Blue-Chip Kids

  • If you have young children, you may have wondered how to get them started in the stock market. And if you're anything like me, you've been unable to find the right solution--one that is easy, quick, inexpensive and wholly separate from your own affairs. The suffocating minimums and commissions even at online brokerage firms make no sense for accounts funded by backyard car washes and lemonade sales.

    At long last there is an answer. Normally, I'm not one for hyping new websites, because most aren't anywhere near as good as billed. Besides, they can afford to buy an ad. But after spending part of a day exploring https://netstock.com , I believe the site is worth some attention. And not just because it makes kiddie sense. The site offers a new way to dollar-cost-average into stocks. Eventually, it could displace the 700 traditional dividend-reinvestment plans and 600 direct-stock-purchase programs now available through individual companies.

    Here's how the site works: you open an account online, authorizing Netstock to take a set amount of money each week or each month from your bank account or paycheck, and designate the stocks you want to buy. There are no minimums. The only charge: $2 per transaction. Let's say you designate monthly investments of $50 in Procter & Gamble, $50 in Citigroup, and $100 in IBM. Your cost is $6 a month over the investment amount. Netstock does the buying, keeps track of fractional shares, reinvests dividends and puts it all online for you to monitor.

    I'm a big fan of investing set amounts at set intervals, known as dollar-cost averaging . It guarantees that you buy more shares when prices are low and fewer when prices are high. It's especially effective in volatile markets such as we've seen this year. And if you don't think small amounts add up to big money, think again: $100 a month invested in IBM since 1990 would be worth nearly $62,000 today--and that's after subtracting Netstock's $2 fee per trade.

    If you're in a 401(k) plan, you already dollar-cost average. You may do it in some taxable mutual-fund accounts too. But Netstock lets you do it with as few or as many individual stocks as you want, and you choose them. The cost is a fraction of typical brokerage commissions. Another website, https://buyandhold.com , lets you do the same thing at the higher cost of $2.99 per transaction. But that site has certain advantages, such as lower fees for onetime only investments and quicker execution. It's worth a look too.

    What makes these sites so exciting is that they enable small savers to systematically sock away money in companies that don't offer dividend reinvestment or direct-stock purchase plans. But even those that make such plans available can and in some cases should be bought this way as well. The sites condense your records and make it far easier to determine your cost basis when it comes time to sell. There are drawbacks, including an absence of foreign stocks or adrs. At Netstock, selling triggers a $19.95 commission.

    But these sites are really about cost-effective, steady accumulation of blue chips, and that brings me back to the kids. They get their own account to watch and learn how money grows. And Netstock cuts them a special break. The transaction fee on custodial accounts is a mere $1, which at the car wash in my driveway, anyway, is about two minutes' work.

    E-mail Dan at kadlec@time.com . See him Tuesdays on CNNfn at 12:45 p.m. E.T.