While it’s never too late to start investing, it’s certainly better to start as early as possible. Consider this: a single $250.00 stock investment, earning an average of 7% per year, grows to approximately $8.000.00 in fifty years. Fifty years is a long time, but for an investor starting at the age of 9 years old, a $60k account balance at age 59 is possible by simply saving lawn mowing earnings and monetary birthday gifts during his/her adolescent years (just 10 years) and leaving it alone to grow.
Let’s look at a hypothetical example that I hope to make a realistic future my own 9-year old child. By mowing lawns, completing household chores, and saving a portion of cash birthday gifts from relatives, he is currently able to save about $250.00. If he invests the $250.00 per year in stocks for the next 10 years, and earns a 7% average annual return, he will have approximately $3,735.00 upon finishing high school.
$3,750.00 isn’t too exciting, but it’s a great start. Now, let’s examine what happens if the investment is left alone for the next 40 years at an estimated 7% annual return. Without any additional contributions, $3,735.00 becomes nearly $60,000.00…
But how can a 9-year old child invest in stocks with savings of only $250.00? Legally, the child cannot open a stock brokerage account by themselves, and commission charges would be prohibitive. One possible solution is to open a custodian DRiP account for the young investor. “DRiP” means “dividend reinvestment plan” DRiPs allow anyone to get started investing with small sums of money, and they feature automatic reinvestment of dividends in additional fractional shares of stock at no or very low fees. To learn more about DRiP investing, visit The DRiP Investing Resource Center at DRiPinvesting.org – there is an abundance of great information and resources available at the website. It’s also important to understand the characteristics of a “custodian” account – essentially, an adult controls the account until the child reaches 18 or 21 (depending on which U.S. state you reside in). Remember, when your kid reaches 18 or 21 years of age, assumes control of their custodian account, and is tempted to withdraw the hard-earned savings, send them back to this article – for the magic of compounding to work, the investment needs to be left alone!
If you and/or your child have larger sums to invest, consider opening a traditional custodian account with an online discount brokerage firm such as . However, if you only have $250.00 to start with, then using a direct stock purchase plan administrator such as Computershare is an option to begin investing in a DRiP plan.
In next week’s article, I’ll post a detailed review of the account opening process at Computershare. Please know that I have no affiliation with Computershare, or financial incentive arrangement with the organization. I will provide an honest, unbiased review of the experience and will provide account updates in future blog articles.
At Computershare, you have to carefully review the investment plan for each stock – the fees and minimums do vary. It appears the fees to sell shares are actually much higher than a traditional online brokerage firm. However, the higher sell fees may be an acceptable trade-off for years of no-fee purchases and dividend re-investments (depending the stock purchased), and the whole point of this article is to buy and hold for fifty years. I would love to hear comments from readers who have used Computershare or other DRiP plans, please Register and join the conversation…