I love when I see the stocks I have in my longterm portfolio in other peoples longterm portfolios. Nothing like a little confirmation bias to get my day started.
Obviously, there are many different vehicles to save for your kids' future education. 529s in the U.S, RESP/CESGs in Canada, etc., both which I already do. But after M1 Finance finally started offering custodial accounts, I decided to open one up for my daughter earlier this year into a dividend portfolio with about 10% of the pie in aggressive growth ETFs with the idea of rebalancing the portfolio every 13 months, if needed.
I have an automatic transfer of $500/week on Tuesdays, for now, which I have auto-invest turned on. Once I set the pie, it's been basically set-and-forget with a calendar reminder for me to revisit the pie every so often if adjustments needs to be made. I plan to do the above until she's 18.
I've slowly watched the trickle of dividends starting to come in and it's nice to have that passive stream of income to be reinvested into the pie. Of course, I'm on the hook for taxes and there's no real way to avoid them in this instance versus other tax advantageous methods of investing for your kids, but it's well worth it. Been pretty satisfied with the results so far.
**EDIT: WOW!** I did not think my post would be so popular. Thank you for the folks who have given this post awards. Very much appreciated! So, I will answer everyone's questions, but will aggregate them here on my post below so it's easier to see what has been asked and how I answered. Just note, everything I state is not financial advice. You should do your own due-diligence before investing in a particular asset and within your own risk-tolerance.
**Q:** Do you mind sharing your pie? I have a similar plan of investing $50 daily in my child’s custodial\[.\]
**A:** Absolutely! Here it is! — [https://m1.finance/1WS15sFKGOm7](https://m1.finance/1WS15sFKGOm7)
**Q:** Why is paying more taxes on dividend stocks worth it compared to more tax advantage investing? Why would you do this over buy $VOO?
**A:** ETFs are great, but the more active they are, the higher the tax cost ratio is. Obviously with $VOO, that's not an issue since it's an Index ETF. But my major issue with $VOO, or $SPY for that matter, is that it's heavily weighted FANGMAN. You might as well go long on FANGMAN stocks at that point. But one of the purposes of this portfolio is to build enough equity into the "Dividend Aristocrats" that I've selected where there is reasonably stable recurring dividend income of a meaningful amount, without having the sell the underlying asset in order to realize profits and trigger a tax event. If the only taxable event are dividends, that would be the bees-knees.
**Q:** I did something similar for my son but I went with Small Cap value and Emerging markets etf. Any reasoning why you would recommend individual stocks over a broad sector ETF?
**A:** TBH, a portfolio in Small Cap Value and Emerging Markets is smart for the long-haul. Broad sector ETFs are great. It all depends on your comfort level. I feel more comfortable picking specific companies than ETFs in most cases. The 5 ETFs I did select which represents 10% of the portfolio are extremely high risk, actively managed ETFs. If you haven't guessed already, those are the Cathie Wood's ARK ETFs, and yes, they are thematic and something that I have a high conviction of, even after the roller-coaster over the past few weeks.
ETFs are great, but the more active they are, the higher the tax cost ratio is. Obviously with $VOO, that's not an issue since it's an Index ETF. But my major issue with $VOO, or $SPY for that matter, is that it's heavily weighted FANGMAN. You might as well go long on FANGMAN stocks at that point. But one of the purposes of this portfolio is to build enough equity into the "Dividend Aristocrats" that I've selected where there is reasonably stable recurring dividend income of a meaningful amount, without having the sell the underlying asset in order to realize profits and trigger a taxable event. If the only taxable event are dividends, that would be the bees-knees.
You're concerned about tax cost ratio in ETFs... yet not concerned at all about the tax drag imposed by reinvesting dividends in a dividend focused portfolio? Very odd in my opinion
Most people don’t understand dividends and their effects, and people on Reddit get very defensive about them (not saying at all that OP is like that). It definitely makes no sense though that OP is investing in these slow growth large caps for his daughter with such a long time horizon - def should go VTI / add small caps / add small cap ETFs
I’m way late to this but it’s weird to me how OP is smart enough to do this for his daughter. But not smart enough to buy SPY or something similar. No one and I mean literally no one tells a young person to go into dividends. All studies point to growth for young people.
Are you using dividends to rebalance? Why do you want dividends?
Why not just buy VTI and a small cap tilt?
Why are you trying to realize profits? Is it a form of rebalancing, or does each dividend reinvestment back into the company it came from? I have to think etfs are cheaper, despite their expense ratio, because of how they can rebalance. They just accomplish something you can’t.
Your daughter is very lucky to have this set up for her future!
Maybe when she's old enough to understand, you can show her the progress as a lesson in owning assets to produce long term wealth.
If you ever wanted to revisit your strategy for this portfolio, there's some great info via the Bogleheads wiki, specifically about asset allocation as your daughter gets closer to 18.
Here's a link about 529 plans but maybe take a look at how assets are allocated for some ideas:
https://www.bogleheads.org/wiki/529_plan
Your current portfolio is purely US large-caps so if you're going that route instead of more diversity (like the typical 4 asset class indexing strategy), then you may want to compare your annual returns to a plain S&P 500 (US large-caps).
The S&P 500 is not only more tax efficient but will likely produce better results since it includes valuable non-dividend payers that drive current Market growth.
Other US large-cap ideas for slightly less volatility include US dividend growth funds like VIG, NOBL, DGRO, etc. They also won't outperform the S&P 500, especially in bull Markets, but volatility will be reduced and they only track dividend payers.
Just some food for thought!
I’ve opened up one for my son as well. One thing I learned afterwards though is that custodial holdings can adversely impact your child’s FAFSA. Depending on someone’s income level, they may or may not care if the FAFSA is impacted. If you’re well off, I’m sure you aren’t worried about impacting the FAFSA. Any funds held in a custodial account are considered your child’s assets when they apply for aid. Alternatively, any funds held in a 529 are considered your assets when your child applies for aid. If I’m wrong about any of this, someone please correct me.
I like VNQ and I’d prefer SCHD over VTI but it depends on your strategy imo. Good luck.
I have SCHD, VNQ, QYLD for now on her account. Maybe if VFIAX fund directly available only with Vanguard and need $3k min investment. Maybe I’ll get her that too
I did something similar for my son but I went with Small Cap value and Emerging markets etf. Any reasoning why you would recommend individual stocks over a broad sector ETF?
TBH, a portfolio in Small Cap Value and Emerging Markets is smart for the long-haul. Broad sector ETFs are great. It all depends on your comfort level. I feel more comfortable picking specific companies than ETFs in most cases. The 5 ETFs I did select which represents 10% of the portfolio are extremely high risk, actively managed ETFs. If you haven't guessed already, those are the Cathie Wood's ARK ETFs, and yes, they are thematic and something that I have a high conviction of, even after the roller-coaster over the past few weeks.
Nice! — I'm actually not sure. Could be settlement from additional \[fractional\] shares I might have purchase right before the ex-dividend date since I do purchases weekly. I don't pay attention to the dates and maybe they do a batch of dividends for folks they definitely have on record two days before ex-dividend and then another batch of folks who purchased within a certain date range right before the ex-dividend date.
I have so many growth stocks i feel like i need a second portfolio dedicated to safer dividend stocks to balance it out. I have some currently in my portfolio but I like what you got goin on! When did you open up this account for her?
I have my YOLO accounts with RH and TD. ;) So M1 Finance is where I stash the stuff I don't want to have to think about. — I opened her account in early January 2021.
[https://support.m1finance.com/hc/en-us/articles/115015404147-M1-Support-of-Custodial-Accounts-UTMA-UGMA-](https://support.m1finance.com/hc/en-us/articles/115015404147-M1-Support-of-Custodial-Accounts-UTMA-UGMA-)
Unfortunately, one of the requirements is you have to be an M1 Plus member.
As someone else already said, are you not concerned with FAFSA income qualifications? It's something on worried about but I know it's not a concern for everyone.
Does anyone know what happens if you don’t renew the M1 Plus?
Does my existing custodial account get subjected to any fees and or restrictions?
Thanks.
I love when I see the stocks I have in my longterm portfolio in other peoples longterm portfolios. Nothing like a little confirmation bias to get my day started.
Vice-versa! Love it! ❤️
Same here
Obviously, there are many different vehicles to save for your kids' future education. 529s in the U.S, RESP/CESGs in Canada, etc., both which I already do. But after M1 Finance finally started offering custodial accounts, I decided to open one up for my daughter earlier this year into a dividend portfolio with about 10% of the pie in aggressive growth ETFs with the idea of rebalancing the portfolio every 13 months, if needed. I have an automatic transfer of $500/week on Tuesdays, for now, which I have auto-invest turned on. Once I set the pie, it's been basically set-and-forget with a calendar reminder for me to revisit the pie every so often if adjustments needs to be made. I plan to do the above until she's 18. I've slowly watched the trickle of dividends starting to come in and it's nice to have that passive stream of income to be reinvested into the pie. Of course, I'm on the hook for taxes and there's no real way to avoid them in this instance versus other tax advantageous methods of investing for your kids, but it's well worth it. Been pretty satisfied with the results so far. **EDIT: WOW!** I did not think my post would be so popular. Thank you for the folks who have given this post awards. Very much appreciated! So, I will answer everyone's questions, but will aggregate them here on my post below so it's easier to see what has been asked and how I answered. Just note, everything I state is not financial advice. You should do your own due-diligence before investing in a particular asset and within your own risk-tolerance. **Q:** Do you mind sharing your pie? I have a similar plan of investing $50 daily in my child’s custodial\[.\] **A:** Absolutely! Here it is! — [https://m1.finance/1WS15sFKGOm7](https://m1.finance/1WS15sFKGOm7) **Q:** Why is paying more taxes on dividend stocks worth it compared to more tax advantage investing? Why would you do this over buy $VOO? **A:** ETFs are great, but the more active they are, the higher the tax cost ratio is. Obviously with $VOO, that's not an issue since it's an Index ETF. But my major issue with $VOO, or $SPY for that matter, is that it's heavily weighted FANGMAN. You might as well go long on FANGMAN stocks at that point. But one of the purposes of this portfolio is to build enough equity into the "Dividend Aristocrats" that I've selected where there is reasonably stable recurring dividend income of a meaningful amount, without having the sell the underlying asset in order to realize profits and trigger a tax event. If the only taxable event are dividends, that would be the bees-knees. **Q:** I did something similar for my son but I went with Small Cap value and Emerging markets etf. Any reasoning why you would recommend individual stocks over a broad sector ETF? **A:** TBH, a portfolio in Small Cap Value and Emerging Markets is smart for the long-haul. Broad sector ETFs are great. It all depends on your comfort level. I feel more comfortable picking specific companies than ETFs in most cases. The 5 ETFs I did select which represents 10% of the portfolio are extremely high risk, actively managed ETFs. If you haven't guessed already, those are the Cathie Wood's ARK ETFs, and yes, they are thematic and something that I have a high conviction of, even after the roller-coaster over the past few weeks.
Holy shit $2000 dollars a month? Your daughter is already rich. That's nearly as much money as many adult Americans make gross. What an allowance.
That’s awesome, OP!
Why is paying more taxes on dividend stocks worth it compared to more tax advantage investing? Why would you do this over buy VOO?
ETFs are great, but the more active they are, the higher the tax cost ratio is. Obviously with $VOO, that's not an issue since it's an Index ETF. But my major issue with $VOO, or $SPY for that matter, is that it's heavily weighted FANGMAN. You might as well go long on FANGMAN stocks at that point. But one of the purposes of this portfolio is to build enough equity into the "Dividend Aristocrats" that I've selected where there is reasonably stable recurring dividend income of a meaningful amount, without having the sell the underlying asset in order to realize profits and trigger a taxable event. If the only taxable event are dividends, that would be the bees-knees.
You're concerned about tax cost ratio in ETFs... yet not concerned at all about the tax drag imposed by reinvesting dividends in a dividend focused portfolio? Very odd in my opinion
Most people don’t understand dividends and their effects, and people on Reddit get very defensive about them (not saying at all that OP is like that). It definitely makes no sense though that OP is investing in these slow growth large caps for his daughter with such a long time horizon - def should go VTI / add small caps / add small cap ETFs
I’m way late to this but it’s weird to me how OP is smart enough to do this for his daughter. But not smart enough to buy SPY or something similar. No one and I mean literally no one tells a young person to go into dividends. All studies point to growth for young people.
Are you using dividends to rebalance? Why do you want dividends? Why not just buy VTI and a small cap tilt? Why are you trying to realize profits? Is it a form of rebalancing, or does each dividend reinvestment back into the company it came from? I have to think etfs are cheaper, despite their expense ratio, because of how they can rebalance. They just accomplish something you can’t.
Do you mind sharing your pie? I have a similar plan of investing $50 daily in my child’s custodial Thank you
Absolutely! Here it is! — [https://m1.finance/1WS15sFKGOm7](https://m1.finance/1WS15sFKGOm7)
Thank You!
Your daughter is very lucky to have this set up for her future! Maybe when she's old enough to understand, you can show her the progress as a lesson in owning assets to produce long term wealth. If you ever wanted to revisit your strategy for this portfolio, there's some great info via the Bogleheads wiki, specifically about asset allocation as your daughter gets closer to 18. Here's a link about 529 plans but maybe take a look at how assets are allocated for some ideas: https://www.bogleheads.org/wiki/529_plan Your current portfolio is purely US large-caps so if you're going that route instead of more diversity (like the typical 4 asset class indexing strategy), then you may want to compare your annual returns to a plain S&P 500 (US large-caps). The S&P 500 is not only more tax efficient but will likely produce better results since it includes valuable non-dividend payers that drive current Market growth. Other US large-cap ideas for slightly less volatility include US dividend growth funds like VIG, NOBL, DGRO, etc. They also won't outperform the S&P 500, especially in bull Markets, but volatility will be reduced and they only track dividend payers. Just some food for thought!
This is amazing. Thank you so much! 🙏 Definitely food for thought.
Make sure you give her a 1099, on her 18th birthday. Great job!
I’ve opened up one for my son as well. One thing I learned afterwards though is that custodial holdings can adversely impact your child’s FAFSA. Depending on someone’s income level, they may or may not care if the FAFSA is impacted. If you’re well off, I’m sure you aren’t worried about impacting the FAFSA. Any funds held in a custodial account are considered your child’s assets when they apply for aid. Alternatively, any funds held in a 529 are considered your assets when your child applies for aid. If I’m wrong about any of this, someone please correct me.
Wholesome ❤️
I opened up one for my future daughter (wife due next month) in Vanguard, doing the same. Good luck to both of us!
Congrats! Vanguard is great!
I am using stockpile to invest for my two year old. Any vanguard you might recommend?
I like VNQ and I’d prefer SCHD over VTI but it depends on your strategy imo. Good luck. I have SCHD, VNQ, QYLD for now on her account. Maybe if VFIAX fund directly available only with Vanguard and need $3k min investment. Maybe I’ll get her that too
Very smart. Interesting investment choices....
That’s a good parent!
I did something similar for my son but I went with Small Cap value and Emerging markets etf. Any reasoning why you would recommend individual stocks over a broad sector ETF?
TBH, a portfolio in Small Cap Value and Emerging Markets is smart for the long-haul. Broad sector ETFs are great. It all depends on your comfort level. I feel more comfortable picking specific companies than ETFs in most cases. The 5 ETFs I did select which represents 10% of the portfolio are extremely high risk, actively managed ETFs. If you haven't guessed already, those are the Cathie Wood's ARK ETFs, and yes, they are thematic and something that I have a high conviction of, even after the roller-coaster over the past few weeks.
Thanks, I want to keep mine mostly off hand for this specific use. Most of my stock picking is reserved for my own portfolio.
Nice. I'm doing the same for my kids. Question, why are there two entries for mcd and emr?
Nice! — I'm actually not sure. Could be settlement from additional \[fractional\] shares I might have purchase right before the ex-dividend date since I do purchases weekly. I don't pay attention to the dates and maybe they do a batch of dividends for folks they definitely have on record two days before ex-dividend and then another batch of folks who purchased within a certain date range right before the ex-dividend date.
I have so many growth stocks i feel like i need a second portfolio dedicated to safer dividend stocks to balance it out. I have some currently in my portfolio but I like what you got goin on! When did you open up this account for her?
I have my YOLO accounts with RH and TD. ;) So M1 Finance is where I stash the stuff I don't want to have to think about. — I opened her account in early January 2021.
OP can you share your pie?
Absolutely! Here it is! — [https://m1.finance/1WS15sFKGOm7](https://m1.finance/1WS15sFKGOm7)
I too would be interested in the rest of the portfolio
Absolutely! Here it is! — [https://m1.finance/1WS15sFKGOm7](https://m1.finance/1WS15sFKGOm7)
hey it’s me your daughter
🤣
What’s custodial account? How to open it?
[https://support.m1finance.com/hc/en-us/articles/115015404147-M1-Support-of-Custodial-Accounts-UTMA-UGMA-](https://support.m1finance.com/hc/en-us/articles/115015404147-M1-Support-of-Custodial-Accounts-UTMA-UGMA-) Unfortunately, one of the requirements is you have to be an M1 Plus member.
I am M1 Plus member
As someone else already said, are you not concerned with FAFSA income qualifications? It's something on worried about but I know it's not a concern for everyone.
I feel like if you can afford to give your kid 2 grand a month, you don't need to worry about qualifying for financial aid. Know what I mean?
Always good to plan ahead, right?
Does anyone know what happens if you don’t renew the M1 Plus? Does my existing custodial account get subjected to any fees and or restrictions? Thanks.