Huge gains for stocks in the past year have led to an increase in the number of people investing, and trying to get others interested in the market as well.
The number of parents asking me for suggestions on how to get children of all ages involved in stock market investing has been far higher in the past 12 months than ever before. Grandparents are asking, too.
“I would like to introduce my grandson into saving by investing in stocks or exchange-traded funds,” a reader recently wrote. “He is 19 and just started a full-time job in an apprenticeship program. What online trading platform would you recommend for a beginner starting out?”
My suggestion is Wealthsimple Trade, an app for smartphones that can also be used on a computer. I didn’t consider Wealthsimple Trade enough of an all-around investment platform to include in my most recent ranking of online brokers. But for a young investor just starting out, this option has a big advantage in that there are no commissions or fees for standard trades.
That’s huge for young investors, who typically start out with accounts valued in the hundreds or low thousands of dollars. Most online brokerage firms have quarterly account maintenance fees of $25 or more that can apply to accounts with small balances or where trades aren’t made from time to time. Commissions to buy stocks and ETFs can be as high as $5 to $10 a crack, though some firms let you buy ETFs for free (the usual commission applies when you sell). Other brokers have a limited number of ETFs you can buy and sell at no cost.
There are ways for young investors to deal with a traditional online brokerage and avoid fees, but they require a certain level of vigilance in both choosing a broker and then managing month-to-month investing. The appeal of Wealthsimple Trade is that it lets investors go about their business with no fees to erode their returns. Wealthsimple Trade makes money in two ways – from interest earned on the cash balances sitting in client accounts and from converting clients’ money from Canadian dollars into U.S. dollars, and vice versa.
Wealthsimple Trade arguably makes trading too easy and tempting, especially for rookies. The more you trade, the harder it is to come away with enough of a gain to justify the risk of investing in stocks.
So here’s one more thought for the grandparent who wants to get that 19-year-old into investing. Suggest picking a few well-diversified, low-cost ETFs, or a portfolio-in-a-box product called an asset allocation (or balanced) ETF. Add money to these investments often, especially when markets are down, and don’t sweat the daily ups and downs. Expect to see strong results over 10-plus years.
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