June 22, 2022

Stocks for Kids: Invest in Your Kid's Future

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Teaching your kids about investing is easier with their own stocks. But which ones will grow with your child? Compare these top stocks for kids.

Most kids learn financial habits from their parents. Just like brushing their teeth. And saying 'please' and 'thank you.'

But how can you explain stocks so that a kid will understand?

Well, giving a kid an allowance can help them understand budgeting. Opening a bank account with them can help them understand saving.

Buying stocks for kids can be a great way to learn about investing.

You can show them how their small investment grows over time. Just like they do.

But it will take sacrifice and discipline. And also knowing which stocks are a good investment for kids.

Best Stocks for Kids to Start Investing

Investing in stocks for kids can provide them with a lifetime advantage. But where do you start?

Lots of companies offer kid-friendly stocks. But choosing the right one can be a little tricky.

You have to consider the history of a company and its future — without focusing too much on current success.

We've compiled a list of the best stocks to buy for your child to give you a roadmap to follow.

How old do you have to be to invest?
Technically you have to be 18 years old to start an investment account. However, parents can invest on behalf of their kids with a custodial account. Kids can access the account once they're 18-21 years old, depending on the state.[1]

Disney

Your kid will love the idea of investing in Disney. Who doesn't love a fun Disney film?

But investors seem to love Disney stock too. Although Disney experienced numerous shutdowns in 2020, this didn't affect their stocks. Then in 2021, Disney returned over 42% to investors.

Disney didn't put all their eggs in one basket, which proved to be a success. With Disney+ becoming a streaming powerhouse, the company will be diversified for years which is great news for investors!

Tip: Take a page from Disney's playbook and make sure you aren't putting all your funds into one stock. Diversify!

Apple

As the biggest company in the world, Apple is one of the most obvious choices for your child.

Apple has become a mainstay in many people's lives, and it's easy to see why. Apple products simply work really well together. They don't just sell you a product, they offer you a lifestyle–and people want to buy it.

Every new model of it, every year!

Apple's history shows that they continually develop innovations that make many people want to empty their pockets. Because of this, investing in Apple stocks for your kid is a smart bet.

Amazon

Another great option for investing is Amazon.

It's no secret that Amazon is many steps ahead of the competition in online retail. We all love fast, free shipping! This is where Amazon excels, and the company has seen explosive growth over the last few years.

Given the size of Amazon and its convenience, it has healthy prospects and is a great investment option for kids.

It's worth mentioning that Amazon's stocks have gone from $1.50 in 1997 to $3,200 in 2022, which is more than impressive.

If this trend continues, your kids will be thankful you invested in Amazon today.

Alphabet/Google

Alphabet, Google's parent company, is one of our picks for several reasons. The biggest one is that you probably stumbled onto this article by searching "stocks for kids" on Google.

Alphabet owns two of the biggest search engines (Google and YouTube) and many of us can't imagine a life without Google.

Plenty of industries panic if Google is down for a mere minute.

With their massive revenue and strong team, they also consistently come up with new features. Since Alphabet provides these essential services and has a great stock history, its future looks incredibly bright.

Meta/Facebook

Facebook, newly rebranded as Meta, is a company that most of the world is familiar with.

For years, it has dominated the social media platform industry and that is no different today. In 2021, Facebook's revenue saw a 48% increase.[2]

Instagram probably eats up hours of your kid's time every week. So, why not invest in the company they use every day and turn some of that time into money?

Given Facebook's popularity and consistent improvement, investing in the company's stock could end up being a great long-term investment.

Netflix

It sometimes feels like watching Netflix has become America's favorite pastime. After a long day at work or school, people of all ages are eager to unwind with the latest Netflix special.

Netflix does have some competition with other streaming sites like Hulu, Amazon Prime, and HBO Max. But it remains the largest streaming service in the world. Our love of watching great content right from our couch isn't going away any time soon.

The video-on-demand industry is ever-growing, and we will probably only see more growth in the future.

Tesla

Tesla is the latest powerhouse company offering innovation on all fronts.

Whether your little one loves cars or not, electric vehicles are the future. So, investing in a company that's ahead of the curve may pay off as your child grows up.

Tesla isn't simply a car company, though. It's also an advocate for sustainable energy, and this is a growing trend among younger generations.

In the first quarter of 2021, Tesla saw a 74% year-over-year increase in revenue.[3]

On an important note, you probably shouldn't invest your entire savings in Tesla. The stock price is constantly fluctuating, and so is a higher-risk investment.

But there's no denying that Tesla is a big innovator in the automotive space and its prospects look great.

McDonald's

McDonald's had a bit of a rocky 2020. All physical food chains experienced a hit during the pandemic, so it's no surprise it wasn't their best year.

But McDonald's shines in one key area our other recommendations do not — their dividends. The company has continued to raise its dividends each year. Right now their dividend yield is 2.2%. For the past 44 years, McDonald's has had a payout ratio of 73.33%.

All this is to say that McDonald's would be a great addition to a balanced portfolio.

Hasbro

Whether you're a kid or a kid at heart, you're probably no stranger to board games. Hasbro makes some of the most popular board games in the world. Monopoly ring a bell?

Hasbro has also created beloved toys like My Little Pony, G.I. Joe, and Nerf. If you're trying to get your kid excited about stocks, this is a good bet.

Gifting your kid stocks in Hasbro can be a great investment too.

Apart from the small setback in 2020, due to the Toys "R" Us bankruptcy, Hasbro is doing fine on the value front.

Hasbro hasn't limited itself to making original toys either. Lately, Hasbro has collaborated with Disney to license toys based on franchises like Star Wars and Indiana Jones.

With this trend, we see a strong future for Hasbro, and so will your kids!

Mattel

What's better than getting your kid a new toy? Helping your child buy stock in a popular toy company. Toys are fun, but stocks are a long-term investment.

Mattel is a top choice to get your child interested in stocks too.

Similar to Hasbro, Mattel suffered a setback in 2020 due to the bankruptcy of Toys "R" Us. However, if we're being honest, most of the companies on this list had difficulty in 2020.

Nevertheless, the company recovered swiftly and has seen a 50% increase in its online sales since then.

Mattel has also re-established a relationship with Disney to make toys about kid-friendly brands like Frozen and more. There's a lot about Mattel that will excite your kid now and later as their investment grows.

Target

Target is a household name when it comes to big-box stores in the U.S. Who hasn't spent plenty of money there?

But what makes it a good option for investment?

Target has seen a consistent rise in its revenue over the years. From 2005 to 2021, Target has more than doubled its revenue. It has also continued to increase its number of stores each year. And the company shows no signs of slowing down any time soon.

Target has also successfully minimized its CO2 emissions over the past four years. This means your kid will be investing in a company helping combat climate change.

It's a good way to teach your child about eco-consciousness while also investing in a company with a bright future.

What is the Best Stock to Buy for a Child?

We recommend a few factors when choosing what stocks to invest in for your kid. While there are no set criteria to predict the success of a company, these things can filter down your options.

Below, we will explain the importance of each factor, from having an established history to a sustainable future.

Well-established companies
A well-established company is more likely to stay strong through the inevitable up-and-down years.

Suppose a company has been successful over the last 20 years. Given the ever-evolving market, that's pretty impressive. This is what makes investing in companies with a long track record of success a safer choice.

Brand recognition
Going along with having a strong history are companies that have made a name for themselves. This is often a good sign of success.

Brand recognition isn't an accident. It probably took decades of making customers happy.

Although other things have to be factored in, investing in companies that are recognized worldwide will most likely pay off.

Fun/interesting to children
Opting for a fun company that children find interesting can be worth it. It makes the investment process more engaging for the kid.

Depending on what your child finds joy in, you can choose any of the recommendations on our list. Whether they like movies, cars, board games, or Happy Meals—there's something for everyone!

Sustainability
Sustainability plays a key part in how the company will hold up over the years. Lately, the topic has become increasingly popular, especially among young people.

Sustainable companies can help keep the planet safe for our future generations and can be great investments.

Diversified portfolio
Having a diversified portfolio means spreading out your investments. This reduces your risk.

That's why we selected companies that are diversified. They have a range of offerings. Investing in a company with all its bets on one service is a big risk.

Also, choose multiple types of companies (automotive, toys, media) to diversify your investment portfolio.

How to Buy Stocks for Your Child

Kids under the age of 18 cannot buy stocks on their own. However, you can do it on their behalf by opening one of the following accounts.

UTMA/UGMA Accounts

UTMA/UGMA accounts are custodial brokerage accounts that can be used to invest in stocks, mutual funds, bonds, and ETFs. The funds in these accounts can be used to pay for a child's expenses, as long as they benefit the child. These expenses can range from university fees to clothing.

When you open an account in your child's name, they are the sole owner of the funds. This means you can't transfer the money to a sibling. After the child reaches the age of 18 or 21, they have full access to the funds depending on your state.

In these custodial brokerage accounts, you can invest up to $16,000 per year before you're subjected to taxes.[4]

529 Plans

529 plans are designed specifically to help kids pay for their education with fewer taxes. Parents and family members can invest in the account tax-free with no amount limit.

Please note that you can only use the money for educational purposes.

The 529 investment options are a bit more limited than brokerage accounts. You may only find options such as index funds and ETFs. However, they have added flexibility on another front. If your child decides to skip college, you can change the beneficiary — as long as another family member uses those funds for their education.

If your child goes to a private high school, you can also withdraw up to $10,000 a year to pay for it.[5]

Custodial IRAs

Custodial IRAs are a good option if you're looking for investment options for teenagers. If your kid has some income, such as a summer job, you can open these accounts.

You can contribute up to $6,000 yearly[6] and invest in stocks, ETFs, bonds, or mutual funds.

Investments in a custodial Roth IRA grow tax-free. Additionally, when the money is withdrawn for retirement, your kid won't need to pay tax on a custodial IRA.

Similar to custodial brokerage accounts, the kid can gain access to their fund by the age of 18 to 21.

How to Open a Custodial Account

Opening a custodial account is a fairly painless process. Although each app has its own little differences and user interface, most of the time, the process will look like this:

  1. Select the app you want to use (there are some great options below)
  2. Download the app
  3. Add an account
  4. Input your kid's information

What you need to open a custodial account is:

  • Your kid's name
  • Their birthday
  • Their Social Security number

If you want to get a debit card for these accounts, you will most likely need to follow the next steps:

  1. Create an account
  2. Link to your bank account
  3. Choose a pin

Most brokerage companies make it easy to start in just a few minutes. Which one is right for you and your child?

Compare Brokerage Accounts for Children

Picking the right brokerage account for your kid is half the struggle. Before opening a brokerage account, you should consider the app's monthly fees, investment limitations, and account minimums.

To help guide you through this process, you'll find hand-picked apps below based on the criteria above.

Greenlight: Great for Learning Finance

Greenlight offers an investment account for kids that comes with a debit card. Apart from the investment option, the app also functions as an educational guide for your kids. It covers all the basics of investing in stocks, bonds, ETFs, and more.

This app is best for parents who want to be more involved in the investment process. Greenlight requires the account to be linked to the custodian's account.

Greenlight's investing feature can be used for:

  • Buying fractional shares
  • Investing with as little as $1
  • Directly approving your kid's investment

Subscription: 30-day free trial; $7.98/month[7]
Best for: Learning investment fundamentals

BusyKid: Great for Lower Costs

BusyKid offers a brokerage app that allows your kids to save, earn, and invest their allowance. Much like the other apps on this list, it aims to help your kids become more financially literate by providing a hands-on experience in banking.

Although BusyKid was created to be a chore allowance app, it offers many other options. Your kid even gets their own debit card.

BusyKid's investing feature can be used for:

  • Buying fractional shares
  • Investing with a minimum of $10
  • Approving your kid's transactions

Subscription: $3.99/month; $38.99/year[8]
Best for: Automated chore allowance

Stash: Great for New Investors

As with all of the apps on this list, Stash offers banking, spending, and investment options. The app is best rated for finance management while also accessible to any level of financial literacy.

When you sign up for the app, you can get a $5 bonus if you make a $5 deposit! Stash allows kids to build up their financial knowledge and confidence.

Stash's investing feature can be used for investing:

  • In fractional shares
  • With $5
  • Automatically

Subscription: Beginner, $1/month; Growth, $3/month; Stash+, $9/month[9]
Best for: Finance management

Acorns Early: Great All-In-One App

Acorns Early is an easy-to-use, kid-friendly app that offers saving, spending, and investments. The app provides a chance to keep all your accounts in one place. You can open custodial accounts, retirement accounts, personal investment accounts, and checking accounts.

This app is a great choice if you have more than one kid. Acorns offers multiple custodial accounts at no added cost. They also offer a great selection of educational content to help your kids learn more about finances and investment.

Early's investing feature can be used for:

  • Investing in fractional shares
  • Investing your spare change with Round-Up
  • Gaining access to automatic recurring investments

Subscription: Acorns Personal, $3/month; Acorns Family, $5/month[10]
Best for: Access to financial advice, easy-to-use interface

Bottom Line

It's always a good idea to start investing in your kid's future at a young age. Giving a kid stocks, whether it's for their birthday or Christmas, is a gift that keeps on giving.

You can start by opening a custodial brokerage account. Then invest a small sum in a tried-and-true company. As time goes on, continue to invest small sums in companies across different industries.

As your child grows, hopefully, you can watch your investments grow with them.

Keep an eye out for companies with:

  • Many years in their industry
  • A track record of success
  • A diversified offering of services

All in all, gifts are a great way of showing someone we appreciate them. However, giving your kid partial ownership of a big company might become their favorite gift for years to come.

References

  1. ^ FinAid. Age of Majority and Trust Termination, Retrieved 6/7/2022
  2. ^ Facebook, Inc. Facebook Reports First Quarter 2021 Results. Accessed 21 April 2022.
  3. ^ Tesla. Q1 2021 Update. Accessed 21 April 2022.
  4. ^ IRS. What's New - Estate and Gift Tax, Retrieved 6/7/2022
  5. ^ IRS. Topic No. 313 Qualified Tuition Programs (QTPs), Retrieved 6/7/2022
  6. ^ IRS. Retirement Topics - IRA Contribution Limits, Retrieved 6/7/2022
  7. ^ Greenlight. Plans, Retrieved 6/7/2022
  8. ^ BusyKid. Features & Pricing, Retrieved 6/7/2022
  9. ^ Stash. Pricing, Retrieved 6/7/2022
  10. ^ Acorns. Pricing, Retrieved 6/7/2022

Donna Tang is the head of purpose and audience at CreditDonkey, a personal finance comparison and reviews website. Write to Donna Tang at donna.tang@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

Paid non-client endorsement. See Apple App Store and Google Play reviews. View important disclosures. Investment advisory services offered by Stash Investments LLC, an SEC-registered investment adviser. This material has been distributed for informational and educational purposes only, and is not intended as investment, legal, accounting, or tax advice. Investing involves risk.

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