Stocks For Your Kids: How to Choose

Thanks to a generous donation from my mother and a nice bonus from ShareBuilder.com, today I had $1500 to buy stocks for my soon-to-be 4 year old. A nice problem to have, but what do you buy for a 4 year old that will get him excited about the stock market?

Lots of sites (Kramer, The Motley Fool, CEO World Magazine) talk about stocks for kids that you could buy and why they might be the right ones, but it basically comes down to buying stocks that on some level your child can relate to and get excited about.

Here’s an overview of the stocks I chose:

SymbolCost/Shr.SharesTotal CostAllocation
BRK.B$74.683$233.9916%
DIS$33.313$109.887%
RDK$34.003$111.957%
HAS$41.003$132.959%
DUK$16.506$108.957%
AAPL$247.001$256.9517%
MCD$69.352$148.6510%
XOM$62.252$134.459%
AMZN$125.502$260.9517%
Total$703.5925 $1,498.72 100%

My thinking behind the selections vary. I bought Berkshire Hathaway because his grandma wanted it, and she paid for almost all of it so that’s good enough for me. Also, I’m a holder of Berkshire Hathaway myself so it’s a fine pick for my son’s portfolio. I bought Disney because he loves Shrek, Lightning McQueen, and The Fox and the Hound so owning a piece of that will be cool to him when he understands it. Ruddick Corporation is the owner of Harris Teeter where we buy most of our food, and he gets a free cookie and balloon. Hasbro is another easy pick for my son. He loves their toys and games, and the adult in me likes owning the maker of my favorite game growing up, Monopoly (even though I prefer Settlers of Catan now).

Duke is our local electricity provider with a nice dividend. When he has as many as electronics as I do, at least he’ll know he owns a piece of the grid. Apple is a nostalgia pick because I sure wish my parents had bought me some when they bought that Apple IIc back in 1990 (when you could have gotten it for $8/share). Maybe one day in 20 years his 1 share will be worth 30x what it is now…

I bought McDonald’s because at some point someday, he’ll eat there and get hooked on the fries like me, and they seem to be a company that can adapt well to changing social and market conditions. Exxon gives him solid exposure to oil and gas sector, and it’s where we buy our gas. And, Amazon is where we buy almost everything else. That’s an exaggeration of course.

So, my son now has a diverse portfolio of stocks, and about 2/3 of the invested capital will be generating dividends for future purchases. We’ll keep an eye on this account, and check on it from time to time. Then, one day in about ten years I’ll show him the account and let him see where it came from. Fingers crossed it’s worth more than the $1500 today, and it’ll promote a little more father-son bonding as he starts to make his way in the world.

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  • Goldfish

    When you create a portfolio for your son like this, will you be responsible for the taxes when he sells $50K worth of stock in 20 years? How can one prepare to minimize the tax liability?

    Also, do you place any conditions on when the money will be available for him? or for what? For example, do you make it so that he can only access it when he turns 18, or 21, or 25? And does he need a reason to cash the money? such as a business idea, of an MBA at UNC?

  • Goldfish,

    Good questions. This is a custodial account so he ostensibly owns it now and as long as he is our dependent, we’re responsible for the taxes on it. Any conditions we place on his usage would be unenforceable by law. However, as the custodian, I can take the money out anytime I please if I feel he will be unable to handle the responsibility (and I would too).

    Slug