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Ask the Readers: Best Place to Invest Around $1000?

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A few weeks ago, I wrote an article about whether I should invest my babies' money. I think the general consensus was that I should, especially because I'll personally make up for any losses. (Don't you wish all investing companies were as cool as me?)

So the question then becomes, where do I invest the $1000? Ideally, I'd keep the expense ratio as low as possible and still have a diversified fund. If it were more money, I'd open up a brokerage account and buy Vanguard's Total Market Index. However, for less than $1000, the commission to buy would be around 1%. I suppose that isn't the worst thing in the world. At least it would be a one-time fee. After that, it would be Vanguard's typical low commissions.

Alternatively, it appears as if I could open up an account at Vanguard itself and buy a mutual fund perhaps avoiding the commissions.

I'm probably over-thinking the commission. While 1% seems like a lot, in reality it is $10, which is pretty tiny, right? Perhaps not. He may get $100 to $200 on a birthday or something, which means that money would have to go to a savings account unless I want to pay a 5-10% fee via commission to buy more shares. That mutual fund is looking better and better.

Mutual funds just seem weird to me as I haven't invested in them in probably more than 15 years (outside of a 401K).

Another idea is to go with Lending Club. As I was writing about yesterday, it occurred that me that it could be a good fit. The only problem is that I'm not sure my wife would be on-board with such an unusual idea. Maybe I can convince her with the humorous concept that a two year old would be lending money to a bunch of adults with financial problems.

Even if I could convince here, I'm not sure that Lending Club will let a two year old open an account. It does look like there's a custodial account. I'll be the first to admit that I don't know much about Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) types of accounts. However, these don't seem to be a fit, since the money is owned by the children, it isn't a gift from me to them.

I know I'm all over the map with this topic. That's why it is perfect for an "Ask the Readers" article. Got any advice to point me in the right direction?

Last updated on August 16, 2014.

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8 Responses to “Ask the Readers: Best Place to Invest Around $1000?”

  1. Kathy says:

    Assuming the individual has an emergency fund started, I’d suggest that they find a low fee mutual fund family and invest there to start. Many funds have a minimum investment more than $1000. When my husband and I started investing rather than just saving, we started with 20th Century which I believe merged with another company. It’s minimum investment at the time was $500 which allowed us to begin. We later went with Vanguard and are still with their brokerage service to this day. Love Vanguard’s low fees, reputable service and good research service. A very good place to be.

    • Lazy Man says:

      As parent, I’m going to assume the role of providing an emergency fund for the 23 and 8 month olds.

      Just for fun, I’ll try to explain the concept of an emergency fund to them tonight while we are playing with blocks. I’m not optimistic it is going to be productive ;-).

  2. Steve says:

    Investing small amounts is going to be a little inefficient. Basically this is fundamentally true, since there’s overhead of keeping track of the account, sending statements (even electronic ones), etc etc. You might be able to find a brokerage that eats those costs instead of passing them on, but I doubt it.

    Still, 1% isn’t the end of the world. At least it’s a legit cost being passed on, and not an active manager charging 1% to underperform the market!

  3. Mario says:

    Probably over-thinking it? Why not use it as the starting point for a 529, that you add to every time more cash gifts come in?

    In the future, you can even tell friends and relatives to send the gift straight to the account so there’s no temptation to use it elsewhere :)

  4. You have to first ask yourself, what is it that you intend to do with the money? If it is your baby’s money and you have a 18 year time horizon then why not put the money in the index fund? In fact, according to Benjamin Graham, Warren Buffet, John Bogle, etc. it’s not investing if you’re not looking 10 years or more down the line. If you don’t have this time horizon, stick with lending club. Otherwise, stick with the index fund and watch your baby’s $1,000 grow to $15,000 or more over the next 18 years. :-)

    • Lazy Man says:

      Mario,

      We have a 529 already established and I don’t want to use their money for their education. The money that was gifted wasn’t exactly earmarked for that. Plus my wife and I are working on that front. Most of my family and friends know about the blog and realize that since I set up a 529 plan for my niece and nephew, we’ve got this planning underway as well. This is money that I want them to be able to have to spend on something they want.

      Romeo,

      I’m not sure the money will be 18 years down the line. They’ll probably want to use some of it before then. I know I wanted to buy baseball cards and such before I was 18. However, it could be 10 years since they are under 2 now. Also, since I’m covering any downside risk (a safety net that Graham and Buffett never had) it could be considered investing even in a shorter term.

  5. Actually, a UTMA might be a good idea. The first $1000 in realized investment income is tax-free for the kids. The next $1000 is taxed at the kid’s income tax rate. To earn $1000 in dividends from an index fund, you need $50,000.

    Since you do not want to pick individual stocks, just go with a commission free ETF. Fidelity has them, you can buy anything from Japan to US to the World, at a low annual expense, commission free.

    Alternatively, you can buy shares commission free, using a service like Loyal3. You can put as little as $10 per stock.

    Another option is to open a Coverdell Account, which grows tax free, but has to be used by age 30 of the recipient. There are more limitations on withdrawals, and contribuntions. But, you can use it for K1 – K12 expenses, not just college. Not too bad if you ask me.

  6. […] Nearly a couple of years ago I asked the readers, what's the best place to invest around $1000?. […]

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