You can jump-start a young person’s finances by giving him or her gift of investing with stocks, bonds and mutual funds. Toss in some lessons on how the markets and the economy works and you could end up giving them some financial savvy as well.
Getting kids investing early not only allows them to accumulate knowledge over time on what can be a complex topic.
INDIVIDUAL STOCKS-Does your 10-year-old nephew spends most of the holiday and most of his free time playing video games? Harness that interest by giving him stock in the video game maker. A kid might be more interested in following a company’s stock if it’s linked to a familiar name for which he is interested, such as the company behind a favorite activity, toy, and restaurant or snack food.
If you want something tangible to put under the tree, many brokerage firms offer stock certificates or gift announcements that you can frame.
But don’t just stick the “gift” on the wall and forget about it. Turn that gift into a lesson in how the stock market experiences volatility by checking it periodically.
Consider having the child create a spreadsheet where you can help him track on how the stock fluctuates each period. Engage his interest in the stock by discussing new video games, snack foods, act that the company is launching.
BONDS– Another option is giving US government bonds. Consider giving Series I saving bonds which have a variable rate that adjusts for inflation every six months, as a way to teach a child that the buying power of the dollar changes over time. Series I bonds can be purchased for a minimum of $25 online at TreasuryDirect.gov.
If you are giving a larger sum, consider buying a corporate bond from a company for which the child is some familiar. Corporate bonds which typically require a minimum $1,000 investment can be purchased through an investment advisor, your broker or a bank. If the gift receiver already owns some stock, use the opportunity to buy bonds as a lesson in the virtues of diversifying a robust investment portfolio and comparing the performance of the two investment vehicles periodically. Although bond yields have been paltry lately, bonds with fixed rates can show a child the benefits of stable growth compared it stocks, which are more volatile.
With corporate bonds, you can illustrate how an investor can both lend money to their favorite company as a bondholder and can own a part of the company by being a stockholder.
INVESTMENT ACCOUNTS-A custodial investment account in the child’s name can be opened with as little as $100 at some brokerage firms, including Charles Schwab and Scottrade.
By opening these accounts you can expose middle and high school kids to more complex investments, such as mutual funds and exchange traded funds. Give a kid a rundown of an accounts investment options and then ask for help in picking a few. For instance if your loved one is interested in computers and other tech gadgets, you can go with a tech-sector fund. Just as with individual stocks the goal is to pick investments that will keep a young investor engaged but will also make sense financially.
Do you have additional questions? Do not hesitate to contact Ann or Brad. Happy Holidays to you and your family!