What stocks would you buy for your newborn and 2-year old kids?

[frodster1979]

I just had a mini-mustachian a couple of weeks back and my son is turning two at the end of the month.

I am planning on buying them one stock of a company like Google (Alphabet) or Amazon to each of them and keep it long term with the expectation that they wil lget a nice capital gain in 10-15 years.
I am thinking on this two companies because I follow them and think they will be around and most likely have a much greater market capitalization in 10-15 years from now.  I am open to ideas and wanted to get your perspective.  What would you do if you were to put aside ~$1.5k in stocks as a small gift for your kids? (that is what 2 stocks of Amazon or Google will cost)
I prefer taking the risk of picking a company rather than keeping the money in a savings account or gaining 2-4% a year in another investment (which is not bad if you compound it for 15 years but not exactly what I want to do unless you can convince me otherwise).

Thanks!

[Jeremy E.]

If it were me, I would buy yourself VTSAX, use it to retire early and spend more time with them.

[slowsynapse]

I like the idea of buying a stock for your children and letting it grow.  Maybe one of the FANG stocks would be an extra great investment over the next 18 or so years and it is always enticing to pick a stock that way outperforms the market.  But Jeremy E is truly correct that buying them the VTSAX or one of the Vanguard total market ETF's that you can trade through a brokerage account is low stress and will provide many happy returns.  Long term stock market returns are almost always better than 2-4%, more like 10-12% if that convinces you to index rather than a single stock.

This is a link to TD Ameritrade ETF's that can be traded through a brokerage account, including some Vanguard options.  I got it from someone on the boards and it was helpful for me.

http://research.tdameritrade.com/grid/public/etfs/commissionfree/commissionfree.asp

[protostache]

My wife and I are expecting a little mini mustache in July and we'll be setting up something like this for them.

I absolutely agree that buying an individual company or three for them is the way to go, from a teaching perspective. Teaching the concept of joint stock ownership is a lot easier when you can point to a physical thing, like a John Deere tractor, a bottle of McCormick coriander, or Hershey bar. VTSAX or an ETF is probably the least risky thing but there's so much less to teach there without already knowing what a stock is.

I would go with one of the above companies or something like Coca Cola or Nestle before one of the FANGs, or maybe alongside. They are maybe slower growing but I can't really imagine them not being around in 10 years when they're ready to start learning about this stuff. They also sell much simpler products (before you can explain Google's profits you have to explain online advertising).

[Jeremy E.]

My wife and I are expecting a little mini mustache in July and we'll be setting up something like this for them.

I absolutely agree that buying an individual company or three for them is the way to go, from a teaching perspective. Teaching the concept of joint stock ownership is a lot easier when you can point to a physical thing, like a John Deere tractor, a bottle of McCormick coriander, or Hershey bar. VTSAX or an ETF is probably the least risky thing but there's so much less to teach there without already knowing what a stock is.

I would go with one of the above companies or something like Coca Cola or Nestle before one of the FANGs, or maybe alongside. They are maybe slower growing but I can't really imagine them not being around in 10 years when they're ready to start learning about this stuff. They also sell much simpler products (before you can explain Google's profits you have to explain online advertising).

I think google has a better chance of being around in 10 years than any of the examples you listed

[Cyaphas]

ATT, Verizon, Disney, Consolidated Edison Inc.

I currently own none of these. I feel their P/E are way to high. But, I often check on them and am planning on purchasing quite a bit of V and T on the next downturn. They own a lot of major fiber lines that are definitely not going away any time soon. They also own the rights to many towers and mobile turfs that again, aren't going away anytime soon.

Disney is a no-brainer they just make too much money and they have so much staying power and brand recognition.

Electric companies, not fun or interesting, but we all need power. I often eyeball the ones with large hydro power assets. They use gravity to get their product. They pay dividends.

[protostache]

I think google has a better chance of being around in 10 years than any of the examples you listed

I have little doubt that Alphabet will be around in some form in a decade. Where they'll be making their money, and how much they'll be making, is an open question in my mind. Online advertising has been stable and monstrously profitable for them for a number of years but ad blockers by default are on the rise. Maybe their self-driving car initiatives will work out, but they have to get the relationships right with the auto manufacturers. If they don't it'll be another highly fragmented unprofitable venture for them, just like Android.

In contrast, I am 100% confident that Hershey will be making chocolate bars in Pennsylvania in 10 years. Deere will be churning out heavy construction equipment, forestry products, tractors, and (maybe electric instead of gas) residential equipment. Nestlé will be operating their more than 2,000 brands of packaged foods, makeup, water, etc. McCormick will continue to be the largest spice manufacturer in the world, supplying grocery stores (both under their brand and generics), restaurants, and packaged good manufacturers.

The only company from that list that I would grant you might be in trouble in a decade is Coca Cola. To survive they need to continue their program of diversifying away from soda syrup. It's not going to go away for a long long time, but I can see a day when it's a much more niche product than it is now.

ATT, Verizon, Disney, Consolidated Edison Inc.

These are all fine choices as well, but again they're more complicated and a little harder to teach with than a chocolate bar. OP didn't state that that's their goal, of course. My goal is to teach my kid(s) how business works starting at an early age, and part of that will be a fundamental understanding of how the capital markets work.

[Jim2001]

Think of the companies that were once dominant or large players in their fields, but eventually faltered like Kodak, Xerox, IBM, TWA, Eastern Airlines, Author Andersen, Enron, MCI Worldcom, Montgomery Ward, Sears, Countrywide, IndyMac Bank, Pacific Gas & Electric, Chrysler, Lehman Brothers, Blockbuster, MGM, Borders, Harry & David's, Schwinn Bicycle Company, Reader's Digest, and the list goes on.  What's hot one moment, eventually won't be.  The ability to pick a long term winner is what the mutual fund managers are paid to do, but often can't. 

This is the perfect opportunity to teach them how to build a diversified portfolio, instead of hoping for the home run.

So, I would diversify by following Buffett' and Bogle's recommendations for low cost index ETFs. 

[Jeremy E.]

I think google has a better chance of being around in 10 years than any of the examples you listed

I have little doubt that Alphabet will be around in some form in a decade. Where they'll be making their money, and how much they'll be making, is an open question in my mind. Online advertising has been stable and monstrously profitable for them for a number of years but ad blockers by default are on the rise. Maybe their self-driving car initiatives will work out, but they have to get the relationships right with the auto manufacturers. If they don't it'll be another highly fragmented unprofitable venture for them, just like Android.

In contrast, I am 100% confident that Hershey will be making chocolate bars in Pennsylvania in 10 years. Deere will be churning out heavy construction equipment, forestry products, tractors, and (maybe electric instead of gas) residential equipment. Nestlé will be operating their more than 2,000 brands of packaged foods, makeup, water, etc. McCormick will continue to be the largest spice manufacturer in the world, supplying grocery stores (both under their brand and generics), restaurants, and packaged good manufacturers.

The only company from that list that I would grant you might be in trouble in a decade is Coca Cola. To survive they need to continue their program of diversifying away from soda syrup. It's not going to go away for a long long time, but I can see a day when it's a much more niche product than it is now.

ATT, Verizon, Disney, Consolidated Edison Inc.

These are all fine choices as well, but again they're more complicated and a little harder to teach with than a chocolate bar. OP didn't state that that's their goal, of course. My goal is to teach my kid(s) how business works starting at an early age, and part of that will be a fundamental understanding of how the capital markets work.

Google employs some of the most intelligent people in the world, I don't see how they could falter. We can't sustain the amount of cacao crops that we will need, and in the future the price of chocolate will go up, so I feel Google has a much better shot than Hershey or Nestle.

[I'm a red panda]

I wouldn't buy a single stock.
Money in Lucent and Enron that both looked amazing when I got them taught me that.
Google probably won't be that. But who knows.

[seattlecyclone]

If your goal is to teach your kid about how investing works, I agree that a single stock makes a lot of sense for the reasons above: it's easier to understand a single company than a basket of hundreds of them. However you should not be buying this teaching stock with an expectation that you will beat or even match the average performance of the market. Instead, go for stock in a business that your kid interacts with already, such as Disney or a toy company or something of that nature. Seems like that's a good way to ensure they have as much interest in the process as possible.

If your goal is to invest a bunch of money in your child's name with the goal of getting a good return on this investment, buy an index fund.

If your goal is to beat the market, don't even try. You don't get to participate in a stock market for novices only. You're competing against thousands (millions?) of people who have much more education and experience than you, and they also have more time to spend on researching their investments. You're going straight to the big leagues and you're probably going to lose.

Of course that can be a learning experience of its own for your kid.

[Stache-O-Lantern]

I think buying a small amount of an index fund is a better way to learn, even for a small child, than buying a small amount of one stock.  The hard part is probably the child understanding they actually own a small part of a company, and what a company is.  From there it's not a big step to understanding they own a small part of many companies.  Plus, if you have the index fund, then as they get a little older you can begin to explain diversification and all that with the fund they own as the example.  If you had VTSAX, you could still explain that they own a little bit of ford, for example, and the ford company makes and sells cars.  Then you show them the list of all the companies in the fund.

You don't want to wake up someday to your 10 year old asking why you haven't properly diversified his portfolio into an asset allocation appropriate for his age, and now he has to realize a tax inefficient capital gain in order to fix things, do you?  DO YOU?

Kidding of course at the end, you're going to be golden either way.

[Jeremy E.]

You don't want to wake up someday to your 10 year old asking why you haven't properly diversified his portfolio into an asset allocation appropriate for his age, and now he has to realize a tax inefficient capital gain in order to fix things, do you?  DO YOU?

lol

[aprilchem]

I don't buy single stocks for my children - that's too much of a risk in my opinion.  What about opening a UGM account for them and investing in a mutual fund? 

[aperture]

I think a share of Berkshire Hathaway would be a great gift for a child. -Ap

[maizefolk]

Google employs some of the most intelligent people in the world, I don't see how they could falter. We can't sustain the amount of cacao crops that we will need, and in the future the price of chocolate will go up, so I feel Google has a much better shot than Hershey or Nestle.

Demand for chocolate is relatively inelastic, I think Hershey and Nestle have a fair bit of headroom to raise prices without destroying demand.

Mars, Inc (another chocolate company and apparently the 6th largest privately held company in the USA) has been investing a lot in genomics and quantitative breeding of chocolate trees. It takes about five years before a cocoa tree even starts producing pods, which means that if you can pick the highest yielding/best tasting/most disease resistant ones at the seedling stage (or even by genotyping the seed itself before you plant it) you can increase productivity a lot without increasing the amount of land devoted to production. But all of that is invisible to consumers right now.

Right now the very youngest trees contributing to global supply were planted in 2011 and the median tree producing chocolate was planted in 2001 (plantations normally replace their trees about every 25 years). The chocolate genome wasn't even sequenced until 2011.

[I'm a red panda]

Demand for chocolate is relatively inelastic, I think Hershey and Nestle have a fair bit of headroom to raise prices without destroying demand.

Is it really? I know I'm not the only person whose given up on chocolate since everything got replaced with "chocolaty". (Fake white chocolate is even worse.)

Hope the GMO stuff tastes good, because man I miss chocolate.

[maizefolk]

Well that you're saying is that "chocolate flavor" isn't a suitable substitute for real chocolate. Which I completely agree with. Even a lot of the "real" chocolate comes from a cultivar called CCN-51 which was developed back in the 1980s and was selected purely for being resistant to a fungal pathogen, not for flavor. NPR did a great podcast on how that situation came to be:

http://www.npr.org/templates/transcript/transcript.php?storyId=383830776

The podcast includes people describing the flavor as either rusty nails or dirt.

And to be clear, far as I know, no one is working on making GMO chocolate trees. Just adding lots more data and analysis to make decisions about which trees to mate and which seeds to plant.

[protostache]

Demand for chocolate is relatively inelastic, I think Hershey and Nestle have a fair bit of headroom to raise prices without destroying demand.

Is it really? I know I'm not the only person whose given up on chocolate since everything got replaced with "chocolaty". (Fake white chocolate is even worse.)

Hope the GMO stuff tastes good, because man I miss chocolate.

It's not as inelastic as highway diesel fuel, for example, but it's relatively stable.

Hershey is definitely tied to chocolate demands, but Nestlé in particular will be just fine no matter what. As I said, they have over 2,000 brands including major brands of packaged goods in basically every market in the world. Even if the Nestlé mothership has to spin off large chunks for some reason, shareholders can expect to get either cash or shares in exchange.

[I'm a red panda]

Well that you're saying is that "chocolate flavor" isn't a suitable substitute for real chocolate.

Right- but it's getting harder to find real chocolate.

And to be clear, far as I know, no one is working on making GMO chocolate trees. Just adding lots more data and analysis to make decisions about which trees to mate and which seeds to plant.

Mating specific trees to produce off-spring based on certain traits is genetically modifying the crop. You're certainly screwing with nature for selecting specific traits, and removing the rest from the stock. 
Maybe it's not a GMO if you don't actually inject it to change the DNA. Sorry for wrong terminology. Same end result, just takes longer if you use selective breeding.

[maizefolk]

Sorry for the derail. Anyway, Frodster, I agree with several of the people further up the thread who suggested that for teaching it makes sense to buy a company that makes something your kid is going to see being bought growing up. So probably something from the consumer goods sector. Proctor & Gamble, Colgale-Palmolive, Kraft-Heinz, something like that.

Don't expect to beat or even match the performance of the whole index, but you'll still be doing a lot better than a savings account. Plus those are the sorts of companies that pay dividends which your kid will be able to watch accumulate as they get older. Dividends may be less tax efficient than capital gains, but they are definitely easier for young minds to grasp.

[Stache-O-Lantern]

Mating specific trees to produce off-spring based on certain traits is genetically modifying the crop. You're certainly screwing with nature for selecting specific traits, and removing the rest from the stock. 
Maybe it's not a GMO if you don't actually inject it to change the DNA. Sorry for wrong terminology. Same end result, just takes longer if you use selective breeding.

People have been doing that for thousands of years, almost since the development of agriculture.  It's what has resulted in almost every fruit and vegetable available for sale.  Almost none of them occur in nature in anything very close to the form available at the grocery store.