What Investment Choices Are Allowed in a Custodial Brokerage Account?
Opening a brokerage account for a child raises an obvious question: once the account exists, what can actually go in it. The answer has less to do with the child’s age and more to do with how the account is structured.
The short answer
A custodial brokerage account generally allows the same range of investments available in any standard taxable brokerage account, including stocks, bonds, mutual funds, and exchange-traded funds. The custodian, not the child, decides what to buy and sell, since they hold legal authority over the account until it transfers to the child at the age set by state law.
Who actually makes the decisions
A custodial investment account for a child is opened and controlled by an adult custodian, often a parent or grandparent, who manages it on the minor’s behalf. The custodian selects investments, decides when to buy or sell, and is generally expected to act in the child’s interest rather than their own. This is different from an ordinary account where the account holder makes every call directly.
What’s typically on the menu
- Individual stocks. Shares of publicly traded companies are commonly available, the same as in a regular brokerage account.
- Bonds. Both individual bonds and bond funds are usually permitted, subject to whatever the brokerage itself offers.
- Mutual funds and ETFs. These pooled investments, explained in more detail when comparing an ETF vs. mutual fund, are widely available in custodial accounts and often used for diversification.
- Cash and money market holdings. Uninvested funds usually sit in a cash sweep or money market position rather than earning nothing.
Where restrictions tend to show up
Some brokerages limit custodial accounts from certain higher-risk activity, such as trading on margin or using options, even if those features exist for the firm’s standard accounts. This isn’t a universal rule — it varies by brokerage and by account type — but it’s common enough that it’s worth confirming directly with the firm holding the account rather than assuming every feature carries over. State law can also shape the account at the edges, particularly around what counts as an appropriate use of the assets, since custodians are generally held to a standard of managing the funds for the minor’s benefit.
How this compares to other structures
A custodial account is not the only way to invest on a child’s behalf. A joint brokerage account works differently because both parties are co-owners with equal authority, rather than one adult acting on someone else’s behalf. Families sometimes weigh the two structures against each other, since a joint account doesn’t automatically transfer control at a set age the way a custodial account does.
The takeaway
The investment menu inside a custodial brokerage account tends to mirror what’s available in a standard account, but the authority to use that menu sits with the custodian, not the minor. Anyone setting one up is generally better served by confirming the specific brokerage’s rules on things like margin or options rather than assuming a fixed national standard, since practices vary by firm.