Grandchildren Friendly Investment Firms

There are two steps that almost guarantee a young person will become financially secure. Step one is to save early and regularly. Step two is to invest those savings with investment firms to achieve growth that beats inflation and taxes.

Unfortunately, financial services firms are making it more difficult for your grandchildren to take these first steps on the road to financial security. Perhaps most important to grandparents is that the minimum account balance requirement at most mutual funds and brokers is rising rapidly. The days are gone when the minimum investment at most quality, no-load mutual funds was $500.

Some firms do offer a minimum opening balance of $0. Unfortunately, that’s not as attractive as it first appears. Mutual funds with low minimums also tend to have high loads and expenses. After subtracting all those charges, you often would have been better off with your money in a passbook savings account. Other funds and most brokers have account maintenance fees or other expenses on small accounts. These costs make it difficult to build a small sum into a large legacy.  They discourage grandparents from putting a modest gift aside regularly to help their grandchildren, and they also discourage grandchildren from saving on their own.

Fortunately, there still are some financial services firms that want business from small investors. If you are looking to set aside some money for your grandchildren or other loved ones, consider investing with these firms.

Hussman Strategic Growth will open a new account with only $1,000. Hussman’s goal is ideal for long-term saving. The fund, which has been in our Sector and Balanced Managed Portfolios since last March, tries to earn attractive returns, adjusted for the amount of risk taken. This differs from many funds that have been marketed for youngsters in the past.  Those funds invested aggressively, trying to achieve the maximum returns possible. Unfortunately, those funds lost substantial value in the bear market and will lose substantial value in any overall market decline. Even long-term investors, such as grandchildren, need to pay attention to shorter-term risks if they want to build long-term wealth. The organization also offers a bond fund with a $1,000 opening requirement.

Balanced funds are another good choice for long-term investing. There are a host of fund companies that have solid balanced funds with low minimum investments.

My favorite is Dodge & Cox Balanced. Its minimum investment is $2,500. The fund combines the stock picking of my long time favorite, Dodge & Cox Stock, with the bond picking of Dodge & Cox Income. It is another fund that shoots for long-term risk-adjusted returns, not short-term maximum returns.

Vanguard offers two other good balanced funds, Wellington and Wellesley Income. Wellington invests about 60% in stocks and 40% in bonds, while Wellesley Income reverses these proportions. Each has a minimum investment of $3,000.

The American Century funds offer a good selection of funds, and most of those funds have an initial investment minimum of $2,500. The group has more of a growth-stock bias than I normally like. But it also has low expenses, some good value funds, a balanced fund, and quality bond funds.

The T. Rowe Price group also offers a minimum investment of $2,500 for most of its funds. Its U.S. stock funds are solid, risk-conscious offerings, though they rarely make it onto my list of recommended funds. Price’s international funds are strong offerings, and the company offers a greater variety than most fund families.

If you want to use a broker to get more investment options, there are a few low-minimum investment firms to consider.

Scottrade has a minimum of only $500 and very low fees for trades and most other transactions. It also has offices around the country. The firm’s web site and other services are bare bones compared to the competition, but it offers low cost, offices around the country, and access to mutual funds and other investments.

TD Waterhouse also is worth a look. It boasts a $0 minimum investment and low fees for mutual fund trading. It also has some offices around the country. TD Waterhouse’s web site is well-regarded. One downside is that the parent company wants to sell the broker. There’s no telling how a change in ownership would affect the broker, its minimums, or its fees.

Ameritrade also is worth a look. Its minimum investment is $2,000. It has low fees and access to a lot of mutual funds, including no transaction fee funds. It also has a good web site, though its services do not have all the bells and whistles of the higher-cost, higher-minimum brokers.

Another option is your own broker or fund family. For a good customer, many investment firms will consider all of a family’s accounts together when determining minimum balances and also when waiving some fees and costs. Your grandchildren could benefit from your successful wealth accumulation.

Your grandchildren need to start investing early. Despite roadblocks put up by many investment firms, you still can get them started with a fairly small initial investment and low monthly additions.