Question -- I'm looking for some suggestions on how to interest my grandchildren in the stock market by buying them shares. But I don't have much money to invest, and I don't want to spend it all on commissions.
Answer -- Choosing stocks suitable for children is the easy part -- just ask kids themselves, who intuitively live by the Peter (Lynch) principle of investing in what they know.For example, members of the Stock MarKids investment club, in Washington, D.C., actually held meetings at McDonald's restaurants when they started their club three years ago as 9- to 11-year-olds.
"We tried to show them that investing is about things you purchase," says Pat Smith, whose daughter Shannon is a club member.
That's why the club owns General Electric and Johnson & Johnson. But it also bought shares in Trusted Information Systems, a local high-tech firm, so the children could attend a company's annual meeting.
If your kids are still young, choose a stock you know. When Mark Stephens of Raleigh, N.C., began investing for his son, Hugh, 4, he chose two local utility companies -- Duke Energy and Public Service Co. of North Carolina -- because he could buy initial shares directly from the companies, bypassing a broker, for a minimum outlay of $250 each.
Stock MarKids bought McDonald's through the company's MCDirect stock-purchase plan, although it took them a while to come up with the $1,000 minimum initial investment. But for other purchases they've used a traditional discount broker.
Nowadays one of the cheapest and speediest ways to trade small lots of stock is online. Unfortunately, many online brokers require a minimum of $1,000 or more to set up an account. But a few brokers let you open custodial accounts for minors with as little money as you want: DLJdirect, 888-456-4355; www.dljdirect.com, Suretrade, 800-909-6827; www.suretrade.com and Web Street Securities, 800-932-8723; www.webstreet.com. Of those, Suretrade offers the lowest commissions: $7.95 for market orders.
If you don't like the impersonal nature of trading by computer terminal and would prefer the security of hearing a human voice over the phone, discount brokerage Bidwell & Co., 800-547-6337, will charge a commission of $20 plus 8 cents per share for trades of up to 500 shares.
Next: Buying stock straight from the source.
Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, DC 20006. Or send the good doctor an e-mail message (and any other questions for this column) to jbodnar@kiplinger.com.