes.


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Once you have selected a fund, simply create a custodial account in the child’s name and send in a check.  (Warning:  When your kids go to college, the college may see the custodial account and expect it to be used for tuition before they’ll kick in financial aid.  If you’re worried about this, keep the money in your name and then gift it to your child over a period of a year or two, staying below the gift tax exemption, when they are near graduation.)  As time passes, add extra money to the fund.  You should avoid the temptation to make many if any changes – you want to minimize expenses and taxes.  Just let it grow with the economy.  If you need to do something, wait for dips and buy more shares.

Once the fund has grown large enough, you should consider selling part and using the proceeds to buy another fund in a different sector of the market.  For example, if you’ve amassed $15,000 in a largecap fund, you may want to sell half and buy a smallcap fund.  This diversification will reduce the risk of losses and smooth out the fluctuations that occur.  In general, different sectors of the market do well at different times.


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Note that capital gains and dividends will be tax-free below a threshold amount, but be sure to check with your accountant on what those minimums are in any given year.  They are generally less for investment income than earned income.  You may also need to file tax returns in some years if the income is large enough even when they haven’t made enough to pay taxes.  Payment of quarterly estimates may also be required.  Minimization of trading, and thereby the realization of gains, will delay the time at which you will need to start preparing tax returns for their accounts.

Once the child reaches 18, the money will be theirs (you have no say over this).  You therefore should have been teaching them all along that the money is there to help them in emergencies, such as when the car breaks down, and not just for day-to-day expenses.  You should also be teaching them to leave the principle alone and just spend the interest/dividends.  In that way, even though they may waste some, hopefully there will be enough remaining when they are older and wiser to help secure their financial security.

By giving your children a nest egg with which to start their lives, you can help keep them out of debt, help them have a down payment for a house when they are ready, and be able to stay out on their own between jobs and other issues. You will also give them an extra source of income that they can use throughout their lives.

 

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

What is VIX?


One Percent Finance

There’s been a lot of talk about the low level of VIX lately.

Just this past week Zero Hedge commented on VIX saying, “As Nasdaq melts up faster than Bitcoin, perceived equity market risk has utterly collapsed.

VIX just hit 9.92 as NASDAQ hit 6,100 (note the most recent low is 9.39 from 12/15/06 and all-time low at 8.89 on 12/27/93)

What is VIX?

In a new book by Danielle DiMartino Booth, FED UP An Insider’s Take on Why the Federal Reserve is Bad for America, VIX is defined. Danielle DiMartino Booth is the founder of Money Strong, LLC, an economic consulting firm. She began her career in New York at Donaldson, Lufkin & Jenrette and Credit Suisse, where she worked fixed income and the public and private equity markets. After work­ing as a financial columnist at the Dallas Morning News, DiMartino Booth spent nine…

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Camping Corner- Some Great Products for a Campout


One of the ways to save money so you can put things away for the kid’s college fund and retirement is to pick inexpensive hobbies. For example, instead of taking up golf, take up Frisbee (disc) golf. For less than the price of one club, you can get a whole set of discs and head out onto the course alone or with a few friends, all green fee free. You could probably save a few thousand dollars per year and still get the exercise from walking and get to enjoy the fresh air. There are even usually tournaments held at many local courses if you’re the competitive type.

Another of our favorite activities is camping. Rather than paying $80-$120 per night or more for a hotel room, plus meals out, you can pay like $8-$15 for a site at a campsite in a state park, or even go for free if you just find a place in a national forest or unmanaged state or federal land. Since you’re cooking your own meals, food is cheap. You can easily have a great weekend away for a family of four for $50 to $80, including meals, after investing a few hundred dollars for a tent, sleeping bags, and a few other odds and ends. As with everything you can spend more if you wish, but you can get an adequate gear cheaply and it will last a long time if you take care of it.

Recently I bought a couple of new camping items that I tried out on our last camp-out that I thought I’d discuss. The first was a solar-powered lantern from Suaoki:

Suaoki Led Camping Lantern Lights Rechargeable Battery (Powered By Solar Panel and USB Charging) Collapsible Mini Flashlight for Outdoor Hiking Camping Tent Garden Patio(Emergency Charger for Phone, Water-Resistant, Orange)

I actually bought two of these- one for myself and one for my son.  The  item can be pulled apart as shown to become a lantern for use to light a tent or just in the campground.  It can also be pressed together to become a flashlight or for compact storage.  The solar panel on top can be used to charge it during the day.  When I went camping last time I realized that I hadn’t brought the big flashlights as I had planned, so I was glad we had the two lanterns.

On day two Mrs. SmallIvy discovered that it had a little USB connector on the side that could be used to charge a cell phone, which she did.  Unfortunately, this left us with a dead battery on the lantern as it drained out all of the charge from the lantern.  With a couple of hours to go until sundown and somewhat cloudy skies with thunderstorms rolling through, I was worried we would be without the light since I didn’t see how we could charge the lantern before dark.  I was surprised, however, that even in questionable light from about 5 PM until 7 PM, we were able to actually charge the light enough to function as needed that night.   It never went out, although we didn’t use it for too long.  Probably my only complaint is that the lantern sides seem a little flimsy, like they might break if you were rough with it, but it seemed to work fine if you were properly gentle.

The other item we took with us was a wood burning camping stove from Ohuhu:

Ohuhu Portable Stainless Steel Wood Burning Camping Stove

This was the first time that I had used a wood burning stove, using instead one that burned propane from the little canisters (or cooking over the fire, as we did for the first ten years or so when we went camping.  I was interested in this stove since I hate having to carry the gas canisters with me, particularly when backpacking, and having to worry about what to do when you need to leave the car for a while (since the canisters can explode if they get too hot).  I also hate the waste off throwing out all of those empty canisters when done.  It seemed neat to be able to just pick up little bits of wood around camp and have fuel for cooking.

The stove was a mixed bag.  It used wood, as promised, and put out a huge flame, at least for about five minutes.  I discovered then, however, that the flame would go out and it would go to a state where it would flame back up if you blew on it, but then go back out.  I also tried feeding it fuel as I went, but generally got the same result.  It gave enough heat to probably boil a first small pot of water, but then it was kind of done.   (Note also, that since you’re burning wood that puts off soot, that you’ll blacken your cook wear.  You can cover it with foil or put some dish soap on it before use to make clean-up easy if desired.

Looking online after I came home, I discovered a few things about these wood burning stoves.  One thing is that they burn from the top down, so you really need to load a bunch of wood, twigs, and leaves at the start, then the time you have is limited by the size of the stove.  Adding more wood as you go really wasn’t effective.  I did discover that you could refill it and start a fire again with a little blowing, but this created a delay between the first fire and the second during which your pot of soup would have stopped boiling.  It is probably great for a cup of tea or some hot water for oatmeal in the morning, or for a relatively quick meal that you want to heat up, but you’ll probably want a different stove to cook something that you want to boil for a while.

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