Portfolios Four and Five Performance

Portfolios Four and Five began about 6 months ago. This isn’t enough time to gauge performance.

Portfolio Four has a value of $1524 and Portfolio Five has a value of $1443. Neither had sufficient dividend, interest or capital gains / losses for reporting for the 2009 tax year.

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4 thoughts on “Portfolios Four and Five Performance”

  1. One more, and I may have asked this before. Why are there no other investment vehicles besides stocks? I understand that there is only so much you can teach a kid and that this is 1 million % better than anything else they are learning in school about investing.

    But you are less subject to the ebbs and flows if you were to add things like corporate paper, munis, and on and on. Tx.

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  2. On taxes – the money is in their name so they absorb the tax hit. Since the amounts are small in these funds and the kids have a 950 dollar exemption they usually don’t cross the line into filing. If you try to put big money in a trust fund then there are special rules that the IRS has for the “kiddie tax” where the amounts are taxed at the parents’ rates.

    These funds are trying to do a couple of things – teach kids a bit about saving & investing and have some money that they can use for college or their life if not spent on college (unlikely, but possible). Since the amounts are relatively small I chose to focus on stocks and not picking from a wide variety of financial instruments. I expect that the kids would have other resources for college, from their parents, loans, grants, etc… and this is just a component of the total. If I was using this money for their college AND this was going to be a big portion of the total I would definitely diversify since an all-stock portfolio is not diversified, as you point out.

    I would say that these trust funds have done their job in 1) encouraging the kids to save, since I match their contributions 2) getting them to THINK about investing because I have them select 2 of 6 stocks each year and their selections are what we use 3) getting them to UNDERSTAND that there is risk because sometimes prices go up and sometimes they go down; this is the real world not just a game.

    But like your question implies from time to time I struggle with the format and the options but I come back to the overall goals and find that this works best. Even taking stocks is kind of complex; would be much more complex if I added more investment options.

    By the time the kids get to be around 18-20 there are 10 or so stocks in the portfolio with different industries and from different countries and at that point they are relatively diversified, at least.

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  3. Understand the tax thing now, as always good to offset gains and losses as a matter of course.

    Agree with you, at least they are getting a taste of risk – they are learning a ton from this I would imagine.

    With the relatively small dollars here it is hard to diversify but you should still diversify across industries if nothing else.

    Why not set up a bond ladder for the next portfolio?

    You already make the kids pick out stocks, a corporate bond ladder might be very educational and lets face it, bonds are where the real action is now. I just made a killing on Ford preferred convertibles but we are getting into more complex instruments at that level (preferred stock backed by a convertible bond, take out prices, etc.).

    But you have done a lot of work on these stock portfolios so it may be best to leave it at that rather then starting to teach them about preferred stocks, bonds, futures and all the rest.

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