Starting new portfolio for a child – PP or VTI?

[gospodin_i]

I am setting up a portfolio for my child (who's still a toddler), and I'm wondering whether I want to invest in the long-term growth of the market (something like VTI or another similar ETF) or get him started with a permanent portfolio.

I was considering other approaches (60/40, etc.), but at the end of the day, I don't see any purpose in going somewhere "in the middle".

Curious to hear what others think.

[ochotona]

I think for a toddler at Permanent Portfolio and Golden Butterfly are too conservative.

But you mention VTI... what would you think as a parent if on 3/28/2035 you look back and find your VTI investment hadn't grown any? US stock overvaluation is such that a "lost decade (or longer)" is a real possibility.

How would you feel (and react) if your child's VTI gets cut in half in the next five years? Sell, hold, buy more? Be honest!

[mathjak107]

i would never ever , use the pp for someone in the accumulation stage

[ppnewbie]

For my kids I do the total stock market index only with dividends reinvested. They have the beauty of time and do not have to smooth out volatility at the cost of returns. Plus I don’t want them to have to deal with the cognitive load / demand of thinking about this stuff. Set and forget for a long time.

[gospodin_i]

I think for a toddler at Permanent Portfolio and Golden Butterfly are too conservative.

But you mention VTI... what would you think as a parent if on 3/28/2035 you look back and find your VTI investment hadn't grown any? US stock overvaluation is such that a "lost decade (or longer)" is a real possibility.

How would you feel (and react) if your child's VTI gets cut in half in the next five years? Sell, hold, buy more? Be honest!

Thanks for the comments. They confirm my own thinking that PP is too conservative for someone who can benefit from a long timeframe. So, I'm thinking of going with a broad, low-cost market-tracking fund.

I used VTI more as a catchall/example everyone would be familiar with. Of course, you can't know what will under/perform over the next 50 years (it might be the case that Europe experiences a "lost decade", a big recession in China, etc.) So, I'm looking at a broad market fund as a way to provide diversification and benefit from overall growth.

With that in mind, I'm looking for suggestions on good ETFs that can help me achieve that – I'd be interested in low cost, broad coverage, but traded on a European exchange (because I can benefit from tax-free trading).

[ochotona]

Developed International and Emerging (which is 42% China) ALREADY had their lost decade, actually 14 years. You're running out of the store when things are on sale. Click on this Perfchart and extend the time bar to tthe middle of 2011 (the midst of the European Debt Crisis) to Present Day.

https://stockcharts.com/freecharts/perf.php?VTI,VEA,VWO

Honestly for my small child I'd just buy VT, or if I wanted less volatility, ACWV. I don't know that you'd buy on the European exchanges, sorry.

[gospodin_i]

Developed International and Emerging (which is 42% China) ALREADY had their lost decade, actually 14 years. You're running out of the store when things are on sale. Click on this Perfchart and extend the time bar to tthe middle of 2011 (the midst of the European Debt Crisis) to Present Day.

https://stockcharts.com/freecharts/perf.php?VTI,VEA,VWO

Honestly for my small child I'd just buy VT, or if I wanted less volatility, ACWV. I don't know that you'd buy on the European exchanges, sorry.

VT looks great, thanks. I'll research alternatives I can buy locally

[dualstow]

VTI

[ochotona]

Right now, VT is 65% US, 35% international. I think that's overbalanced. I'd have a straight split, 50% - 50%, which would be half US, have Other. Now I'm a US investor. I'm not sure why a non-US investor would want half US.

There is a rule of thumb which actually works very well given life's uncertainties, which is the 1/N rule, and Permanent Portfolio is based on it. If you have N assets, and you're not sure which ones will do well or do poorly, buy 1/N of each.

"Naive vs. Optimization

Not surprisingly, individual investors rarely use complex asset allocation methodologies. These have intimidating names, such as mean-variance optimization, Monte Carlo simulation, or the Treynor-Black model, all of which are engineered to produce an optimal portfolio, one which yields the maximum return at the minimum risk, which is indeed the investor's dream.

In fact, a couple of investigations into optimization theory, such as "Optimal Versus Naive Diversification: How Efficient Is the 1/N Portfolio Strategy," conducted by the London Business School's Dr. Victor DeMiguel et al., have argued against the effectiveness of sophisticated models. The difference between them and the naive approach is not statistically significant; they point out that really basic models perform quite well."