Getting kids started in stock investing – even with just a few shares – can be a great gift for any occasion.
Parents or grandparents can make that initial stock purchase or mutual fund investment for a child, and brokerage firms have made it appealing thanks to low fees and kid-friendly initial investment requirements. Or, if appropriate, let the kids do the stock picking. The best way is to focus on companies they’re familiar with, such as Disney or McDonald’s.
If you feel uncomfortable explaining to your kids what it means to invest in the stock market, don’t worry. There are plenty of excellent online resources that break down the terminology to a kids’ level.
Adults might even learn something too, and that’s the point. While picking winners is always nice, the primary goal should be learning and introducing kids to the concept of investing while they’re young. Here are some of the ways you can give stocks to a child.
There are few different options for buying stock for your kids. Gifting stocks is a great way to get children or grandchildren started in saving and investing, according to Bankrate.com analyst James Royal.
When giving stock to a child, parents or grandparents should take advantage of the annual gift exclusion, which allows individuals to give up to $15,000 annually to any number of recipients without incurring a gift tax, Royal said.
As for the mechanics, generally speaking, investors can either purchase stock specifically for a child through a custodial account over which the adult would have control, or give stocks through an existing investment account. In either case, Royal said, the young recipient who is considered a minor should have a brokerage account to receive the stock.
Although the account will initially be in your name, the child will be able to take full control of it once he or she reaches age 18 or 21, depending on state laws.
Buy a single share
Buying a single share can be a creative way to stir interest in the stock market for a fledgling investment guru. Parents can buy a single share of stock from online companies that specialize in selling these small orders.
For example, GiveAShare offers more than 120 household name stocks, including Coca-Cola, Disney, Callaway Golf, American Eagle, Apple and AT&T. An added bonus: GiveAShare offers company stock certificates designed in quality frames and mats, or even in plaques. There are additional costs for framing and shipping.
Play with fractions
Buying slivers of stock has become a hot strategy, giving investors an outlet to buying pricey, yet popular stocks like Amazon and Tesla. In essence, young investors can buy a piece of a company they might not be able to afford otherwise. Stash is a good app for these types of purchases. Investors can deposit a certain amount of money into their Stash account and divide it up as they see fit to own partial shares of various stocks.
Earlier this year, Fidelity also rolled out fractional trading in which a customer buys or sells less than an entire share. Fidelity customers can either specify what percentage of a share they want to buy or specify a dollar amount they’re willing to pay for a fraction of a stock.
Invest in a mutual fund
Many mutual funds have low or no minimum initial investment requirements, low fees and plenty of investing options, making them perfect for young investors.
In addition, investment companies like Fidelity, Schwab, Vanguard and T. Rowe Price have loads of educational material geared toward children on their websites.
Start a family investment club
Make investing a family affair with parents, grandparents and children. Each member of the club could contribute and vote with the family on what to buy and sell. With older kids, encourage them to read up on companies they’re interested in. You might even be able to sprinkle in some technical analysis.
Before investing any money, do a dry run by tracking a few stocks for a month or so on a spreadsheet or with pencil and paper. Then use each upward bounce or downward dive as a teaching opportunity about the risks and rewards of investing.