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My daughter is about to turn one year old and I'd like to start some sort of investment account for her. The purpose would be to invest her birthday and gift money into the stock market each year. I'd like to use this account to teach her how compounding and saving over time has benefited her once she gets older.

My challenge right now is the fees. Basically, let's say she gets a total of $100.00 on her birthday. The online brokerages I'm looking at charge $10 per transaction. That's a 10% hit right off the top. I think it would be a bad lesson.

Are there any "micro"-investing sites or tools or kinds of investments that could help minimize my up-front costs but still permit investing on regular intervals?

Thank you so much.

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    +1 for relevance to my own situation (my daughter is 16 months old) – Noah Oct 19 '14 at 0:08
  • Have you called any of the major brokers to see if they had a commission free option with a low minimum investment? – P.Brian.Mackey Oct 19 '14 at 3:23
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    Open a Bank of Dad and put all your daughter's money into it. Issue her a passbook (a small notebook is fine). Pay her interest at 1% per month and make monthly entries into it showing the interest paid. When she starts getting an allowance, deposit it into her passbook account in the Bank of Dad. She can withdraw money as and when she needs, including at the toy store as long as she has her passbook with her, and the withdrawal is recorded right then and there. You will be surprised how quickly children learn the value of money, how to save for a special treat, etc. – Dilip Sarwate Oct 19 '14 at 23:21
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    In my experience (mainly with USAA), trading mutual funds don't have transaction charges like trading stocks. They do, however, have minimum upfront balances (e.g. $1000), which may be reduced or eliminated with an automatic monthly plan (e.g. $50/month). It sounds like you're planning a smaller amount...maybe you could start her out with $1000, either as a gift or as a loan? – Tim S. Oct 20 '14 at 2:13
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    Drip investing - Dividend reinvestment programs may be an option. – Mark C. Wallace Oct 20 '14 at 11:35
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It is difficult to find investment banks that offer both low fees and low minimum investments.

If you google around for "no-fee low-minimum mutual funds" you can find various articles with recommendations, such as this one. One fund they mention that looks promising is the Schwab Total Stock Market Index Fund, which apparently has a minimum investment of only $100 and an expense ratio of 0.09%. (I've never heard of this fund before, so I'm just repeating the info from the site. Be sure to look into it more thoroughly to see if there are any hidden costs here. I'm not recommending this fund, just mentioning it as an example of what you may be able to find.)

Another possibility is to make use of funds in an existing brokerage account that you use for yourself. This could allow you to make use of Craig W.'s suggestion about ETFs. For instance, if you already have a brokerage account at Vanguard or another firm, you could add $100 to the account and buy some particular fund, mentally earmarking it as your daughter's.

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    Additionally, Schwab has custodial brokerage accounts with a minimum of $100 that would be the perfect place to buy a fund like SWTSX. Vanguard and Fidelity don't seem to offer anything with minimums that low. – Craig W Oct 18 '14 at 22:57
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You can open a 529 plan for your child. The minimum contribution for my state is only $25. You can setup automatic deposits, or deposit money only a few times a year; or both.

You can save money on state taxes, and the money grows tax free if the money is used for educational expenses.

They generally have age based portfolios, but some also let you pick from a variety of portfolios.

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  • A 529 plan is owned by the parent, not the child: the child is the beneficiary. Also, the $100 or so that the child gets as a gift is the child's property and should be kept in a custodian account, not put into a 529 account which will, ultimately, not be in the child's control. – Dilip Sarwate Oct 19 '14 at 18:03
  • Assumes the OP is in the United States. – Chris W. Rea Oct 20 '14 at 12:07
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I was going to comment on the commission-free ETF answer, which I agree with, but I don't have enough reputation. TD Ameritrade has a list of commission-free ETFs and has no minimum deposit required to open an account.

Another idea is to keep gifts in cash until a certain threshold is reached. For instance, $100 for birthday, $100 for Christmas, $100 for next birthday, $100 for next Christmas, now execute the trade. Sharebuilder has $4 scheduled trades, so you'd be at about 1% overhead for that. If other people give money, you'll reach the threshold faster of course.

For what it's worth, I do something similar for my 2 nieces. I combined their account and prepay Christmas plus birthday, so I do 1 trade a year. I have my account at Sharebuilder because my idea predated the commission-free ETFs that are now pretty popular. I should really transfer the account... hm.

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I think your best bet would be commission-free ETFs, which have no minimum and many have a share price under $100. Most online brokerages have these now, e.g. Vanguard, Fidelity, etc. Just have to watch out for any non-trading fees brokerages may charge with a low balance.

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    I think many of these still have a minimum on the amount you must have in the account. For instance, Vanguard has a minimum of $3000 for establishing a brokerage account. You can buy one share at a time, but you have to fund the account with at least $3000 up front. – BrenBarn Oct 18 '14 at 19:23
  • Charles schwab doesn't have any minimums. Vanguard offers a target retirement fund but you can see what these target retirement funds are made of and roll your own. Many brokerages offer fee free eft that follows an index. You just buy etf shares of index funds as you have the money... Over 25 years the studies typically show you will not lose money. You do have reallocate as one type of fund performs before as your portfolio grows, but it's pretty much all aggressive investing if it's for your one year old. – Sun Oct 22 '14 at 4:50
  • @sunk818 According to this a normal brokerage account at Schwab has a $1000 minimum to open. – Craig W Oct 22 '14 at 12:45
  • You can open up a free checking account and a brokerage account is free. They refund all ATM withdrawal fee at any ATM so that is a great feature. Also read part 2. The $1,000 minimum required to open an account is waived if you set up an automatic monthly transfer of $100 through direct deposit or Schwab MoneyLink or open a Schwab Bank High Yield Investor Checking account linked to your brokerage account. – Sun Oct 22 '14 at 14:24
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You could just commingle your funds. That way, she also learns how to keep track of things and how to figure things out, rather just learning to have the guy at the brokerage hand her an account statement which she blindly accepts.

It might cause some tax problems though if the money grows to be substantial.

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Keep it simple: mutual funds (preferably index, low fee or ETF linked funds) do make a nice start for your little princess college fund. You dont need a real fortune to offset the trading cost of an online broker but if your really going to take advantage of dollar cost averaging, you might want to invest into a trusted fund company. Do your research, it is worth it. Ignore what the investment salesman is saying, he works for his wealth, not yours. A good DIY strategy, either joint with your own retirement account agregate or on a low cost index fund will make wonders. Keep in mind to be resilient: you will cash out when the princess will be in college in 20 yerars. Make sure to make proper time horizon investment and allocation. Cheers, All the best. Feel free to edit

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I am not sure whether this hold in all countries, but at least in the Netherlands my bank allows for investment in funds without charging transaction costs.

The downside is that these funds charge an annual fee of about 1%, but for the amounts you are talking about this definitely sounds more attractive than the alternative.

As an alternative, you could ofcourse just take care of the transaction costs. That way your child can see their funds develop as you put it into different stocks without being distracted by the details. Of course you feel the 'pain' but I believe the main lesson stands out most this way.

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5 years later there are now several brokerage apps that have zero fees on stock purchases. I believe Robinhood is the most popular.

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For a more recent and relevant option, Robinhood (No trading commissions. Period.) is an excellent choice for stocks, options and even cryptocurrency. I personally have used Robinhood and I even transferred my portfolio from Schwab to Robinhood for free.

As one advances and wants to do after hour trading, derivatives or options, Robinhood also offers a profile upgrade starting at $10 a month (Robinhood Gold, which I have used as well and now downgraded because I don't trade as much). This option may not be applicable any time soon for someone starting out but it is good to know that there is an option to upgrade one's profile and continue using the platform.

Some other options include - Acorns, Stockpile which may not be about stocks but they are about investing.

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