Part 1: Custodial Accounts
Until now it has been difficult to get started investing when you are young. For many investing apps, the minimum age is 18. But as we all know, the earlier you start learning and investing, the better off you are in the long run. Building a financial knowledge base from a young age will give a child a head-start on paving the path to financial freedom.
Think of custodial accounts like a flexible way to invest, much like you invest for yourself, but in a trust account that an adult controls until the child reaches the age of majority, which is 18 or 21 depending on your state. It is an opportunity for children to gain a deeper understanding of investing while allowing the custodian, the adult that manages the account, to closely monitor progress.
The short answer: NO. Robinhood does not offer custodial accounts and many similar apps do not either. Adults on the other hand have many options - from free investing via Robinhood, to investing platforms like Stash and Acorns as well as roboadvisors like Wealthfront and Betterment. The options are endless for adults but for children, it is a different story. With few apps offering a custodial option and with expensive fees for many apps that do, the barrier to entry is high but the benefits speak for themselves.
A typical feature of a custodial account is the flexibility to invest how you like, and withdraw when you like, offering a further peace of mind. When the child reaches the age of majority (generally 18 or 21), the account can get transferred into the young adult’s name and because a child's first $2,200 of annual unearned income is tax free, there are advantages to using a custodial account versus other options depending on your personal circumstances. There is no limit to how much a custodian can put in the account at any stage and an individual can contribute up to $15,000 ($30,000 for a married couple) to an account without incurring the gift tax.
Part 2: Why you should invest for your child’s future
If you are not yet convinced, let us take a step back
With the world we now live in, things are as unpredictable as ever. With some effects of COVID-19 yet to be felt and the ever-growing student debt showing no signs of slowing down, being financially secure is more necessary than ever. As a result, we must now save for two rainy days while anticipating the odd storm. Our children are our priority and we love them more than anything. We want them to succeed in all aspects of life and regardless of what they want to pursue in a career, having a financial peace of mind is essential.
Now, we all know that talking finances is not fun and teaching your kids about ‘portfolio diversification’ or ‘stock-splits’ is tough. Typically, the curious smile from a child’s face drops when you respond with over-complicated financial jargon to their question about stocks. That’s where custodial accounts come in. If a child has an invested interest in what they are learning and can see that their $10 has grown to $15, for example, then you have their attention. They learn through doing and physically seeing how their money can grow, will allow the opportunity to educate. When your child turns 18 and has now several years of investing experience and knowledge built up, you have done a wonderful job as a parent building the foundation for financial success.
But why not just save? After all, it is a safer option, right?
With investing, there is an inherent risk; it all depends on your time horizon and your goals. Trading platforms like Robinhood allow for alternative ways to make money through financial instruments like options. Although options present an opportunity to make money, the risk of losing it is much greater, and many young people mistakenly start trading things they do not fully understand.
On the other end of the spectrum are savings accounts. While they are very safe and secure and guarantee a rate of return, the rate is so small that it might be worth exploring alternatives. As of August 2020, the national average interest rate stands at 0.06% with some bigger banks offering rates as low as 0.01%.
To safely invest, diversifying your portfolio is essential especially in tough market climates. Instead of putting all your eggs in the one basket, investors typically look for uncorrelated opportunities. Essentially, if one of your stocks is doing poorly, then the hope is that another stock is doing well. At the end of day, it is all about minimizing risk and not necessarily maximizing return.
Part 3: What makes Loved unique
So, what do we at Loved do differently?
In addition to offering fee-free custodial accounts, we also educate our users on how to invest. We feel that offering the opportunity to build for your child’s future is great, but it is not enough. By investing together and through the financial education we provide, your child will learn to become financially responsible from a very young age.
Part 4: Getting Started
Try it out
With as little as $5, Here you can start investing for you and your family’s future today and avoid the typical brokerage and trading related fees that other platforms charge. We want to maximize your investing opportunities by offering numerous stocks and ETFws to invest in. We want to reduce the barriers to entry and allow for everyone to prosper financially.
Remember: Much like you want your child to succeed, we too want you to succeed and will do everything on our power to make that happen.