I hate how many toys I have in my house. It isn’t the clutter as I am not a neat guy, it is that I truly believe that my son just doesn’t care about 92% of the toys. So I think I just see them as wasted money mostly by very generous friends and family. If I threw out most of them he just wouldn’t notice. I was expressing my feelings to a buddy when he told me about a great idea I have now completely stolen. While it probably isn’t original it is something I had never thought of. Instead of purchasing a gift that his niece or nephew won’t remember he takes the equivalent amount he would have spent and invests it for them.
He told me this idea within a few days of getting my Niece’s first birthday invitation. I passed the idea by The Wife first to make sure i wasn’t doing some weird personal finance nerd thing, but she backed me up. We told/asked my brother and his wife and they seemed interested in the idea since unlike me they are an anti-clutter family.
How I am Investing for my Niece
Despite the money being a “gift” I have decided to keep the money in my name but providing my brother and his wife a duplicate copy of the statement. I decided on this structure rather than an UTMA, uniform transfer to minors account, as I dislike the fact that those accounts are supposed to automatically transfer at twenty-one. Who knows what she’ll be like at 21? or how much will be in the account? The other option was to give my brother the money and let him handle it, but I decided against that because I think know I want that moment when I eventually tell her how much her Uncle Evan has for her.
Since I knew the type of account (non-qualified brokerage in my name) the next question was what type of investments should we put her in? I had a similar question when I started investing my son’s money. So building off that post and what I did for him:
- I wanted some tax efficiency as I don’t want to be paying the taxes on earning for the next 18, 21, 30 years!
- It isn’t my money anymore some while some risk is needed for growth it can’t be 100% equities.
- Since it isn’t my money anymore it is my responsibility to find low cost investment options.
With those goals in mind I think I am going with an eventual goal of 90% New York State Bond ETFs and 10% Low Cost Index Fund ETF. Why is it an eventual goal? I am not investing a lump sum but rather small amounts over the course of the year, so I can only really buy one equity per holiday. Also the reason why I chose ETFs over mutual funds.
The 90% Bond portion will be split over the next few gift giving holidays to take on some short term, mid term and long term bond etfs. Once I have those orders fulfilled I will purchase a low cost index fund.
Do you do this for family? Am I a terrible uncle because I don’t want to buy another toy she won’t give a shit about?
Just box up 50% of the toys and hide them for a couple of months. Bring them back out later and he’ll enjoy playing with them again. I think buying investment instead of toys is a great idea. Kids don’t need a lot of toys. They’d rather be playing outside.
Such a good idea…now I have to convince The Wife that would make sense lol
I love this idea and have considered it for my own nieces and nephews. It’s tough to resist the temptation to get them presents though – I definitely get a lot of “cool auntie” credit for picking out toys they really like. But in the long run they’ll probably respect you a lot more for going the longer-term route.
I am pretty sure The Wife will still get her something small. I hear your point though. Maybe I’ll invest less and get her a present when I am in that period where I have to buy the cool uncle title.
Then stop again when she understands how awesome money is
What a great idea!! The next gift will have to be lessons: how do you use this thing I gave you a while back. Else it will be like giving them a classic Norton Commando and not teaching them to ride it… 🙂
Good luck!
Providing Education is a fantastic point, but I have no clue how I would even come close to approaching that since she has a very capable father to teach her that.
Your gift will be far more valuable for her when she turns 18 than any toy you could have bought her would ever have been. I’d strongly suggest a bunch of dividend paying stocks rather than bonds though. Not only will the capital likely appreciate better, but you can also tell her that she picks up $x per year thanks to your wisdom!. I hear you on the tax efficiency though and not wanting to pay taxes, good thing is that it would only be 15% per year 🙂
That’s great that you’re giving investments. Once I have children I know I’ll be asking for money, whether college fund or general investment to then segue into teaching them about money.
Totally agree with this. I only give investments to my 3 god children. I’m pretty sure between their parents and grandparents, they are doing just fine in the toy department.