Author Topic: Setting my kids up with investments  (Read 2688 times)

Thegoblinchief

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Setting my kids up with investments
« on: January 12, 2016, 01:16:28 PM »
This could equally belong in the mini mustache subforum but I figure'd I'd ask it here.

What do you think is the best way to involve kids (all under age 10) in investing? Up to this point I've had them investing in a shared (to meet minimums) Vanguard account. They don't yet meet the $1,000 minimum for any of the Vanguard products.

I could get around that by setting up custodial accounts at a brokerage and buying ETFs.

At the same time, there's never going to be a ton of money invested at once right now (a few hundred each annually). I also want them to be able to relate to the investment more than just an abstract number which goes up (and down). So I was thinking of doing something like DRIPs in quality businesses that they can nevertheless relate to (Hershey? Coca Cola? Colgate? Nestle?) to lessen the fee burden and also increase relatability.

Thoughts?


tarheeldan

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Re: Setting my kids up with investments
« Reply #1 on: January 12, 2016, 01:35:28 PM »
You could be the brokerage if the amounts are relatively small. All you need to do is track the prices.

With ETFs the comissions could be a problem if each of them want to sell or buy at different times, which you don't have to worry about if you play the part of the brokerage. You might find their investments do poorly in which case it'll work out well for "the house" haha.

SomedayStache

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Re: Setting my kids up with investments
« Reply #2 on: January 12, 2016, 01:38:57 PM »
Following.

I have hopes of being able to match contributions to a Roth once the kiddos are of working age (15+) and earning some income...but I haven't been able to figure out anything better to do for my very young ones than a savings account.

Ramparts

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Re: Setting my kids up with investments
« Reply #3 on: January 12, 2016, 02:46:52 PM »
What about using the Bank of Dad? Like in http://www.mrmoneymustache.com/2015/05/20/what-im-teaching-my-son-about-money/

Since the kids are young and the numbers are small, just keep track of their balances and pay them interest. No need to worry about actual Vanguard accounts or account minimums until the numbers become large enough to warrant such things (or they have actual earnings to put into a Roth IRA). IMO the important lessons while they are young are that saving money now translates into more money later, and they have to be able to afford all the things they might want to buy with the amount of money they actually have. You can even highlight these facts when you pay them the interest, like "wow, having your money invested paid you the same as picking up all those leaves, but without any of the work!"

Eventually you will want to convert their fake bank accounts into actual investments (maybe in their teens?), at which point you can teach them about owning actual businesses like Coca Cola, and why your investments may go up & down in value.

I don't have kids though, so take that into consideration :)

beltim

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Re: Setting my kids up with investments
« Reply #4 on: January 12, 2016, 02:54:27 PM »
I strongly recommend DRIPs.  They provide a connection to investing that's much more direct and understandable than ETFs.  This is from a previous discussion on the topic:
My Dad bought some stock for me in dividend reinvestment plans (look up DRIPs) starting from when I was 8.  I loved getting statements in the mail every quarter, seeing how the dividends I received each quarter increased because the previous dividend was reinvested.  And then about once a year the dividend rate would increase, and my dividend would jump higher!  Plus, I started reading annual reports to learn more about the companies, which then taught me a wealth of other knowledge - electricity generation, oil exploration, even paints.

Now I look back and can see the value of buying high quality stocks and holding forever.  Plus I've learned a ton about investing, finance, business, and more.

ZMonet

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Re: Setting my kids up with investments
« Reply #5 on: January 12, 2016, 02:57:48 PM »
Loyal3 might be something that could work.  They allow fractional shares and primarily have house-hold names.  I don't believe stock certificates are given out anymore, but to make it more fun and tangible to your kids you might make a stock certificate for whatever company(s) they buy shares of.  I'll be following because I'm interested for my 6 year old.  Right now I just have money from grandparents invested in the total market Vanguard ETF (VTI).  TD Ameritrade charges no trading fees for that, and some other, ETFs.  They also allow DRIP.

Luthien

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Re: Setting my kids up with investments
« Reply #6 on: January 12, 2016, 03:52:26 PM »
My kids each have a Schwab One Custodial Account. There are no fees to open or maintain an account and the minimum is just $100. To keep things simple I put all of their money in the Schwab Total Stock Market Index Fund (SWTSX). It only requires a $100 initial investment, and subsequent investments can be as little as $1.

secondcor521

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Re: Setting my kids up with investments
« Reply #7 on: January 12, 2016, 04:07:04 PM »
I did similarly to Luthien.  Some additional notes about Schwab:

1.  They're happy to open up custodial Roth IRA accounts - $100 minimium as Luthien noted.
2.  Buying SWTSX is commission free.
3.  You can have them reinvest dividends and capital gains or both, also for free.

My kids are teens, so I'll have them keep their Roth IRAs at Schwab until their accounts get big enough to be moved to Vanguard.

Thegoblinchief

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Re: Setting my kids up with investments
« Reply #8 on: January 13, 2016, 06:23:20 AM »
Schwab seems to be the way to go after further review so I'll set those up soon. I'll probably just stick with the index ETF for now.

Loyal3 - no custodial accounts, though their FAQs indicate that may change in future.

DRIPs - lower fees on the front end but the sale fees on the back end are a bit out of line IMO. I didn't go through a ton of plan schedules, but it seemed like most would end up being a net wash in the grand scheme of things between dealing with Compushare (seems like most DRIPs use them) versus just buying through a brokerage like Schwab.

frugalnacho

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Re: Setting my kids up with investments
« Reply #9 on: January 13, 2016, 08:42:14 AM »
My kids each have a Schwab One Custodial Account. There are no fees to open or maintain an account and the minimum is just $100. To keep things simple I put all of their money in the Schwab Total Stock Market Index Fund (SWTSX). It only requires a $100 initial investment, and subsequent investments can be as little as $1.

This is what I did for my niece.  Even put her in the same fund.