If you're hoping your kids will grow up to be savvy investors, why not give them the gift of stock for the holidays?
OK, OK. Your kids won't exactly be filled with glee if you tell them you passed on the toys altogether and bought them shares in a company instead. But adding stock in a company they love into the mix of gifts is a great way to get them eager to start investing.
Here are five companies that kids can get excited about owning.
Image source: Walt Disney World Resort
1. Walt Disney
Buying Walt Disney (DIS 1.08%) stock for your kids might just mold them into buy-and-hold investors for life. Sure, Disney reported its first annual loss for the first time in 40 years for its 2020 fiscal year, as its parks were closed or operating at reduced capacity and its cruise ships were docked for most of the year. Who cares? Your kids still love Disney just as much -- and investors do, too. Disney shares were trading at record-high prices in the first week of December.
Sure, Disney could still be in for a rough few months. But you're teaching kids to be long-term investors. The House of Mouse will surely still be around in five or 10 years and beyond -- and pent-up demand could send the stock soaring long before that.
There's also a diversification lesson. Maybe your family had to cancel a visit to a theme park or a Disney cruise, but you've caught The Mandalorian or Hamilton at home because you're among the 73 million Disney+ subscribers. The takeaway, whether you're a rookie investor or an entertainment conglomerate: As you build your portfolio, don't keep all your eggs in one basket.
Image source: Getty Images.
2. McDonald's
If your kids can't get enough of the Golden Arches, perhaps making them McDonald's (MCD -0.06%) shareholders is on the menu. While McDonald's hasn't had an easy 2020, its third-quarter same-store sales were up 4.6%, after an 8.7% drop in the second quarter.
You can teach your kids about dividend investing as you go through the drive-thru, considering that the fast-food giant has raised its payout to shareholders for 44 consecutive years. You could let your kids take that 2.4% yield in cash, but nudge them toward reinvesting those dividends instead.
Image source: Getty Images.
3. Hasbro
If your family is passing time during the pandemic by playing board games, Hasbro (HAS 3.20%) stock could win kids over. Hasbro makes classic brands you probably played with as a kid -- not just board games, but also GI Joe, Transformers, My Little Pony, and Nerf.
The toymaker has had lots of ups and downs this year, but there are plenty of reasons to roll the dice on Hasbro: Though toys still make up the majority of its revenue, the company is making much-needed gains in digital gaming and entertainment, with 100 movies and 60 TV programs underway. Plus, it's gotten a boost from an agreement with Disney to make toys based on its entertainment brands and franchises, like The Mandalorian, Frozen, and Disney Princess.
4. Mattel
Your children may also enjoy owning Hasbro rival Mattel (MAT 0.89%), which makes popular toy brands like Barbie, American Girl dolls, Hot Wheels, and Thomas & Friends. After struggling for several years, Mattel has started to make a turnaround in 2020.
Both Mattel and Hasbro were hit hard by the 2018 bankruptcy of Toys R Us, but Mattel is finally making strides in the e-commerce game, with online sales up by about 50% in the third quarter compared to last year. Barbie sales have been especially strong, rising 30% mostly due to the launch of the new Cave Club line.
Like Hasbro, Mattel is a riskier pick compared to a stalwart like Disney. But if your kids truly love the brands either Hasbro or Mattel produces, buying them stock in either company can teach them that risk is necessary for rewards.
Image source: Getty Images.
5. Apple
Have you ever mused about all the money you'd have if only you'd invested a few bucks back in Apple's (AAPL 0.42%) 1980 IPO? If so, it's never too early to teach your kids some Warren Buffett words of wisdom: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Ignore whether everyone else thinks Apple is overvalued or undervalued today. Do you think Apple shares in 2020 will look like a bargain in 2060? If so, it's as good a year as any to make your little Apple fans into Apple investors. The gift will keep giving long after that iPhone 12 they want is gone.
How to buy stocks for kids
Ignore the websites and apps designed specifically to let you gift single shares of stock. They often have fees and try to sell you on an expensive certificate or plaque to commemorate the occasion. Teach your kids to avoid unnecessary investment costs. If you really need a stocking stuffer, make a certificate yourself that proclaims your child is a shareholder of their favorite company and print it out at home.
The easiest way to teach kids about investing in individual stocks is to open a custodial account through a low-cost broker that offers commission-free trades. Your child will own the assets, but you'll control the investments until they're 18 or 21, depending on your state. Try to find one that offers fractional shares so you can encourage them to invest smaller amounts throughout the year.
A final note: Regardless of how much your kids love what a company makes, only gift them its stock if you're optimistic about its long-term outlook. Even if your kids love going to the movies, don't make them AMC Entertainment Holdings shareholders. It probably wouldn't be a first-time investing story that ends happily ever after.
