Friday, June 16, 2006

My Investment Plan for My Brother

Last night, I have discovered that due to the sale of my father's house as part of a divorce settlement, there will likely be some cash that will be available to be set aside for my brother for the future. When this became clear, I was the one that they thought of as a person to put the money away and invest it for my brother. Despite the obvious sadness of the divorce, The fact that I might be able to really contribute to my brother's well being later in life got me very excited.

College, retirement, cars, and real estate prices are only going up. My brother, who just turned four this past weekend, will likely be unable to take advantage of some of the opportunities of relatively affordable college and real estate. Furthermore, by the time I retire, there is very likely going to be very little money available for Social Security. If things are going to be bad for us, those of us who are in our 20s and early 30s, things are going to be even worse for the next generation.

Retirement seems to be a race to accumulate wealth. Even young children, when they are given one wish, will often wish for a large sum of money like a million dollars. Money is often something that you realize you need a large amount of, even when you are young. Time is the most important element of accumulating wealth. My stepmother is particularly concerned about my brother's potential ability to access this money too early. For me, this is also a concern because it would remove the power of extended time from the investment.

Assuming that most or all of the money stays put, a roth IRA would be ideal, in my mind. It would ensure that my brother could get at the principal if he wants to buy a car, but NOT the fifteen or so years of interest. So, although I would encourage him to leave all of the money alone, he would be able to remove some if needbe for something important. However, after a little more research, it became clear that a roth IRA will not be an option. A roth IRA requires that the money contributed is earned income. Clearly, my four-year-old brother cannot yet honestly earn income, so a Roth is out.

My next consideration is a basic mutual fund account that is a custodial account. But there are considerations there too. Namely, can I secure this money so that it is not taken out when my 13-year-old brother wants a pony? What happens to this money if I get hit by a bus? How do I protect the money from his parents if they have a desire to get it in the future? This type of account still seems to be the most likely result, but I need to figure this out. As I continue to learn more, I will write again. Check back here soon to find out what happens next!

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