I’d like to create a savings fund for my grandson and also encourage him to take an interest in investing. For my own children, I set up dividend reinvestment plans years ago, but I haven’t heard about DRIPs in a long time. Are DRIPs still the best way for kids to get started in investing? --E.G.L., Lutherville, Md.
Dividend reinvestment plans used to let your get kids started in stock investing without having to open an expensive brokerage account. But DRIPs became less popular when brokerage firms made it easier to open custodial accounts. Now, many offer custodial accounts with no or low minimums, low commissions, and plenty of investing options. These custodial accounts also allow faster trades than with DRIPs, which are traded only at certain times.
TD Ameritrade, for example, has no minimum investing requirement for custodial brokerage accounts, charges $9.99 for online stock trades, and offers 100 commission-free exchange-traded funds and hundreds of no-transaction-fee mutual funds. Charles Schwab lets you open a custodial account with just $100, charges $8.95 to buy or sell stocks online, and charges no commissions on Schwab ETFs. Fidelity requires a minimum investment of $2,500 for custodial brokerage accounts but then charges just $7.95 to buy or sell stocks. It offers 76 commission-free ETFs and more than 2,900 funds with no transaction fees. At all three firms, you can automatically reinvest dividends at no charge.
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The commissions can add up, however, if you buy shares every month or so. In that case, consider ShareBuilder’s automatic investing plan, which lets you schedule purchases of a set dollar amount on a one-time, weekly, biweekly or monthly basis for $3.95 per investment. You can invest in more than 7,000 stocks and ETFs. All trades are executed on Tuesdays.
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