While on the subject of Xmas presents....Roth IRA?
 

I have a 17 y.o. step son who is fascinated with investing, the stock market etc. What do you think about setting him up with a trading account in a Roth IRA with say an initial sum of $500 in a money market account so he can dabble, put his own money in?

He works so the IRA wouldn't be a problem...my thoughts are he couldn't take the money out without substantial penalties which would be a deterrent, it would grow tax free, good learning experience, not really enuff to fall prey to day trading dreams, etc...it would be a unique present and could teach a lot more than the latest computer game or mp3 player.

Whacha think?...and has anybody had any experience with sharebuilder.com for the small investor?

Good idea!! The money is protected until retirement age (55 1/2 as I recall) and if you choose his investments with him you can make sure he doesn't go off on penny stock fantasies and lose it all.

Really great idea.

+1

I believe you can actually remove any money earned in the Roth penalty free. But your initial investment must remain.

Here's something for the kids-

Assume 8% ROI.

Deposit $4k per year between the ages of 15-22. Never save another penny.

Retire with nearly a cool mil. Compounding interest proves there is a God.

Just the opposite, the earnings have to stay till age 59 1/2, the principal can be withdrawn w/o penalty at any time(just don't tell the kid about that). You can only deposit earned income, kid has to have a job, on the books

Everyone should do this for their kids!!

Sharebuilder rocks as far as I'm concerned. I've been using them for several months now for a couple of accounts and have had 0 problems.

It does help that my friend is the Marketing Manager there and I can send any bugs I find through him and they get fixed right up. (It's only been a couple of small things like confusing links though, nothing functionally wrong.)

One of the things that I like is that you can do a purchase on Tuesdays (as long as you do the setup on Monday) for $4. Sells are about $15 I think. The thing is, it makes it not so painful to put money in, but discourages trading in and out with small dollar amounts.

I'd suggest doing the $12/mo. plan. It allows you 6 free buy transactions, $2 buys after that, but more importantly adds the gain/loss tracker tool, which is really handy at pointing out how even small fees can kill your return when you're not trading large sums in and out.

I might eventually want to switch to something that has $7-8 trades to be more active, but right now I'm mostly just adding, and this is the most inexpensive way to do that.

Forgot to add, for the unsophisticated, younger investor I would put it in a low cost S&P 500 Index, Vanguard or Fidelity. The minimums might be an issue though.

Fact $500 invested in the S&P 500 index(exclusive of fees)on 1/1/75 was worth $9090 on 12/31/05. avg 10.91%/yr

Edit to add, this does not include dividends either;)