When it comes to saving money for my kids to go to college, I use a 529 savings plan like many parents do. I also have some money set aside in a Uniform Gift to Minors Account (UGMA) for each of my children. Unlike with a 529, the UGMA money doesn't have to be used for college and has allowed me to create a nice little portfolio of individual stocks for them that should not only grow and compound nicely over time, but also help me teach them about investing as they get older.
With that in mind, here are two of the stocks I've bought for my kids (so far), and why I chose each one.
Image source: Getty Images.
First, the predictably kid-friendly stock
Arguably the best stock you can buy for your kids if you want them to actually get interested in investing is Walt Disney (DIS 0.18%). In 2015, when my wife was pregnant with our first child, I called Walt Disney the best stock to buy for a college fund. Now that I have two kids of my own, I've put my money where my mouth is. Disney is the largest individual stock holding in both of the UGMA accounts I've established.
Disney isn't going to double or triple quickly, and that's ok. It's a rock-solid collection of some of the most valuable entertainment assets in the world that should produce steady returns for decades to come.
The theme parks, cruise lines, and movie studio certainly took a hit as a result of the COVID-19 pandemic, which is why the stock is still significantly cheaper than where it started in 2020. But long-tailed demand for things like Walt Disney World and movie franchises such as Star Wars and Disney's animated hits is likely to come back as strong as ever. Plus, the pandemic gave the Disney+ streaming service a kick-start, with the company meeting its 2024 subscriber goal already.
What's more, Disney is a great stock to teach your kids about investing. Mine are still quite young, so we're a few years away from a meaningful investing lesson, but explaining how the theme parks and movies they love translate into profits and dividends can really help connect the dots.
A long-term compounding machine
Since I have Disney in my kids' portfolios as an exciting and teachable stock, I also decided to add a "boring" compounding machine in the form of STORE Capital (STOR).
Note that I use the word boring in the best possible way here. STORE Capital is a real estate investment trust (REIT) that invests in single-tenant properties occupied mostly by retail and service businesses. As an example, restaurants and auto repair businesses are major tenant types. STORE's tenants sign long-term leases with annual rent increases built in, and the tenants pay most of the variable expenses of the property (like taxes). All STORE has to do is put a high-quality tenant in place and enjoy decades of predictable income.
STORE Capital has a huge addressable market opportunity and ambitious growth plans, which could translate to huge long-term returns for patient investors. Since its 2015 IPO, STORE Capital has delivered an 86% total return for investors, and that's after taking a hit in the pandemic.
It's also worth noting that STORE Capital is the only real estate investment trust in Berkshire Hathaway's stock portfolio. And its one that I could see my kids holding for decades of compound growth.
Before you buy these stocks...
Investing in stocks for your kids can be an excellent way to teach them about investing, as well as give them a head start when it comes to building a nest egg of their own.
To be clear, I'm buying these stocks with the hopes that my kids own them for the next few decades, at a minimum. Over the short run, I have no idea what these stocks will do. If the COVID-19 pandemic or the U.S. recession will have a longer-lasting effect than expected, they could certainly come under pressure in the near term. While I think these are two excellent stocks to buy to invest in your kids' futures, they should be approached from a long-term perspective.
