An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

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Finridge
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An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Finridge » Mon Aug 27, 2018 11:38 pm

The new Fidelity Zer Funds have gotten a lot of attention. Most of this has been regarding their zero expense ratios, their tax efficiency, and performance. But what caught my eye is their zero minimum initial investment amount, and without there being any penalties for a low minimum balance.

I'm not at all sure we'll invest any serious funds in the Zero Funds--in our case their relative (relative to the Vanguard funds) tax inefficiency may outweigh the marginally lower expense ratios.

However, it occurred to me that these new Zero Funds should, without question, make a perfect "piggy bank" for kids.

I've been meaning on geting the kids started in investing. I thought of getting them each one stock in Disney, but don't like the idea of starting their investing career by having them engage in stock picking and buying individual stocks. Then I thought I'd open UTMA accounts at Vanguard for them, have them buy ETF. However, Vanguard charges a fee of $20 if Vanguard assets in the account are less than $10,000. So if you started an account with only $100, the annual fee would swallow 20%.

But Fidelity has no minimum initial investment amount on the Zero Funds, AND does not charge any annual fee for low balances. So you can literally take any amount, even a ridiculously low amount (like emptying the contents of your 6-year old's piggy bank) and invest it into an account with Fidelity Zero Funds.

I called Fidelity this afternoon and confirmed this. Then I set up UTMA accounts--this took only a few minutes. So now I have empty UTMA accounts waiting to be funded. Earlier this evening, I spent 30 minutes introducing the kids to the Fidelity index funds and walking them through the differences between stock picking compared to index fund investing. We'd already talked about stocking picking vs index funds a few months back, so some of this was just refreshing what we'd talked about previously.

I had them bring down their piggy banks and empty them out. The Bank of Dad is going to facilitate the transfer of these funds into their respective UTMA accounts.

Now, I'll have another reason to look forward to market downturns. In addition to seeing them as a chance to buy additional stock "on sale" and a chance to do stock harvesting, the next downturn will be a "teachable moment."

I wanted to share this in the event anyone found this useful. You can have Junior empty that $10 in quarters, nickels and pennies and get him going in Boglehead low-cost index fund investing!

Also, if you have any additional ideas for teaching kids about money and investing, please share.

P.S. I did tell the kids that I thought Vanguard was a better company and that this was just a "loss leader" for Fidelity. Like when the grocery store sells apples at a loss just to get people to come into the store. But I said that for our purposes using their "loss leader" should be perfect, so long as we didn't allow ourselves to be "up sold". And that if they had any real money, Vanguard would be the place to go...

gostars
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by gostars » Tue Aug 28, 2018 12:42 am

Did Fidelity remove the $2500 minimum on UTMA accounts? Their website still lists it.

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by onourway » Tue Aug 28, 2018 4:55 am

FWIW, I've had UTMA accounts at Vanguard for a while now. While the buying of full shares of the ETF's is a bit of a pain at this scale - you can easily avoid the $20 fee simply by signing up for e-delivery of statements which they encourage you to do. Then there is no charge on the account(s).

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by JohnDindex » Tue Aug 28, 2018 6:05 am

gostars wrote:
Tue Aug 28, 2018 12:42 am
Did Fidelity remove the $2500 minimum on UTMA accounts? Their website still lists it.
That is not actually an account minimum. That language was because their funds required $2500 minimum investment until recently.

I opened mine with my kids for a few hundred bucks, initially used ishares. Recently sold out and switched to S&P 500 since it has no minimum and they lowered the fees. I chose this fund for two reasons, one the wife and I do not use this fund so it creates no conflict for TLH (not actually sure if utma can create wash sale but I assume) two, I like the idea of them being able to relate to their investments, and the S&P 500 is the most cited index in the media.

I'll add a third, I am concerned about tracking error with the ZERO funds and I think it is well worth the .015 or whatever they charge now to pay standard and poors for their constituents.

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by nisiprius » Tue Aug 28, 2018 6:11 am

Harumph. If your kids are genuinely interested in investing, OK.

When my granddaughter was in junior high school, I gave her three things, all on physical pieces of paper: a series I savings bond, a series EE savings bond, and a stock certificate for one share of stock in Target. (From a company, possibly no longer in business, that specialized in doing that sort of thing, elaborate presentation frames and such, I believe the cheapest option was like $98 for a $43 share of stock).

I had visions of her tracking their value, learning about inflation, etc.

Nuh-uh. She not only had no idea what they were, she completely forgot about them, still has no interest in them. The only thing I achieved was to create a royal nuisance for her parents due to receiving tiny dividend checks etc.

I remember when I was a kid my dad opened up a bank savings account for me. I believe he put about $1,000 in it, and the interest rate was about 3%. The only impression it made on me was how long a year was (in those days many banks only credited the interest annually; it wasn't until the 1960s that there started to be a kind of competition on compounding frequency). Waiting a year for $30 was not exciting to me. It's not like deciding on one marshmallow now or two marshmallows in fifteen minutes. (It is more like deciding between thirty marshmallows now or thirty-one marshmallows a year from now).
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by dcabler » Tue Aug 28, 2018 6:24 am

I have had plans all year to open up a UTMA for my kiddo, but haven't gotten around to it. When I saw the new zero e/r no minimum funds, it popped into my head that this would be a great way to go. Glad somebody already tried it!

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Bruce » Tue Aug 28, 2018 6:34 am

Interesting idea! Thanks for sharing!

How do you turn any of it back into cash when the kid wants to actually use or spend some small amount of their piggy bank money?

Does Fidelity mail you a check for small amounts?

Or perhaps can you start them up on their own Fidelity 2% cash back Visa card, with dad as the responsible party and the kid listed as the authorized user? And then keep the card locked away for use of the credit card only for small amount special occasion purchases, and then transfer money from the zero fee UTMA account to pay the card bill on the Fidelity website?

Also, I believe another way you can still avoid the Vanguard small account fee is with "house holding" of accounts, where all accounts of a same address for all family members within the household can share the status of the largest account holder, but even using that approach does not get you around the $1,000.00 minimum required to open a target date fund at Vanguard.

Your solution is superior in using to your advantage Fidelity allowing a "minimalist" fund minimum!

I applaud your creative approach to using the "loss leader" funds at Fidelity to your advantage! But just have yet to meet the kid who is willing to see all of their piggy bank funds disappear into the internet; and never have access to any portion of them again until they turn 18, so trying to understand how to also best make some portion of this Fidelity fund system available for some small amount of the kids future special occasion spending as well.
Bruce | | Winner of the 2017 Bogleheads Contest | | "Simplicity is the master key to financial success."

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Dottie57 » Tue Aug 28, 2018 6:46 am

As a kid I knew how much $ was in my piggy bank. I loved seeing money earn interest in the bank. I would have been horrified to see the account LOSE money.

Concentrate on saving first. Investing s the next step.

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by sc9182 » Tue Aug 28, 2018 7:01 am

First - good idear OP! One of the better way to utilize zero/low minimum account balance investing feature. Hope other houses offer similar products! Love the competition!
Dottie57 wrote:
Tue Aug 28, 2018 6:46 am
As a kid I knew how much $ was in my piggy bank. I loved seeing money earn interest in the bank. I would have been horrified to see the account LOSE money.

Concentrate on saving first. Investing s the next step.
Have you ever lost your piggy bank or someone pilfered money out of it? Hope your kids, young'uns notice you mostly pay by card, have you ever attempted dropping a fee atm or gift-cards into their kiddie banks?

Kids are a bit smarter than good 'ole us on - how they perceive money. Many these days don't necessarily think cash is only form of the money, and gold/house/cars are the only types of assets!

Some of our kiddos have knowlege and courage to ask did we invest in this growing company or the other! And I got the index fund/etf explanation come to rescue.

Now, if infact markets take a breather and their virtual kiddie banks in Fidelity start showing lesser amounts, I got a suggestion., teach'em the logic of "buy low" and put some extra bucks then. You and they both be thankful!

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by nisiprius » Tue Aug 28, 2018 7:46 am

I just remembered something else. I was about eight. My grandfather told me that he had a "magic box." It was a little porcelain box with some kind of Chinese imagery on it, something like this:

Image

He told me that if you put money in it and waited, it would grow. He put a small amount of change in it and closed the lid and suggested that I check it from time to time to see if the money was growing.

I didn't find this very interesting, but from time to time he would ask me if I had checked the box, I'd say "no," he'd drag me over to it, I'd open the lid and see that there was more money in it.

At the end of the day he asked me what I thought. At that time, I had a collection of bottlecaps at home, just bottlecaps I picked off the ground and kept in what had been a box of animal crackers... the kind with a string that you could use as a carrying handle. I had two questions.

1) Would the box work with bottlecaps instead of money? He said no.

2) Could I have the box, because I thought it was pretty? He said no. (I suspect it was really my grandmother's. And it was fragile).

In short, it wasn't a "teachable moment" and I didn't learn anything about compound interest. I was mildly disappointed that I couldn't have the box, and disappointed that it was boring magic that only worked on money.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by CyclingDuo » Tue Aug 28, 2018 8:02 am

nisiprius wrote:
Tue Aug 28, 2018 7:46 am
In short, it wasn't a "teachable moment" and I didn't learn anything about compound interest. I was mildly disappointed that I couldn't have the box, and disappointed that it was boring magic that only worked on money.
Moral of the lesson: The overwhelming majority of kids (and adults) are no Warren Buffett (as we all know his history of buying his first stock at age 11).

I enjoyed the story of the box and the growing money you shared. We all probably have similar stories of attempts to teach our children (or grandchildren) with various techniques and strategies about money, interest, compounding, etc... before they were interested.

My father purchased both of our children "goats" one year for Christmas in some third world country. The idea being the "goats" were to provide nutrition for the families in these countries and teach my children the value of charity and helping solve world hunger. Nice intent - I guess - on my father's part, but that one went over like a lead balloon with our kids on Christmas morning and they opened the envelopes under the tree with a postcard that said their Christmas present from Grandpa was the purchase of a goat for some family in a third world country on their behalf. It is still brought up on an annual basis in various discussions within our family. :mrgreen:

That being said, both of our children have been on mission trips multiple times (their choice to do this) to give back in various ways. My son actually spent Spring Break in Costa Rica helping out and working on a farm with a group of graduate students who chose to do that for their Spring Break. So old grandpa must have sparked something...
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Finridge
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Finridge » Tue Aug 28, 2018 11:25 am

JohnDindex wrote:
Tue Aug 28, 2018 6:05 am
gostars wrote:
Tue Aug 28, 2018 12:42 am
Did Fidelity remove the $2500 minimum on UTMA accounts? Their website still lists it.
That is not actually an account minimum. That language was because their funds required $2500 minimum investment until recently.

I opened mine with my kids for a few hundred bucks, initially used ishares. Recently sold out and switched to S&P 500 since it has no minimum and they lowered the fees. I chose this fund for two reasons, one the wife and I do not use this fund so it creates no conflict for TLH (not actually sure if utma can create wash sale but I assume) two, I like the idea of them being able to relate to their investments, and the S&P 500 is the most cited index in the media.

I'll add a third, I am concerned about tracking error with the ZERO funds and I think it is well worth the .015 or whatever they charge now to pay standard and poors for their constituents.
I didn't realize that the Fidelity 500 Index Fund - Investor Class also has no initial minimum investment amount--I see that this is the case. We might use this instead. One of my kids was a bit disappointed that the Zero Fund wasn't an S&P500 fund (because that is what I'd used in teaching them about index funds).

https://fundresearch.fidelity.com/mutua ... /315911206

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Finridge
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Finridge » Tue Aug 28, 2018 11:42 am

To respond to the posts above that address potential lack of interest, and possible shortcomings of the account as a "teaching tool:"

These concerns are all on the mark, and I think anyone who plans to do something like this needs to consider them within the context of the interests and other unique circumstances of their own children.

They have already been saving for a few years, and have been collecting gifts of birthday money from some family and friends. So while we're not talking real money here, it's more than $10 of pennies and dimes (I was just saying that even loose change is now enough to start a UTMA account that is in a Boglehead fund.

We have already done a compound interest game, growing one dollar into a larger sum. But I told them that in real life, the amount you get in these compounding games in one day, is equivalent, on average, to what you can expect to get in the market in a year. Also, I said that in real life investing, to have a chance of making any significant gains, you have to take risks, and you can expect your funds to go up and down like a rollercoaster.

They are ready for this now. One has been asking me to start an account for a while and is showing a lot of interest. One does not show much interest. My expectation is that in the longrun, it's the one who lacks interest that is going to benefit the most from this. Because, to succeed with the Boglehead approach, you don't have to have a lot of interest investing--in fact lack of interest is often advantageous. You don't need to think a lot or make lots of decisions. You just need to get into the habit of doing it... So I think this will be a good fit.

We're not having them put in all of their money. They will still have some "cash" funds left that they can use to buy stuff.

We will track the funds periodically, and I will encourage them to watch the markets somewhat, while simultaneously teaching them that a lot of the market "buzz" and continual market watching can be counterproductive.

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Finridge
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Finridge » Tue Aug 28, 2018 11:48 am

I have to admit that I did not realize that the $20 Vanguard fee for accounts under $10,000 was waived if you enrolled in electronic delivery. However, I think having to buy whole ETF shares would be too inconvenient given the dollar amounts that are investing here.

Also, I don't want it to appear to them that their money has just disappeared into.... nothing! We're going to be logging on to the accounts together and checking on everything at least once a month (and probably more frequently in the beginning).

But with Vanguard, I believe that there is no way I can look at the accounts with them without seeing ALL of the accounts under our names. While I do want to give them exposure to how online investing works, and let them invest their own funds, at this point I have NO INTEREST in "opening the kimono" to them on ALL of our finances.

This isn't an issue using Fidelity because we only have a small account there that we opened to get the 2%-back credit card.

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Finridge » Tue Aug 28, 2018 12:09 pm

nisiprius wrote:
Tue Aug 28, 2018 7:46 am
I just remembered something else. I was about eight. My grandfather told me that he had a "magic box." It was a little porcelain box with some kind of Chinese imagery on it, something like this:

[... image did not post]

He told me that if you put money in it and waited, it would grow. He put a small amount of change in it and closed the lid and suggested that I check it from time to time to see if the money was growing.

I didn't find this very interesting, but from time to time he would ask me if I had checked the box, I'd say "no," he'd drag me over to it, I'd open the lid and see that there was more money in it.

At the end of the day he asked me what I thought. At that time, I had a collection of bottlecaps at home, just bottlecaps I picked off the ground and kept in what had been a box of animal crackers... the kind with a string that you could use as a carrying handle. I had two questions.

1) Would the box work with bottlecaps instead of money? He said no.

2) Could I have the box, because I thought it was pretty? He said no. (I suspect it was really my grandmother's. And it was fragile).

In short, it wasn't a "teachable moment" and I didn't learn anything about compound interest. I was mildly disappointed that I couldn't have the box, and disappointed that it was boring magic that only worked on money.
Sorry this did not work out for you as well as it could have. I didn't explain this as a "magic box" and instead provided quite a bit more detail about what we were doing (but, notably, did NOT In the beginning explain the exponential growth that compounding provides in contrast to simple interest / simple growth). There was detail that was probably "too much" and which they did not understand, but because we were talking about this every day for a bit, and it was give and take, I could see that there was quite a bit that they learned. In fact it was a real eye-opener for them.

They each invested $1 at 10% interest per day. I also created several imaginary (hypothetical) "friends" that were investing at different rates. For example one ("John") had a deal where he was getting $1 per day. So on day one they each got 10 cents, bringing their balances up to $1.10. John got $1, doubling his money to $2.

We used physical cash jars. I had them each invest a dollar--they had to give me a dollar from their piggy banks that went into each jar as principal. Then, each evening we'd get together and they'd each need to calculate what interest was due to them. I showed them how to do the math, and each had to do their own math long-hand (no calculator). I prepared a form of ledger for them, and they had to complete this every day and calculate the current account balance. "Had to" - I'm making it sound like a chore. But because they were getting money, the did this willingly and gladly. Any resistance (which was rare, but surfaced sometimes when it was late and they were cranky), and I'd just say, "No, that's fine. You don't have to. We can skip it tonight"--The response would be, "Oh, no! We'll do it!!!"

In connection with this, I'd set up Google Drive spreadsheet, that they had access to on their chromebooks (but view access, not edit access). This now only had the information tracking their own ledgers, but also the ledgers of the hypothetical friends. And the investment results were automatically being graphed.

In the beginning they really envied "John" who was getting a dollar a day. But you can guess what happened. It slowly dawned on them that the line tracking their balances was curving up and John's was a straight line. They didn't need to be Warren Buffet's to see that their line was going to eventually intersect and rise above that of John's.

Almost every night, when we worked on this, I'd spend a few minutes talking about investing and how this experiment demonstrated some aspects, but not others.

Later, we spend more time with the spreadsheet, changing different inputs and seeing what the effects were. So one important lesson they learned was just how incredibly useful a simple spreadsheet is when working with numbers.

I think it succeeded beyond my expectations. If you were to ask the kids, I believe they'd tell you they learned a lot also.

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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Darth Xanadu » Tue Aug 28, 2018 12:40 pm

nisiprius wrote:
Tue Aug 28, 2018 7:46 am
I was mildly disappointed that I couldn't have the box, and disappointed that it was boring magic that only worked on money.
Reminds me of this little gem:

https://www.youtube.com/watch?v=dgct3Jn8pFA



Kudos to the OP for what sounds like a job well done!
"A courageous teacher, failure is."

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randomizer
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by randomizer » Tue Aug 28, 2018 12:59 pm

My parents tried to teach me but it didn't work. I needed about 30 years of making my own dumb mistakes to see the light. (I still make dumb mistakes, but at least I'm trying to be a Boglehead now.)
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by omibogle » Tue Aug 28, 2018 1:02 pm

I'm thinking of doing this for my 2 kids. I'd like to open 2 separate UTMA accounts at Fidelity. Both my wife and I have taxable and retirement accts at Fidelity. Does it make any difference who should be the custodian on the accounts? I was just going to make my wife the custodian for both accounts.

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Finridge
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Finridge » Tue Aug 28, 2018 2:51 pm

Darth Xanadu wrote:
Tue Aug 28, 2018 12:40 pm
nisiprius wrote:
Tue Aug 28, 2018 7:46 am
I was mildly disappointed that I couldn't have the box, and disappointed that it was boring magic that only worked on money.
Reminds me of this little gem:

https://www.youtube.com/watch?v=dgct3Jn8pFA



Kudos to the OP for what sounds like a job well done!
I first came across the idea in Andrew Tobias' book, "The Only Investment Guide You'll Ever Need." I thought it was a great idea and planned to do it when the kids were older. (At the time, they were too young.) Then later, I came across this blog entry in Bankers Anonymous. The blogger, Michael Taylor, implemented Tobias' idea:

http://www.bankers-anonymous.com/blog/d ... allowance/ and
http://www.bankers-anonymous.com/blog/t ... ts-better/

This is where I got the idea of having them calculate out the interest and keep a ledger tracking everything.

The kids were older, but still too young, so I calendared it on my phone for a point the future when I thought it would go over better. Then when the reminder popped up, I proceeded.

Having hypothetical friends to model alternative scenarios, and graphing it on a spreadsheet--those were my only original contributions.

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Finridge
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Finridge » Tue Aug 28, 2018 2:55 pm

omibogle wrote:
Tue Aug 28, 2018 1:02 pm
I'm thinking of doing this for my 2 kids. I'd like to open 2 separate UTMA accounts at Fidelity. Both my wife and I have taxable and retirement accts at Fidelity. Does it make any difference who should be the custodian on the accounts? I was just going to make my wife the custodian for both accounts.
I would recommend that whoever will be most active in managing the accounts be the custodian. Maybe it's different at Fidelity, but I understand that at a lot of firms, they only allow the custodian access to the accounts--you can't get access to the account as an "associated" person. So if you make your wife the custodian, you may have to "cheat" and use her login credentials to access the accounts, and this is technically against their terms of service. Also, if you need to call in to customer service to do anything with the account, again the custodian would need to be handling it.

Also, only one person can be custodian. I already asked Fidelity about this.

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Finridge
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Re: An idea for Bogleheads with kids: The Fidelity Zero-Fund Piggy Bank!

Post by Finridge » Tue Aug 28, 2018 6:12 pm

I have pulled the trigger on this and funded the Fidelity UTMA's.

Sorry, Vanguard. I always envisioned setting up my kids with Vanguard as their first (and maybe only) investment firm. But having to either meet the minimum account balance to open a mutual account, or alternatively, having to buy whole ETF shares only--sorry, that just made it too difficult. Fidelity made it really easy and convenient.

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