I often get this question from students who want to invest but wonder how they can do it with only a little money, say $100. First, parents need to know what options they have to open a brokerage account if their child is a minor (This Motley Fool article can help).
Here are some options pointed out in this recent Jonathan Clements column in MarketWatch:
- Buying ETFs through a brokerage account:
“Instead of buying index-mutual funds, you could open a brokerage account and purchase exchange-traded index funds. Both types of funds seek to track the performance of an underlying market index. ETFs, however, are listed on the stock market and can be traded anytime the market is open, while mutual funds can be bought and sold just once a day, at the market close.
Merrill Edge, ShareBuilder, TD Ameritrade and TradeKing have no required minimum to open a brokerage account, while E*Trade will let you start an account with $500. Schwab requires $1,000, but it will waive that minimum if you add $100 a month to your account.”
- Buying Vanguard Target-Date Funds:
“Target-date retirement funds, which offer diversified portfolios geared to folks retiring at or close to the year indicated in each fund’s name, have been criticized as cookie-cutter solutions that are either too risky or not risky enough.
Ignore the naysayers. I think the funds are a great choice for most investors, who would struggle to put together anything better on their own or working with a financial adviser. Vanguard Group’s target-date funds charge average annual expenses of just 0.17%, or 17 cents a year for every $100 invested, and have a $1,000 minimum.”
- Schwab Index Funds:
“Charles Schwab offers five conventional stock-index mutual funds and three bond-index funds, all with $100 minimums. Its U.S. total stock-market fund charges a slim 0.09%, its international-index fund levies 0.19% and its total bond-market fund costs 0.29%. All three funds would make good core portfolio holdings.”