Picking stocks probably isn’t something many kids would choose to spend their free time on.
But for teenagers and even pre-teens, it can be an interesting entrance into the world of investing — especially if they’ve got a little money to invest in a dividend reinvestment plan to help show them the long-term consequences of buying and holding stocks.
And that may be the best way to teach children about investing, by encouraging them to buy and hold stocks for the longterm so they can see how the stock prices (hopefully) grow over 15 years or more while measuring their risk capacity. It’s a way to teach them patience, if nothing else.
Stocks for kids
In picking the five stocks below that should get kids excited about learning about the stock market and becoming life-long investors, I tried to meet a few criteria:
- The company should be suited to long-term investing of 15 years or more.
- It shouldn’t be a fad business but have staying power.
- A strong balance sheet is needed.
- It has a record of innovation without taking on too much risk.
- It’s an interesting company that kids will want to explore as a stock.
These characteristics can be difficult to meet for every buy-and-hold company, but should meet a majority of them to help your children learn what makes a good long-term stock.
Here are five stocks that I think can be a good start to getting kids interested in investing:
Walt Disney Co.
Disney (NYSE: DIS) is an entertainment and mass media giant that every child knows something about. They’ve likely seen a Disney movie, been to one of its theme parks, watch its TV channels or own clothes and toys with the company’s many characters on them.
There are all kinds of financial numbers that can be thrown at investors for any stock recommendation, but one that stands out for Disney is its 222 percent return over 10 years through Aug. 19 — double the broader market’s 108 percent return, according to The Motley Fool.
The stock is trading at 17.22 times earnings, the lowest price-to-earnings ratio since early 2013.
What child doesn’t own an Apple (NASDAQ: AAPL) product or have access to their parents’ iPhone, iPad, iPod, MacBook or other Apple product? It’s a company they probably use every day, and encouraging them to learn about the company’s stock is a smart next step.
With a P/E ratio of 12.73, the stock is a bargain and is good enough for long-term investor Warren Buffett to buy. Apple has low debt and a quarterly dividend that has grown by 50 percent since November 2012.
While the company has its share of growth problems and relies heavily on iPhone sales, it is always innovating.
Of all of the streaming companies to choose from, Netflix (NASDAQ: NFLX) is the biggest and has been around the longest. Does that make it the best streaming business to invest in? Maybe not, if short-term gains are your goal.
But if you’re betting on a company that will be around in 15 years, I’d bet that Netflix will still be going strong long after your children graduate from college.
The company has adapted wisely since its inception, going from mailing DVDs to streaming video and being an industry leader in creating original shows.
Its growth is maturing. It ended the first quarter of 2016 with 81.5 million subscribers around the globe, more than double the 36.3 million it had three years ago. Netflix’s competition is increasing, though from past experience the company looks to be up to the task.
I know, another tech-related stock. Tesla (NASDAQ: TSLA) is a company that’s built for the future and looks ahead as much as any stock recommended here.
It’s more than a car company. It builds itself as an energy-innovation company that will get the world off fossil fuels. Tesla has invested $5 billion in a factory to build better batteries, proving that it’s trying to make the world a better place. As a company for children to research and invest in, you couldn’t ask for much more.
As a beverage giant, Coca-Cola (NYSE: KO) is hard to ignore. Chances are your kids have drank a Coke or two, or one of its products, and know the logo when they see it.
As a stock, Coca-Cola has a long dividend history and a good dividend yield. It’s a stable company that will be around forever.
If you’re looking to teach your kids the value of buy-and-hold stocks and long-term investing, this company may be one of the best ways to show them what success looks like over decades.
Disclaimer: I own Disney and Apple stocks, subscribe to Netflix and have had far too many Cokes. I own an electric car, though it’s not a Tesla.