Q: Some years ago I invested $50,000 – half of my son's college money – in a socially responsible mutual fund. It is now down to less than $40,000, and recently a new company took over the original mutual fund. My son is 23 years old and is not currently enrolled in college. He is earning money, but not enough to pay income tax. He has no definite career goals yet. At some future time, he may want to complete his degree and go on to grad school. I am still the custodian for the fund, even though he is no longer a minor. Should I leave the money in this fund, or should I sell at a loss and invest in something more secure? What would be the best way to protect the remaining money?
M.C., Santa Fe, N.M.
A: If you want to keep all of this money in one fund, then Jean Fullerton, a financial planner in Manchester, N.H., thinks you'll be better off investing in a low-cost diversified fund. That could be something such as Vanguard Target Retirement fund, which can be as aggressive or as conservative as you want.
If you sell the current fund, then tax documents will be generated under his Social Security number for use in filing his tax return. If your son has no tax due this year, then he would still file a tax return this year and show the loss. Then he'll be able to use the loss in future years when he has income.
Ms. Fullerton notes that because of his age, this money now belongs to your son, and he may spend it any way he wishes.