How to Buy Stocks for Kids with No Fees

It's never to early for kids to own high-quality stocks.
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When you hold a stock for a long period of time, you benefit from the stock’s long-term trend. Adults who buy stocks for kids are giving the children the opportunity to hold the shares for decades, thereby extracting the long-term value of the company’s earnings. By avoiding fees, all the invested money is put to work growing the value of the child’s portfolio. Dividend reinvestment plans (DRIPs) and direct stock purchase plans (DSPPs) provide the means to purchase shares with little or no fees. Automatic dividend reinvestment helps little nest eggs grow quicker.

Step 1

Ensure the child has a Social Security number. Income under $1,900 can be taxed at the child’s rate, but the child will need a SSN.

Step 2

Identify stocks available through no-fee plans. Websites like list such companies and offer links to the plans.

Step 3

Purchase initial shares. Many DRIPs allow new shareholders to make their initial purchases through the plans. In other cases, you will need to use a separate DSPP first. Be sure -- for tax purposes -- to make the purchase in the child’s name.

Step 4

Direct the plan to reinvest dividends automatically. This will compound the value of the dividends received. If you purchased your original shares through a DSPP, you may have to open a DRIP separately.

Step 5

Make regular additional investments of equal size. This way of accumulating shares is called dollar cost averaging, and it helps to lower your total average cost per share since you buy more shares when prices are low and fewer shares when prices are high.

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