Q. My son receives social assistance after his father dies. The money just sits in a savings account and does nothing. I’ve already opened two 529s for him. One is from family and friends after death and another is straight from my paycheck. I paid $ 500 straight to my check transfer once a month for incidentals. There is currently about $ 16,000 in savings. I’ve transferred large amounts to the 529 in the past, but I don’t want to invest any more money there. I want to set up something for long-term growth that he cannot touch until he has found his own path on the path he has chosen. We have no money problems. What do you suggest? I know zero about money and investing.
A. We are sorry to hear of your son’s father’s death.
But it is good to know that you are taking a proactive approach to your son’s financial well-being.
There are many things to consider before making any decisions, said Peter McKenna, a certified financial planner with Modera Wealth Management in Westwood.
You need to take into account the age of your son, when the social security payments end, how much you are in the 529 plans What do you expect college to cost and whether or not to be eligible for on-demand grant, McKenna said.
But here are some starting points.
Her son is not yet an adult so he cannot open an “own” investment account, McKenna said. Instead, you can a. to open Custody account Make decisions for him as his “administrator” until he comes of age, at which point he becomes the legal owner and decision maker of the account, he said.
However, this may not be ideal for a number of reasons.
“It is rare for someone this age to have the maturity and experience to make informed financial decisions. Most of us, myself included, can look back on a few decisions we made when we were 18 that, in hindsight, were shockingly bad, ”said McKenna. “Having an account in your son’s name could affect everyone too needs-based financial help he could be entitled to it in the future. “
You could consider opening an investment account on your behalf and when you’re confident he can take responsibility, you can gift him the property, McKenna said.
“I think low-cost brokerage firms like Vanguard and Schwab would be good options for both types of accounts,” he said.
Once the account is opened, you need to decide how you want to invest the money.
“There is a correlation between the return you expect and the risk you must take to get that return,” McKenna said. “The amount of risk you take depends on when the funds may be needed and how the account maker, you and ultimately your son, react to a poor market environment.”
With a time horizon of five years or less, very little risk should be taken and low returns expected, he said. If the funds are not needed for 10 years or more, more risk can be taken to try to increase the main balance.
But remember: Markets can and do drop steeply at certain points.
“It is critical that we prepare for these inevitable market events and only take as much risk as we are willing to endure through those events,” he said.
Once you’ve identified the amount of risk you want to take, according to McKenna, there are a number of good, inexpensive ones out there Exchange Traded Funds (ETF) that you can shop commission-free to meet that target risk, he said.
“The manager of an ETF will control the level of risk at a relatively constant level so you don’t have to,” he said. “The commission-free feature is useful when you add money over time.”
This do-it-yourself (DIY) approach may not be for you because you said, “I don’t know about money and investing,” McKenna said.
If you want to take the DIY approach, you owe it to your son and yourself to study personal finance better, McKenna said.
He recommends reading “I Will Teach You To Be Rich,” Ramit Sethi’s 2nd Edition.
Another option is to opt to work with a financial advisor who can help you develop a more comprehensive approach to your family’s finances. McKenna offered this link from the National Association of Personal Financial Advisors for some tips on how to search.
Send your questions by email to Ask@NJMoneyHelp.com.
Karin Price Müller writes the Bamboo led Column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly e-newsletter.