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Skip the Mall: The Most Valuable Gift for Any Child

Anthony Planas
Stocks Holiday Gift - Gifts for any child

Story Highlights

“Isn’t it cute?” my mother said in a muted but excited voice. She was hoisting a onesie with a prancing unicorn.

I nodded.

She hustled it back into its box as though my 1-year-old niece might have her gift spoiled early.

Admittedly, my gift for her isn’t as cute: no soft pastel colors, she can’t wear it and she can’t play with it.

In fact, it’ll be many years before she can even comprehend it.

But I’m buying her a piece of an entertainment company she loves. And today, I’m going to share with you how you can improve the lives of loved ones with a similar decision.

Jump-Start Your Loved Ones’ Investing Lives

Maybe you’ve heard the old adage: The best time to plant a tree was 20 years ago. The second-best time is now.

This applies to investing as well.

I can all but guarantee that everyone reading this article has had a “what if” moment. What if I had started investing sooner? What if I had been a smarter investor?

But during this time of giving, let’s shift that question a bit. Ask yourself how much you could improve the lives of your loved ones through investing. What if you could jump-start their investing lives?

How could you help them reach their life goals?

This week, I’m doing just that. I’m taking on the responsibility of teaching the next generation about investing. But unlike my instructor days, I’m not using a lesson plan or a PowerPoint presentation.

Instead, we’re learning by doing.

I’m opening up a custodial brokerage account for both of my nieces. Instead of buying them another toy to clutter my sister’s house, I’m buying them stocks.

Investing for children might be the best gift ever. A stocks holiday gift is the gift that keeps on giving. Let’s run down the list of reasons shares are great gifts…

Give Smarter

I only buy my nieces two things: books and stocks. Another toy will do nothing to give them a brighter future. Rather, it will most likely become worthless.

And the law of diminishing returns means that any toys I add to their packed toy chest will depreciate.

Stocks, however, offer the chance for huge appreciation.

Compounding interest offers amazing returns on long time horizons. The S&P 500 Index has had an average growth rate of 7.8% over the past 18 years. That means $1,000 invested in December 2001 would now be worth roughly $3,850.

Learning Through Doing

Attempting to teach young people about investing can be painful. It’s a game of patience and discipline, with the biggest returns coming many years after you’ve placed your limit order.

But when you do all the buying and waiting, you are offering them a chance to experience the payoff of a sound investment.

They will also have a brokerage account in their name ready to go — and already funded too!

So, the barrier to get started is gone.

Individual stocks can offer higher risk-reward potential. As long as you diversify the holdings, having a couple of laggards in the bunch isn’t all that bad. It offers a teachable moment for them later on.

2 Ideas to Act on Now

Children can’t actually own shares. So, when you open a custodial account, they won’t be able to do anything with it until they are 18.

If you buy shares directly from a company, make sure to stay an active shareholder by updating your contact information and voting for special meetings or elections. That’s because the government can declare that shares have been abandoned after a number of years and lay claim to them.

I’m not a lawyer or a tax expert, so I recommend speaking with a trusted adviser about special considerations.

But I will offer two recommendations for picking the positions in a child’s account.

If you want to build a portfolio of strong names, consider browsing Charles Mizrahi’s Alpha Investor Report model portfolio.

Every month, he tells his readers about a high-growth stock trading for a discounted price. His long-term approach to buying and holding stocks lends itself to the long time horizon for your children.

For a broader market approach, consider Charles’ choice of the Alpha Architect U.S. Quantitative Value ETF (NYSE: QVAL). This fund holds a basket of cheap, quality value stocks.

So, with that, I’d love to hear your thoughts.

Who first taught you about investing? What stock would you recommend I buy for my nieces? Have you ever bought and held a stock for 20 years?

Leave me a comment below!

Good investing,

Anthony Planas

Internal Analyst, Banyan Hill Publishing

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