Buying Stuff? Ugh.

[MomTo2Boys]

Hi, guys, I need someone to slap me, please.

So my kids (ages 20 and 16) have Vanguard investment accounts. These accounts have basically been funded with grandparent birthday and Christmas checks over the years. They're super small accounts (something like $2,500 per kid) and over the years I've sort of done a rough PP thing with them, albeit I've:

- Always been limited to very small purchases (grandparents tend to give $50 or so to each kid at a pop), and
- I've never rebalanced because what a freaking headache and these accounts are tiny and I kind of like the idea of letting winners run anyway.

So here I am, staring at the kids' Vanguard accounts, wondering what to do with grandparent Christmas checks. And it's pretty much the story of my life in my own Vanguard accounts, as well (lots more money than my kids have, so a much bigger worry). And that is: bonds have been on a tear, stocks have been on a tear, gold is the only thing on sale, but I need to make a move in not just my kids' accounts by my own as well and I should buy more than gold, which makes me want to barf, but stocks and bonds make me want to barf, as well.  They all make me want to barf.  I feel like the second I invest in anything it's all going to crash.

Here's the crux of the problem.

I set up the beginnings of a PP in the fall of 2012 and the whole thing went super negative right after I invested until a few months ago and just for the first time I'm starting to see it make money and now I'm trying to steel myself for the idea that if I invest more money it will just go negative for 2 years. Since the fall/winter of 2012 I haven't pulled the trigger on buying anything because I sort of have it in my mind that investing in the PP means that for the first 2 years the whole thing goes super negative on you. I never sold or even thought of selling between 2012 and now because I'm not a selling-when-things-get-bad kind of girl, but setting up a PP in the fall of 2012 and just recently seeing it all pull itself out of the negatives has made me investment-shy.  I'm even more investment-shy because, to me, both stocks and bonds have been going great guns recently and I'm scared that the minute I try to buy something it will all come crashing down on me like it did for quite a long while there.

So I'm staring at my own Vanguard account which is super heavy in cash (because I lost the will to invest when things were going so south and I was kind of DCAing into the PP initially and then I stopped) and I know I need to do something with it and my kids' Christmas checks which are tiny little smidgins of money but... still. I can't bring myself to buy because fall of 2012 through summer of 2014 (when my prior PP investments started finally making money) scared the crap out of me.

Help? 

[dualstow]

Are these accounts going to be left alone for years to come or are the boys going to be drawing from them soon?

[barrett]

MomTo2Boys,

Sounds like you have been invested in the PP for about 30 months. I am curious what your total return is during that time. Holding three really volatile assets takes some getting used to for sure. I just started PPs for me and my wife about a year ago and have done way too much daily checking. Trying to fix that in 2015! Interestingly I don't really worry about my wife's accounts! Having just a little bit of distance from them seems to help a lot.

I guess you really have to figure out if you believe in the ideas behind the PP and then go from there. If you believe that the concept is sound, go back to DCAing and keep in mind that you have a long investment horizon (at least that would be the case for most people with kids that are 16 and 20).

The other thing I would say is don't be upset for holding cash. Inflation has been low for years so it's not like you have lost a great deal of purchasing power.

Alas, we don't do a lot of slapping around here. Hope you are OK with that!

[Ad Orientem]

I'm not a fan of micro PPs because the rebalancing can be silly and if you have any fees at all for trading it could actually put a dent in your gains. Just my 2 cents; but I'd go with something you can buy and hold until you accumulate around $4-5,000. Then switch over to a PP. If you have a long term investment horizon, say the kids are under 5 and are not likely to need the money before age 18, maybe you can roll the dice a little and put it all into an S&P 500 index fund. If you want conservative, I'd go with VWINX.

[sophie]

Hi Mom & boys!!  Nice hear from you on the forum.  Are you still living in China?

Like all other investments do from time to time, the PP had a crummy year in 2013.  But performance in 2014 was quite good and right in line with expectations (see another thread on this).  Yes, it's hard to watch the PP struggle along while standard stock/bond portfolios are cleaning up, but those portfolios have had their hard times as well.  Don't give up on the PP yet!  One of those volatile assets is going to carry the day next year, we just don't know which one.

Agree with Ad about your son's accounts.  If they're going to use the money for college or whatever they're going to be doing the next few years, then I'd definitely vote just to stash it in a savings account.  If you're planning to have them use it to launch a lifetime of investing, then either of Ad's suggestions would be great options.  It's probably too early for the PP...that can wait until the accounts have at least $10K and they're contributing savings regularly.

[MomTo2Boys]

Hi back, Sophie!! We are NOT living in China any longer, thank goodness. We are now living in Japan.  Our lungs barely survived living in China, lol. The pollution was so heinously bad that a normal American truly cannot even imagine the horrors of it. There are a couple things that we miss (the food was wonderful, and I LOVE the Chinese people and culture), but other than that, we won't step foot in China ever again. I laugh in the face of anyone who thinks China is ahead of the US in any way at all whatsoever. But that's a rant for another day. And yes, I speak Chinese and understand the culture, its history, the country, its politics, etc. Japan is far better (and, I guess, worse) in different ways. Comparing countries is always interesting.

My kids' accounts have been set up PP style ever since the word go. It was not just an attempt to "beat" having their gift money sitting in a checking account for years at a time (like people tend to do), but was also an attempt at something of a long-term monetary education (we've homeschooled off and on all their lives and I really wanted them to be able to SEE what money does when it's invested different ways and in different things).

They won't need it for college. We're thinking maybe house down payments someday far in the future? So there's a long time horizon. We've bought only Vanguard ETFs with the money except for one or two IAU purchases along the way, so transaction fees are pretty much nil. Right now their percentages are way off (I think they're like 40something% stocks, 30something % bonds, 10% or so cash, and 17% or so gold...it varies per kid a bit), but, honestly, I'm fine with it.

I don't think I did a good enough job explaining my angst, which is really directed to my husband's and my own $$, which is sitting mostly in cash because I chickened out DCAing the end of 2012 and have just now begun to see an upward swing.

Ad Orientem, I totally agree with you, and this is great advice for anyone starting out. It's just that my kids' accounts already are made up of chunks of EDV/VGLT/VGIT/VTI/IAU with smatterings of VDC and VPU - again, for the sake of education and making life interesting.

Barrett, yes, that's about how long we've had my husband's and my quasi-PP-but-stopped-DCAing-after-a-bit account, I think.  When I go to the Vanguard window that shows returns, it looks like our super-cash-heavy accounts have a total return around 3.6% I think. It's not at all that I think that's a bad number or a good number... it's just that it was negative for soooooooo looooooooooooooong. I know I need to start DCAing again and throw some money at the kids' accounts again and.... it scares me, is all. 

I did NOT check our accounts frequently or even much at all between 2012 and now. It was too depressing, and, quite frankly, no matter how bad it got I knew that I would never sell so I just sort of started to ignore it all. But I sure as heck didn't keep DCAing. In the end, it would have been far better if I'd continued DCAing when things just kept going down and down and down, but I suppose I just couldn't bring myself to do it. Well, that and for a while there our "need the money time horizons" looked like they might change, so I just left the whole thing alone. To be kinder to myself, it's true that, when I stopped DCAing, it also looked like we might have needed the money within six months to a year. There's no DCAing at that point, of course. But that didn't end up happening. And, again, to be kinder to myself, my husband and I live a pretty crazy life where it's super tough to plan financially and know for any certainty what our time horizons actually are. But, still - the PP being negative for so long gave me even more of a reason to not continue DCAing. I don't know if this makes any sense...

Dualstow - again, I don't think the boys will need this money for a long while. College is covered, so I'm thinking... house buying? We shall see.

Thank you, everyone!

[barrett]

MT2B,

I didn't catch your signature line the first time around but it shows that you understand the value of money in terms of how much time goes into earning it. That is a good thing! It just sounds like you are super loss-averse. Many of us who have invested in the PP are similar in that way which is why we have chosen the strategy in the first place.

It also sounds like you haven't really come around to believing that it is the right strategy for you to use. You say that gold, stocks and bonds all make you "want to barf." Is there an asset other than cash that you are comfortable with? The PP is weird because it makes people squirm with all its volatile components, yet when taken together they generally work quite well.

To be kinder to myself, it's true that, when I stopped DCAing, it also looked like we might have needed the money within six months to a year.

This is hugely important. I think most of us would advise that you keep that cash cushion large enough so that you don't have to sell volatile investments at inopportune times. In short, maybe you did exactly the right thing. Maybe you just need to be a bit easier on yourself.

Good luck with whatever you decide and good for you trying to teach your boys about money!

[sophie]

Please do start a thread with "China" in the title and tell us about your experiences - that's of interest to many here I am sure!

So there are two forms of angst here.  First - if the idea of the mini PPs is to give the boys an education in investing and in particular, sane investing (i.e. the PP), then I think if you're going to keep the PP style you really should rebalance.  It's perfect, you'd be selling stocks and bonds high, and buying gold at a low price, and socking some of the proceeds in cash.  An excellent bit of education!  Then you could have the boys track their PP performance on spreadsheets, and also have them read the book.  It would be a great start for them.  You could even encourage them to buy a real gold coin instead of more shares of IAU.  They should have enough for 0.1 oz coins at least.  I wouldn't worry about transaction costs - consider it part of their "tuition" :-)

I think that if you don't do that, you really should just liquidate everything and put it all in a single fund, like the S&P 500 stock index, and let them watch that and see the dividends pile up.  All those funds must just be confusing to deal with, and there's no reason to have any more than the basic four, or even 3 if you let the cash sit in the core account.

The other bit of angst is your own Vanguard account.  This one isn't about educational value, it's about your peace of mind.  If keeping a lot of cash lets you sleep better at night, then you do that.  I suggest keep an accounting of which part is PP (including its 25% cash) and which is the extra cash you're holding as part of your emergency fund.  When you think you've got more cash in the e-fund than you need, go ahead and take the excess and distribute it into the PP - but do it mechanically, with no attempt at market timing.  Just divide by 4, put in your buy orders, log out and go do something else.  And btw would definitely hold your nose and rebalance your PP now.

After seeing the mix of stuff you have in your son's accounts...what exactly are the holdings that you are calling "cash" in your Vanguard account?

[Reub]

Yes please share your insights on China with us. Did you live in a big city and for how long? Is there any pure capitalism going on there? Is the economy totally fake? Do you think that they are due for a real estate/stock market crash?