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How to Buy Stocks for Children

Dec 04, 2006 | | Comments Comments Off

Dear Liz: I’d like to buy my children shares of stock to get them interested in investing. How do I go about this?

Answer: It’s not as easy as you might think.

Children under 18 generally are not allowed to own investments in their own names. As a result, you must decide first how to hold the shares: in a custodial account, in a joint account with them or in your own account.

Keeping them in your own name may be the best option if you’re concerned about future college financial aid, because the other two choices could count heavily against them in the federal aid formulas.

You also have many alternatives when it comes to buying the shares  always with a variety of fees, charges and options to watch.

You can buy your shares through a brokerage, but you may face commissions, minimum account balance requirements and account fees.

If this is a one-shot investment or you’re able to commit only small amounts of money at a time, a better option might be ShareBuilder Corp., a low-cost online broker, which has no minimum balance requirements or account fees.

ShareBuilder charges $15.95 for single trades or as little as $1 per trade in its automatic investing program.

You also might consider buying directly from the company that issues the shares.

Hundreds of companies  including many your kids would know, such as Coca-Cola Co., Mattel Inc., McDonald’s Corp. and Sony Corp.  sell shares directly to investors. Again, minimum purchase requirements, account fees and commissions may apply.

DirectInvesting.com, a website that provides direct investment enrollment services for hundreds of companies, can get you started.

All these options are electronic, so you won’t get a stock certificate you can wrap for holiday gift giving. If that’s what you’re after, you might check out the options at OneShare.com, a site that specializes in selling single shares of stock as gifts.

OneShare.com sells shares from about 130 companies; you pay the cost of the stock, plus transfer fees and framing that add about $90 to the cost of each share.

It’s not exactly a frugal option, but your kids will get real stock certificates to hang on the wall. They’ll also get annual reports, proxy statements and all the other paperwork that comes with being an investor.

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