What to Consider When Giving Stock to a Child
Trying to think of a good holiday gift for a child or grandchild who has enough clothes and toys to last through adolescence? Consider buying them a share or two of stock.
There are lots of reasons why corporate stock might be a better idea than buying another sweater or Barbie. You would be giving them something of value that’s not likely to be quickly cast aside. You may also be helping to teach your children, grandchildren, nieces or nephews about money and investing. And that’s valuable too.
“It is something that will last forever,” said Vita Nelson, editor and publisher of the Moneypaper in Mamaroneck, N.Y. “You’re providing for their future, and they have fun in the interim. The learning experience is incredible.”
How do you pick a stock? It can be similar to buying any other gift--at least to start. Consider the child’s interests, then look for something suitable.
Your clothes-enthusiast might enjoy owning a piece of Limited or Gap, for example.
A computer-whiz might prefer a share in IBM, Intel, AST Research or Microsoft. Movie buffs could get a stake in Disney, Paramount Communications, Time Warner or CBS.
You’ve got a junk-food addict? What about shares in Coca-Cola, Pepsico, General Mills, Hersey, Hormel, Kellogg, Quaker Oats or Sara Lee?
A constant gum chewer could get a kick out of an investment in Wrigley--they even occasionally send shareholders a pack of gum.
Sports fans might want to buy Anheuser-Busch, which aside from the well-known beer brand owns a baseball team. Or, perhaps, Santa Anita Operating Co., the owners of a Southern California racetrack.
Car buffs may like WD-40 shares, or a stake in Armor All. Buying for a neatness fanatic? Consider Clorox or Rubbermaid. You’ve got a kid who never turns out a light? Give him a share in SCE Corp. or Consolidated Edison Co.--at least someone will profit from your electric bill.
Indeed, there is a stock well-suited to anyone. The trick is finding one that not only tweaks your youngster’s interest but increases in value too.
For that, you need to do a little research.
Many experts suggest that you limit your investments to companies with strong balance sheets in industries that are likely to grow. A good source of information on both company and industry prospects are Value Line investment reports, which are available in most public libraries.
Companies also readily give out their annual reports, 10(k)s and proxy statements, which provide information on everything from finances to litigation to executive pay. Before you invest, you should read all the documents to make sure you feel comfortable with the company and the way it is operated.
Since there are thousands of companies to choose from, you might opt to narrow the field by looking only at firms that allow you to buy their shares direct. That reduces your brokerage commission expense--even discounters usually charge at least $35 per trade--which can be pivotal to someone who is investing a small amount of money at a time.
There are about 900 U.S. companies that sponsor direct purchase and dividend reinvestment plans. In some cases, you’ll have to buy the first share of stock through a broker, but after that you can invest directly through the company by sending a check for $25, $50, $100--whatever you want--to the company or its transfer agent.
They’ll buy you as many shares as possible, based on the market price, and send you a statement. Not all companies offer these plans, and some that offer direct-purchase place restrictions on how much and when you can invest.
To find out more about direct purchase, you may want to contact one of three excellent sources: Direct-Purchase/Dividend-Reinvestment News in Etiwanda, Calif., at 714-980-4524; the Moneypaper in Mamaroneck at 914-381-5400; or the National Assn. of Investors Corp. in Royal Oak, Mich., at 313-543-0612.
Each charges a fee for their information and/or help in purchasing your first shares. But if you consistently use this technique, they’ll probably save you hundreds of dollars in the long run.
Finally, you should consider limiting your investments to companies and industries that you know and understand. Often the most successful investors are those who buy stock where they shop.
If you take weekly trips to Home Depot, for example, consider buying their shares. That way you can tell if their products are deteriorating or if their service is slacking off. Children may be good at choosing viable stocks this way since they’re often adept at spotting trends.
