Nana gave each of my three children $2,500 for their "senior" trip. This coming school year, they will be a senior, sophomore, and 5th grader. The goal is to save/invest their funds so that the kid can spend it on a spring trip their senior year.

For the senior, she's pretty much locked into a savings account at a whopping 1%. However, for the sophomore, we have a 2.5 year horizon and a 7.5 year horizon for the 5th grader. Suggestions? Best to just throw the sophomore's and 5th grader's funds into a mutual fund and letting it ride?

For the sophomore (let's say max 24 months until that one is "locked in to a savings account" ..
Are you willing to see that $2500 be worth $1500 at the beginning of senior year? Assume upside is it becomes worth $3500. Silly risk if you ask me... I'd be more likely to suggest you simply add $50/month and guarantee it's worth $3500+ in 2 years.

5th grader..7 years max until "locked into savings account". I'd say same downside potential, but more upside potential. I'd say go really conservative at most, like an age based portfolio for a 60 year old.

Bottom line, this was a gift for a very specific short term reason. Far more important it's there for them for said purpose than for you to try to make it grow. It's not a lot of money.. Much more risk you piss someone off than any rewards about bragging rights for making it grow.

Now, if you want to use it to tech them to invest, and you are willing and able to guarantee you will make them whole if not successful.. Then by all means go for it. I would not want grandkids telling grandma.. Hey, dad bet my senior trip money on the market and lost half of it.

options

Asking today? I'd say short the SPY, lol.

Good advice!

Some added info: Nana is currently working now (part-time retirement gig), so has the cash now and doesn't want to budget for it later (after complete retirement). Parents may supplement. Nana charged me with determining the investment strategy for the three "gifts". A teachable moment is not in the cards as Nana still wants the surprise to happen when they plan they're respective trips. Basically, I close the account when each hits their senior year, give whatever is there back to Nana, and Nana gives as a senior/graduation gift.

I'm thinking very conservative for the senior (too bad for her, but at least she's guaranteed the $2,500 value in 6 months). The sophomore is the tricky one. If inflation takes off, her $2,500 may only buy $2,000ish of "vacation". I'm looking for a conservative/safe (don't mind some risk) investment to try to hit $2,500 value (based on 2020 dollars) in Spring 2023. The 5th grader, hers is going more aggressive.

Maybe a REIT for the sophomore? Something to throw off a few dividends and hold value? Maybe 3-5% return?

With it being a "surprise " - each kid will think they're getting a different amount for their trip. That is unless Nana tells them what she did.

Have nana write dada a check for $2500 to help cover the cost of the respective senior trips when they happen. Dada covers the rest.

Let nana hold onto the money now just in case she needs the 7500 for something.

Really, with that small amount of money, put it in something high risk/high reward and hope it takes off.
Worst case: Kids won't know what they didn't get.
Best case: Dolla, dolla bills yo.

Does it all have to be spent on a senior trip regardless of investing outcomes? Sounds like the 5th grader is going to be getting an awesome allocation for a vacation vs your senior.

Hypothetical- can you cover these expenses if you lose it all?

I would be pretty risky with the middle and youngest to try to hit it big. Go follow the stock market thread and make some money. When you double or triple that youngest one's money. Give some back to nana, and the rest to the other kids.