Should You Take Money Out of One Kid’s Investment Portfolio and Give It to Your Other Kid?
I don’t know if you all read today’s Dear Prudence, but one of the questions comes from a family with an interesting personal finance dilemma:
In order to teach our young kids about money, when we started giving them an allowance, we had them place 10 percent into investments we managed on their behalf. This has gone well for our older son—better than we could have ever guessed, thanks to some amazingly lucky investments. Our banker has suggested that by the time our son reaches adulthood, the fund could be greater than anything we imagined when we created it.
The problem, of course, is that the younger son’s portfolio isn’t doing as well. The parents ask Dear Prudence whether they should pull money out of the older son’s portfolio and put it in the younger one’s portfolio, and Mallory Ortberg responds that this sounds like the perfect solution, and the whole time I’m thinking WAIT, DON’T MOVE ANY MONEY, I HAVE FOLLOW-UP QUESTIONS.
Who chose the portfolios? It’s clear that the parents didn’t elect to invest both kids’ money in the same low-cost index fund, so someone was making an active decision here. If it was the parents, they should have seen this coming. If it was the kids, well… it doesn’t seem fair to take money out of the older kid’s investment fund just because he picked better investments.
(I know that the younger kid, being younger, was likely to have less knowledge of the whole investing process at the time the stocks were picked, so he was at a disadvantage. But still.)
If the fund could be “greater than anything we imagined” in the future, why are you pulling out money NOW? If I’m understanding this correctly, the banker said “wow, this portfolio could see significant growth in the next ten years.” Why not wait until those ten years are up and then redistribute the money?
What advice would you give these parents? I’d be inclined to tell them to leave the funds alone until the kids reach adulthood. The problem might end up solving itself in a number of different ways, and their son won’t have to pitch The Billfold an essay titled “The Year My Parents Gave My Investment Earnings To My Brother.”
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