Skip the Toys and Buy Your Kid One of These Stocks

After a marathon toy purge last month, I vowed to stop buying my children stuffed animals and electronic gadgets and start putting that cash toward something that would have a little more staying power: stocks.

They're not as fun to open on Christmas morning -- even the most money-savvy kid doesn't have the patience for bedtime stories about EBITDA and discounted cash flow -- but sparking an early interest in investing is one of the best gifts you can give. And, yes, it can even be fun for them.

Hey Honey, We Own Disney!

The trick to capturing your children's interest in investing is to start by giving them stock in companies whose products they already care about.

Money manager Lauren Templeton, great-niece of legendary investor Sir John Templeton, recalls that at age 7, she surprised her friends at the playground when she told them that she owned part of Disney.

Motley Fool co-founders David and Tom Gardner love to tell the story of shopping with their dad, knowing that they owned the company who made the pudding they were buying. And Warren Buffett's early love for newspapers led to a profitable decades-long investment in The Washington Post Co. (WPO), whose papers he delivered as a youngster.

Sure, you may get some eye-rolls, but I promise they'll thank you in a few years when those initial investments start making money. Below, I've put together a few stock ideas for kids of every age, plus how to actually give a gift of stock.

Stocks to Appeal to a Child's Taste Buds

Yum! Brands (YUM); recent price: $53.05: The next time your budding Buffett bites into a deep-dish pepperoni, she could also be dishing up cash in her portfolio. Owner of Pizza Hut, KFC, and Taco Bell, this company's food appeals to kids as much as the fun name. It's not a bad business to be in, either: Yum!'s stores are rapidly gaining market share in China and are growing in popularity in India, as well.

Two additional appetizing options:

  • PepsiCo (PEP): With brands such as Doritos, Smartfood, Gatorade, Life cereal, Tropicana, Quaker Oatmeal, Aunt Jemima, and Aquafina water, kids encounter Pepsi products nearly every day.
  • McDonald's (MCD): Happy Meals equal happy profits for this longtime kid favorite. With recent menu and store revamps, McDonald's is adapting to the trend toward healthier eating and, like Yum! Brands, is showing strong growth overseas.

Toy (Stocks) for Tots

Activision Blizzard
(ATVI); recent price: $11.23: Know a video-game-aholic? Get them interested in playing the stock market with this company, a maker of a wide array of games, including the Guitar Hero and Call of Duty franchises. While video game sales have been down recently, Activision is enjoying growth in high-margin digital downloads. If you can persuade your gamer to add a few shares every time he picks up a new game, he may just end up a winner with both.

Others to toy with:

  • Not into video games? How about Mattel (MAT)? With brands ranging from American Girl to Barbie to Hot Wheels to Fisher-Price, there's something to grab the attention of any little investor.
  • If you've got a sports fan on your hands, go straight to the top with Nike (NKE). A marketing machine with loyal fans and a world-famous brand, this stock has plenty of room to run.

Keep the Kids Entertained

No self-respecting article on stocks for kids can leave out Disney (DIS); recent price: $32.51: Disney characters, movies, and theme parks are such an integral part of kid culture, there might as well be a Disney gene. If you're going to hand over as much moola to the Mouse as I have, it just makes sense to take a cut of the profits. Its made-for-framing illustrated stock certificates are a nice bonus.

Alternative amusements:

  • Shrek fans and Disney dissenters may prefer to invest in kid-friendly movie fare through Disney competitor DreamWorks (DWA). The stock has taken a hit recently, making it a bargain.
  • Teen boys too cool for Mickey and friends may be ready to rumble with World Wrestling Entertainment (WWE). A new focus on "PG" content will please parents.

How to Give the Gift of Stock

Back in the late 1990s, when I got my first stock, the actual share certificates arrived in the mail, printed on heavy paper with ornate designs. These days, an actual stock certificate is surprisingly hard to come by. Many companies won't even issue them.

The easiest way to get one for gifting is to go through a site like oneshare.com (giveashare.com is another reputable option). Oneshare will provide a paper stock certificate, along with extras like frames and plaques. It gets pricey, though -- along with the cost of the share, you pay a transfer fee (usually $39) plus the cost of the frame, matte, etc.

A more cost-effective option is to skip the fancy certificate and simply open an investment account for the giftee. You can start them out with some shares or provide some seed money and help them decide how to invest it.

Anyone over 18 can open a custodial account for a child -- the custodian controls the account until the child reaches 18 (or 21, depending on the state). Minimum balance requirements vary by brokerage but are often quite reasonable.

Sharebuilder is running a promotion that gives you $50 when you open an account. Where it gets tricky is when it comes to paying taxes on any dividends or capital gains. They're taxed at the child's rate up to a certain limit, then at the adult's rate, so make sure you read the fine print.

Want something to wrap? Create a simple certificate on your computer (Word offers a few dozen templates) and slide it into a store-bought frame.

Motley Fool writer Robyn Gearey does not own any shares of the companies mentioned here, but when the holidays come around, her kids will. The Motley Fool owns shares of PepsiCo, Yum! Brands, and Activision Blizzard, as well as having written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Nike, McDonald's, Walt Disney, Yum! Brands, DreamWorks Animation, PepsiCo, Activision Blizzard, and Mattel, as well as creating diagonal call positions on Nike and PepsiCo and a synthetic long position on Activision Blizzard.



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