Question: Let me start off by saying that I'm a huge fan of the show. Your advice to listeners on planning for retirement prompted me to take charge of my finances. Now I'm 25, have a Roth IRA, stick to my budget, set aside money every month for retirement, etc. It's great.
My problem is that my brother (in his late 20s) is super lazy and would never do any financial planning on his own. I've been trying to get him to open a Roth IRA for a while, but no chance. So now I'm thinking of starting one for him for his birthday, and setting it up so a certain portion of his paycheck will transfer automatically. But there's no way he will ever be motivated/responsible enough to do his own investing. I'm not sure what strategy to follow because I don't want to do his investments for him. Is it worth hiring a professional? Do the major online trading sites (Etrade, Vanguard, ScottTrade, etc.) offer some kind of package where you just add some money and it is professionally invested for you? Their websites are so mystifying. I can't find anything aside from services they offer to people who invest huge sums of money. Any advice you have would be greatly appreciated!! Thank you! Laura, Chicago, IL
Answer: Thanks for listening. I'm pleased you've learned so much from us -- and followed through. You're good with your money. It's loving that you want to help out your brother with his savings, but to be realistic, I would encourage you to simply build on your idea about making savings automatic. Simplicity counts and this strategy should also prevent money from coming between you.
By the way, I assume you know you can't set up a Roth IRA for him. The two of you can sit down at the computer together or walk down to his bank. They'll need his financial information. A Roth may or may not be the right way to go at first, however.
One of the insights I've gleaned over the years when it comes to managing money is the importance of understanding the strategy. For example, it doesn't matter if I think equities are a terrific value for the patient investor these days or that Treasury Inflation Protected Securities are more attractive than other Treasuries with a similar maturity. What matters is whether your brother -- or anyone else -- is willing to put in the work to understand the trade-off between risk and reward with these different securities. There is nothing wrong with deciding I'm not going to put in the time. You and he just have to build a savings strategy off that realization.
For example, the advice to own equities in a long-term retirement savings portfolio is partly based on research by the late Nobel laureate Paul Samuelson. Yet in an interview I did with him several years ago, he emphasized whether you included equities in a portfolio depended on your attitude toward stock market risk. "For my late mother, her level of risk tolerance called for a very small equity share," he said.
An approach to money that does wonders for you may not be suited to your brother's temperament or circumstances.
So, I would encourage your brother to simply automate his savings into a credit union savings accounts, an FDIC-insured online savings account, and similar safe savings. He doesn't even need to do anything once it's set up. Every month he should have some sum of money automatically moved from his checking account into a savings account. It will compound over time, and when he decides to take greater interest in his money, he'll have a tidy sum to work with. Sit down with him and do it over the computer. And you don't have to manage or worry about the money. I know you want to help, but it's his responsibility.
I think I would do this with all his money, including the Roth, if he and you decide to set one up.