Q: I've decided to give my grandkids some investments this year along with other holiday gifts. What's the best way to handle it? - Terry, Vista
A: Congratulations on your decision. Long after the toys break and the clothes don't fit, investments will continue to pay dividends, both figuratively and literally.
If you want to give them shares of a stock or mutual fund you already own, it will require that you open an account in their name. If they are minors, you will have to designate an adult as custodian for the account.
Then you simply authorize your investment company to move the shares from your account to the new one. Depending on the company where you house your assets, there may or may not be a fee for this service.
If you would rather take money and make new investments for your grandchildren, you have many options.
Most mutual fund companies will let you open a custodial account with smaller amounts of money. However, every fund company is different, so check around. For instance, Charles Schwab just lowered the initial minimum investment on its mutual funds to just $100. Many others are the same, but some have much higher minimums.
You can also check with the Mutual Fund Education Alliance (www.mfea.com), a coalition of no-load mutual fund companies. It provides a list of mutual funds that allow you to get started with as little as $50.
If your preference is to buy individual stocks rather than mutual funds, you probably will want to find companies that offer direct purchase accounts. There are about 400 companies that offer this service. That means you can buy shares without having to go through a broker. That should save you a lot of money in fees and commissions, which on small purchases can be as high as 10 percent.
A list of these no-load stocks is available at www.dripinvestor.com. By the way, the "drip" in the name stands for "dividend reinvestment program." Charles Carlson is the editor of the Drip Investor newsletter, and he makes the list available on the Web site for free.
If the stocks you chose to give as gifts pay a dividend, it is very important that you set up the account to reinvest all distributions.
That applies to mutual funds as well as individual stocks. That allows you to take advantage of the power of compounding.
Depending on the age of your grandchildren, the gift of stocks and funds could be the start of a lifetime of investing. My grandchildren are still very young, but as soon as it's appropriate, I will begin the process of not only investing for them but with them.
- George Chamberlin is a regular contributor to the North County Times and also is a TV and radio commentator.
