The Best First Stocks for Kids

Make a huge difference in young people's lives by getting them investing.

Nov 22, 2014 at 8:30AM

Source: Flickr user Steven Depolo.

If you're like many stock market investors, you wish you had begun investing earlier -- much earlier. If you began in your 30s, for example, as I did, you might wonder how much your money might have grown over an additional decade. But what's done is done. Even if you began in your 50s, at least you did begin, and you probably have several decades of wealth-growing ahead of you.

One thing you can do now is help get kids started in investing -- your own kids, for example, or some other urchins you love. The Motley Fool's co-founders, brothers David and Tom Gardner, have explained how they grew up learning about stocks. It has certainly served them well.

In our discussion board community, the topic of getting kids into investing has come up a lot. I'll share some solid advice from board denizens below, followed by a few stocks you might consider for your young ones.

Advice from our boards
Years ago, on our Investing Beginners board, a user named bighairymike offered timeless advice:

Since this is an educational exercise, I would aim for several stocks, even if only one share, in order to see some companies up, others down, observe balance and diversification. Another idea is to pick companies they have heard of ... instead of something esoteric. Also, one that pays a dividend would be useful to their education.

(For a long list of dividend payers we've recommended, grab a free trial of our Income Investor newsletter.)

In that same conversation, a user named bogwan suggested involving the kids themselves in selecting a stock: "Ask them which industries they think will do the best. Then choose a few of those."

Fuskie elaborated on that with some important questions:

How old are the kids? What are they interested in? The first rule of investing is to invest in what you know, so I would ask each of them to come up with a list of public companies that they think have potential from their perspective. Then begin researching them. It will be a lot of work (mostly yours), but they will learn from the process.

A great strategy for finding stocks is to have your kids list products and services they know, like, and, ideally, use. Some examples might be McDonald's, Chipotle Mexican Grill, Coca-ColaPepsiCo, Apple, Disney, IMAX, Netflix, Under Armour, Nike, Costco Wholesale, and Boeing. And there are many more terrific possibilities.

More recently on the boards, someone asked whether there were any good online investment platforms where his kid (and others) might practice and learn about investing. A user named pauleckler pointed to the Fool's own CAPS Community, where thousands of folks rate and discuss stocks, and the performance of their picks is tracked:

I think CAPs is a great program. Get him a username and let him have at it. Once you pick 7 stocks, [The Motley Fool] rates your performance vs. the S&P every day. A positive score indicates you are beating the index. 

Some Fools even discussed stocks for kids on Twitter.

Three contenders
Once you're ready to have your kids investing in some stocks (or warming up to do so by pretending to buy particular companies), you'll need to actually select some. You can choose the ones that you and/or they think are most promising from their list. You may also want to consider the contenders below.

Kids Starbucks

Starbucks fans often start young. Photo: Flickr user Joe Goldberg.

Starbucks (NASDAQ:SBUX) is familiar to most older kids, as the company is more than just a coffee shop now, offering many snacks and sweet, kid-friendly drinks. Its stock offers a dividend yield recently near 1.6% and it has been hiking its payout aggressively in recent years. Starbucks' stock can be volatile, but it has done well over the long run, averaging annual gains of 21% over the past 20 years. The company generates more than $1 billion in free cash flow annually, and its revenue (topping $16 billion annually) has more than doubled over the past eight years. The company is expanding its offerings -- recently through its acquisition of Teavana, which is helping to boost sales -- and is always innovating, most recently having announced plans to offer delivery services. Its international expansion plans are promising, too.

Hasbro (NASDAQ:HAS) offers a fatter dividend yield, recently at 3.2%, and its stock has averaged 9% annual growth over the past 20 years. You might associate it with just Playskool or Play-Doh, but the gobs of familiar and valuable brands under its roof include Monopoly, Scrabble, Twister, Cranium, Battleship, and Magic: The Gathering, and the company has licensed the right to offer products based on Star Wars, Marvel, and Disney properties. (Think of toys tied to the hit movies Frozen and Guardians of the Galaxy, for example.) It's great for kids, who are usually fans of some of the company's offerings. Hasbro's last quarter was solid, with revenue rising 7% over last year and operating profit up 9%.


Many kids love cars and car companies. Photo: Flickr user trazomfreak.


How kids can invest
Remember that your kids are likely minors. That means they aren't allowed to enter into binding contracts, so they'll need assistance from a parent, guardian, or other adult to open accounts at financial institutions. An account opened by a minor and an adult is often called a "custodial" account.

There are alternatives to getting kids accounts of their own. They might informally buy into various stocks or mutual funds through you. For example, if you're buying 50 shares of stock in PepsiCo for yourself, you might include two shares for your child, informally designating them as theirs and keeping good records of who owns what. Learn all about brokerages and find one that's right for you at our Broker Center.

If your kids are teens or clever preteens, you might point them to our book, The Motley Fool Investment Guide for Teens.

However you go about it, getting young people more interested in money and investing can greatly improve their future financial security. Better still, you might well be introducing them to a lifelong interest and source of satisfaction.

Dividends can be powerful for kids -- here are some big dividends-payers
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. Thus our top analysts have put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns shares of Apple, Chipotle Mexican Grill, Coca-Cola, Costco Wholesale, Ford, McDonald's, Netflix, PepsiCo, and Starbucks. The Motley Fool recommends Apple, Chipotle Mexican Grill, Coca-Cola, Costco Wholesale, Ford, Hasbro, Imax, McDonald's, Netflix, Nike, PepsiCo, Starbucks, Under Armour, and Walt Disney. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, Costco Wholesale, Ford, Hasbro, Imax, Netflix, Nike, PepsiCo, Starbucks, Under Armour, and Walt Disney and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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