Teaching Granddaughter How to Invest Howard Hook, CFP®, CPA Quoted in The Times of Trenton's business column, "Biz Brain," on June 5, 2012 Question: To help our 18-year-old granddaughter learn about investing, my husband and I are considering assembling a $500 portfolio for her as a high school graduation gift. Any thoughts on this idea? How might you devise a balanced portfolio for her? Answer: What a terrific idea for a graduation gift! It may seem like the gift is being made now, but by teaching her how to invest, you'll be giving her a gift for the rest of her life, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton. He recommends you give the gift, but also give the gift of your time. Do the research together so she can learn from your experience. To get her started, Hook recommends you also give her a gift of a subscription for a personal finance magazine such as Money or Smart Money. (The Brain thinks a subscription to The Star-Ledger would also be smart so she can read this column on a regular basis.) Regardless of the amount of money being invested, Hook said sound investment principals such as asset allocation and diversification should be followed. “A great way to do this is through the use of mutual funds,” he said. “However, many funds have minimum investment amounts such that $500 may not allow her to purchase more than one or two funds, which may not be enough to achieve the proper diversification and asset allocation.” He said most fund families offer funds such as target funds that will do the asset allocation and diversification for her. Exchange-traded funds may be another way to go. Start with a discount brokerage account, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial Advisors in Berkeley Heights. “For example, TD Ameritrade offers a number of ETFs with zero trading commissions,” he said. For your granddaughter, who at age 18 can be very aggressive, Maye recommends the following: Vanguard Total Bond Market ETF: 25 percent Vanguard Total Stock Market ETF: 40 percent Vanguard FTSE All World ex U.S.: 25 percent Vanguard REIT Index ETF: 10 percent He said that kind of portfolio will give her very low-cost broad diversification across the total U.S. bond market, U.S. stock market, international stock markets and U.S. REIT market. “For example, VTI tracks covers 99.5 percent of the total market cap of U.S. stocks,” he said. “The international equity fund -- VEU -- includes 2,270 companies in 46 countries and includes both developed and emerging market countries.” Your granddaughter should rebalance her account annually to get it back in line with the original allocation.