Share a Gift of Stock This Year
Not sure what to get the kids this holiday season? Consider putting some stock in their stockings.
To be sure, shares in Boeing Co. are unlikely to be on any youngster’s wish list. Financial experts, however, say children are surprisingly quick studies when it comes to the concept of making money.
“Nothing focuses a kid’s mind like having money at stake -- even when it’s just $50,” said Gary Stroik, author of “All About Dividend Investing” and vice president at Wealth Builders, a New Jersey-based financial planning and investment management firm.
And like the stocks themselves, the gift of shares can pay dividends -- often for years after the fad toys of the season have been shunted off to the attic.
Joanne M. Seymour, a children’s book author and mother of three, notes that many young people already have enough disposable income to buy things they want. Giving stock, on the other hand, teaches children about the wisdom of investing.
“Ordinary people who have ordinary jobs become millionaires,” she said. “It’s not because they win the lottery. It’s because they have learned to save and invest a little at a time over a long period of time.”
Seymour, the author of a children’s book on investing, “Stock Market Pie: Grandma Helps Emily Make a Million,” says company stock makes the most sense as a financial gift to a young person. Ideally, it ought to be shares in a company that makes something or does something that has meaning to the youth -- possibly Hasbro Inc. or Walt Disney Co. for a young child, or Gap Inc. or Apple Computer Inc. for an teenager.
“Instead of the cake, give them Sara Lee stock,” said Vita Nelson, editor of an investment newsletter called the Moneypaper. “In the future, they can buy as much cake as they want.”
Aside from imparting knowledge, the gift is also likely to pay even more tangible returns. A $5,000 investment in a Standard & Poors 500 index fund in 1984 would be worth more than $57,000 today.
Of course, many people can’t afford to set aside thousands of dollars for their children to invest. The good news is that investors no longer need to be rich to get their kids started in the stock market. Technology has made buying small lots of stock easy and relatively cheap.
Web-based broker Sharebuilder Corp., for example, opens accounts with no investment minimum. The trading cost is $4 on a basic account, said Jeff Seely, chairman and chief executive of the Bellevue, Wash.-based brokerage firm.
If the investor doesn’t have enough for a full share, Sharebuilder buys fractional interests, he said. Someone who had $50 to invest in Microsoft Corp., for example, would have received about 1.7 shares recently when the company’s stock was selling for slightly more than $27. (That’s $50 minus the $4 trading fee, divided by Microsoft’s $27 market price.)
The catch: The $4 fee doesn’t buy a “real-time” trade. Sharebuilder accumulates orders over several days and then buys in large lots, about once a week. That’s no loss for someone looking for a stock gift that suits a child’s interest, but it can be a negative for anyone wanting to take advantage of a temporary market dip. (Sharebuilder can transact real-time trades, Seely said, but that costs more.)
More than 1,000 companies allow investors to buy stock directly from them, often with no trading costs at all, Nelson noted. When those shares pay dividends, the company will automatically reinvest them in company stock, allowing the account to compound.
Among the big-name corporations that offer these so-called dividend reinvestment plans are BellSouth Corp. (cellphones), Avon Products Inc. (makeup), General Motors Corp. (autos) and Limited Brands Inc. (apparel), Nelson said. All of these companies make products that can resonate with a teen, she said.
By and large, dividend reinvestment plans work much the way Sharebuilder does. The investor sends a check and the plan will buy as many shares -- or fractions of shares -- as that amount of money will allow.
To register with many corporate dividend reinvestment plans, the investor must first own at least one share of the company’s stock. The Moneypaper offers a stock-giving service that helps investors buy the first share and register with the dividend reinvestment plan.
For a slightly older age group -- say, teens and young adults with their own money to invest -- Seely suggests Sharebuilder’s “Investor Starter Kit.” It includes a copy of David Bach’s book “The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich,” a year’s subscription to Money magazine, a $25 credit at Sharebuilder and a compact disc with information on selecting shares and getting started. Cost: $29.95.
“Maybe, for a little kid, you want to buy a miniature motorcycle to go with the share of Harley-Davidson stock -- or give nail polish with Avon shares -- so the kids can picture it better,” Nelson said. “But if you can inculcate an investing attitude at a young age, you’ll find those kids will be able to take care of themselves better in the end.
“Starting early is such a wonderful advantage.”
Kathy M. Kristof, author of “Investing 101" and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof @latimes.com. For previous columns, visit latimes.com/kristof.