Buying Birthday Stock
I have a very small investment to make for my godson. A couple hundred dollars worth. I'd like to purchase some stocks in his name. It would be nice to have an account for him that I can keep adding to. Where do I start? What should I do?
Well if you want him to hold onto it for a long time, then probably a blue-chip stock that's been around for a while. But such a general question -- you could go in 1,000 different directions.
disclaimer: all of this is much simpler advice than what I'd give to a client, so if you have questions, please ask
check with his parents to see what he already has, you don't want to default to a custodial account because if he already has some money there you could force the parents to pay kiddie tax (check with parents then with your CPA)
consider how much control you want to maintain over the investments long term. custodial accounts (UTMA/UGMA) automatically become the child's assets at a certain age (18-21, depending on the state) and for most people, they don't want a 21 year old getting thousands of dollars (I know EXACTLY what I would've done with 10k junior year of college, and my parents wouldn't have condoned it). with 529 plans, you maintain more investment control and don't have to give up the assets right away.
if it's truly a token amount and you anticipate ramping up the savings later, you could always get them 1 share of DIS and get the certificate framed, seen many families do this for godchildren when they're young and then help with 529 contributions later on. it's a good looking certificate with cartoons and stuff on it, it's more of a sentimental gift but a good gesture nonetheless.
Especially if the child is younger. Then you can tell them that they own part of Disney! What kid doesn't want to hear that!?
Doesnt make sense to buy multiple stocks with only a few hundred bucks but it sounds like you are well intentioned. Set the money aside and just buy a low cost index fund or etf on a market pullback or inevitable correction. Alternatively you could buy shares in a single company that has some sentimental value with the kid AND is not overpriced (good luck finding the latter). Given the small $ amount and the likelihood that you will hold indefinitely you can gift the shares to junior in the future.
Stocks don't make a ton of sense unless you do cheaper blue chip stocks that you will hold for a long time. Transaction fees could eat away at the gift. It would be better off in a low cost index fund or something like Brofessor mentioned with a plaque on the wall.
Blue chip at about 10 P/E.
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