What could be invested for a 10 year old who has money in a trust but can’t take it out for 20 years. I was just thinking to let it ride in the S&P 500 but is there anything that would be tax free. Just trying to find some info for a friend.
Growth, growth growth !!! S&P500 all the way.
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Agree. S&P500. Most managed funds can’t do any better.
Taxation: I think that all accounts in a trust are taxable. Most commonly the accounts in a trust are taxable brokerage accounts. I understand that when a trust is a beneficiary of an IRA, the distributions are taxable. To minimize capital gain taxes in the equity component of the account, consider an low expense index ETF fund. If a Vanguard index fund is used, the choice can be either the mutual fund or the equivalent ETF.
Asset allocation: The presumption is that the beneficiary will be using the money soon after receiving the money. So, one approach would be to look at the 529 plan Target funds at Fidelity and Vanguard that are dated about 20 years from now. Start with the initial equity/bond ratio then follow the glidepath of the Target 529 fund by gradually reducing the equity component and increasing the bond component over the 20 year timeframe of the trust.
Virtually anything that can be owned by a living person can be put in a trust.
Just as it would be if an asset were passed directly by the grantor to a grantee, the taxation is determined if and when the money leaves the trust and ownership of the asset is assumed by the grantee.
I completely agree with the low cost index fund approach for a 20 year time horizon. The one I have used for decades is VTSAX, the Vanguard extended market which gives some mid and small cap exposure in addition to the S&P 500. By the way, the great book about why index funds work so well over the long haul (low costs and great tax efficiency) is “Winning the Loser’s Game” by Charles Ellis. It was a game changer for me.