Best Stocks for Kids in 2023

The post Best Stocks for Kids in 2023 appeared first on Millennial Money.

As a parent, your job is to help position your kids up for success later in life. One of the best ways to do that is to educate your kids on personal finance and investing.

Teaching kids about money is an important but daunting task. Financial literacy doesn’t come easily to most adults, which can make getting your children interested in investing a challenge. But educating them on managing their money and investments early in life will set them up for success when they’re grown up.

Whether you want to set up an investment account for your kids as a savings plan or for educational purposes, buying stocks for your kids is a great idea. In this article, we will break down the logistics of investing with your kids, the benefits, and the best stocks to buy for your kids.

Can Kids Invest in the Stock Market?

Yes, kids can absolutely invest in the stock market – but not on their own.

Kids can invest in stocks, ETFs, mutual funds, and more under the supervision of a parent or guardian, however, to purchase stocks on their own, they will need to be at least 18 years old.

If you want to set up an account for your children now, you can do so through a joint brokerage or custodial account. You can open this account as soon as your child is born and deposit anywhere from $1 to $16,000 ($32,000 per married couple) per year into the account.

What is a custodial account?

As the names suggest, these accounts allow you as the parent to be the custodian of the account until your child reaches the age of majority. After that, the account can be transferred to the child for them to manage on their own.

If you plan to open a custodial account for your child, the funds that you place in the account are irrevocable. This means that any money you put into the account becomes theirs and cannot be retrieved by anyone but the account holder – even if you’re the one who put the funds in the account in the first place.

Parents who don’t want to open a separate account for their children can always use a portion of their own portfolio to purchase stocks with their kids. You could also choose to open a separate account under your own name but designate it for your children’s stocks.

9 Best Stocks for Kids in 2023

When investing with your kids, you want to buy stock from companies that they know and will also grow in value over the years. Here are our top picks for the best stocks to buy for your kids.

1. Alphabet (GOOGL) Alphabet Google logo

  • Price: $101.21 (as of close Jan 23, 2023)
  • Revenue Growth: 17.94%

Alphabet, the parent company of the world’s top search engines, Google and YouTube, is one of the best investments you can make for your kids.

Since 1998, Google has been one of the leaders in the technology industry and dominated the search engine market for decades. Whenever you ask a question on a smartphone or home device, it’s almost always Google that provides you with the answer.

In 2015, Google restructured to form its parent company, Alphabet. They gained control of Google and all its subsidiaries as well as other companies like Youtube and Waymo. This move has allowed the company to more heavily invest in other areas of tech, such as AI across all its platforms.

While Alphabet is typically considered a “safe stock,” they are not invincible. Like many technology companies in recent years, Alphabet/Google has faced scrutiny from lawmakers in both the United States and Europe for their data collection and usage. This is a challenge that has forced them to pivot their business practices, affecting their stock value, retained earnings, and dividend payouts.

Despite these challenges, Alphabet and its subsidiaries have led the charge in product development and modernization. They continue to be one of the leading innovators in the technology space, which is the wave of the future.

It’s worth noting that Alphabet has two different publicly-traded stocks. They have their “Class A” stock, GOOGL, which gives stockholders voting rights, and their “Class C” stock, GOOG, which offers no voting rights. Choosing between the two gives you a great opportunity to explain to your kids how stocks factor into the decision-making and operations of their favorite companies.

2. Apple (NASDAQ: AAPL) Apple logo

  • Price: $141.11 (as of close Jan 23, 2023)
  • Revenue Growth: 7.79%

Apple is one of the most recognizable companies in the world, which makes them a no-brainer when it comes to investing in stocks.

Apple has an excellent track record as a stock (25% growth over the past decade) due in part to their ability to create sleek, innovative products and inspire brand loyalty. They have cultivated a loyal customer base since their founding, and this loyalty contributes to their high stock performance.

Apple’s strength lies in its ability to position itself as a lifestyle company rather than just a tech company. If someone has an iPhone, they are more likely to have a Macbook, iPad, Apple Watch, Air Pods, etc. They have created what is known as an “ecosystem” where it is hard to separate yourself from the brand once you have bought in to such a high degree. The cost of leaving the brand behind becomes too high, which keeps people coming back for more (called “stickiness.”)

There is also a social stigma associated with separating yourself from Apple, such as Android users. We all know the annoying feeling of getting the green bubbles in the groupchat. This form of social credit helps encourage more people to choose Apple.

Apple markets itself as a luxury technology company, and this allows them to charge premium prices. In addition to their constantly releasing new products, it’s unlikely that their market share will decrease anytime soon. Apple is a great stock to buy if you are looking for a company with financial stability and good growth prospects.

3. Disney (NYSE: DIS) Disney logo

  • Price: $105.69 (as of close Jan 23, 2023)
  • Revenue Growth: 22.70%

It’s not just today’s kids who have grown up with Disney. Named after the famed cartoonist, Disney has been a cornerstone of childhood since the early 20th century. The longevity of Disney as a media conglomerate and entertainment company makes them the perfect buy-and-hold stock for your kids.

As a company, Disney is so much more than Mickey Mouse. They have a diverse business portfolio of amusement parks, original content, TV and sports shows, consumer products, and much more. Here is a breakdown of the different business segments that make up Disney:

Amusement Parks and Experiences

We all know about Disneyland Resort in California and Walt Disney World Resort in Florida. But there are many more properties and attractions that are operated by Disney. In addition to the Disney Parks, Disney also operates:

  • Disney Cruise Line
  • National Geographic
  • Disney Vacation Club, a timeshare program
  • Golden Oak, a residential community within the Walt Disney World Resort

Media & Entertainment

This segment of Disney’s business deals with streaming services, entertainment distributions, and consumer products.

Their streaming services are Disney+ and ESPN+, which have performed spectacularly since their launch. Anyone who wants to stream Frozen 2 for their kids or stream the big game on ESPN content must go through Disney to do it.

Their consumer product division is responsible for all Disney merchandise, including clothes, accessories, toys, video games, and more. Anything that can be purchased from a store that has Disney branding on it is managed by this division.

Studio Content

The studio content division of Disney is the real cash cow of the entire company. This segment of Disney’s company is responsible for the production of all media under the umbrellas of Walt Disney, Twentieth Century Film Corporation, Searchlight Pictures, and Hollywood Records.

Additionally, this business segment manages the larger film franchises that we know and love, like Marvel, Star Wars, and Avengers. Think about how many people waited eagerly to see Avengers: End Game. They were all supporting the studio content division.

General Entertainment and Sports Content

Finally, Disney has a large presence on regular network television. Many of your favorite channels are under the Disney brand, namely ABC, FX, Disney Channel, and Freeform (formerly ABC Family.) They are also responsible for all the content on ESPN’s channels. From basketball to bass fishing, Disney controls all ESPN content.

It’s easy to see why Walt Disney is one of the most successful companies in the world. Their vast portfolio of business segments and content popularity makes them the perfect choice for a buy-and-hold investor like kids. Plus, your kids will love knowing that they are a partial owner in the company responsible for all their favorite movies and shows.

4. Hasbro (NASDAQ: HAS) Hasbro logo

  • Price: $65.01 (as of close Jan 23, 2023)
  • Revenue Growth: 1.01%

What kid doesn’t love toys? While toys have changed a lot over the years, there is still enormous value in developing new toys that kids will love and parents will buy. Hasbro, the Goliath of the toy-making world, is at the forefront of making the toys and games we’ve loved for decades as well as new toys for the next generation.

Hasbro is the company responsible for your favorite board games, like Monopoly and Operation, and popular toys, like Play-Doh and G.I. Joe. They also have a partnership with Disney (bonus!) to create toys for Disney brands, such as Marvel and Star Wars.

As today’s toys shift away from the traditional toward more technology-driven products, Hasbro has launched research and development initiatives to innovate their products and drive long-term growth prospects. They are also adapting their classic games, like Dungeons & Dragons, to be played online in gamer communities across the globe. This fares well for their growth prospects and relevance in today’s market.

5. McDonald’s (NYSE: MCD) McDonalds logo

  • Price: $269.29 (as of close Jan 23, 2023)
  • Revenue Growth: 3.27%

McDonald’s is a brand that needs no introduction. They have approximately 34,000 restaurants spanning 118 countries, and they serve close to 70 million customers each day. Whether or not you take your children to eat at Mickey D’s, we think these stats speak for themselves.

We might know McDonald’s as a fast food restaurant, but analysts on Wall Street refer to fast food restaurants by a different term: quick service restaurants (QSRs.) McDonald’s stands apart from other fast-food restaurants because of its significant real estate holdings. In other words, McDonald’s actually owns the land that its restaurants are on, so they make money on both rent and food sales.

McDonald’s is a great stock to purchase for your kids because it will help them to learn about dividends. McDonald’s has famously paid out dividends uninterrupted for the last 45 years. Not only that, but they have a higher-than-average dividend payout ratio compared to other publicly traded stocks. This can be a great opportunity for you to explain dividends to your kids.

Many analysts may say that McDonald’s stock is overvalued right now, and they’re probably right. However, this won’t matter if you’re taking a long-term view, and if you’re investing for your kids, you probably are. Most stock analysts are in agreement that McDonald’s is a “hold” stock, so don’t be afraid to pick it up now and hold out for the long haul.

6. Amazon (NASDAQ: AMZN) Amazon logo

  • Price: $97.52 (as of close Jan 23, 2023)
  • Revenue Growth: 9.66%

Amazon is a household name that has redefined the world of online shopping. Most everyone uses Amazon’s services, whether it’s shopping online with a Prime membership, reading a Kindle, or using an Alexa device. Their breadth of services and their customer loyalty are reasons why Amazon stock is a must-have in any investment portfolio.

We all know Amazon as an e-commerce company, but they are so much more than that. Many people don’t realize that Amazon is the world’s largest cloud provider. This means that more people rely on them than any other company to secure their cloud data.

Amazon is also one of the world’s largest advertising companies, behind only Meta and Google. If a company wants to sell products through Amazon (and what company doesn’t?), they can pay Amazon directly to appear as a featured product for certain search results. Plus, when that company sells its products on the platform, Amazon earns money from the sale. They are essentially cashing out on both ends.

Because of their diversified business model and solid long-term growth, Amazon is an attractive stock to purchase for your kids. They are a known disruptor and innovator in new markets and are expected to continue growing for years to come.

7. Nike (NYSE: NKE) Nike logo

  • Price: $128.29 (as of close Jan 23, 2023)
  • Revenue Growth: 6.05%

Perhaps the most popular sports apparel brand, Nike is very popular among the Gen Z population. Their stock is a must-have if you want your kid to invest in a company that has great returns and that they can identify with.

Like many other companies on this list, Nike comprises much more than what we know them for. In addition to Nike-branded shoes, activewear, and accessories, Nike is the owner of Converse and the digital sales company Datalogue. With two large brands like this under its wing, it’s no wonder that they are one of the most valuable brands in the world.

One of Nike’s strengths as a company is its willingness to be an early adaptor to new technologies. It recently made waves with its entrance into the Metaverse through Nikeland, a virtual world through the Roblox platform that lets people interact with each other and the brand. This is an example of the innovation and adaptation that keeps Nike at the head of the pack and, importantly, a valuable stock option.

8. Mattel (NASDAQ: MAT) Mattel logo

  • Price: $20.08 (as of close Jan 23, 2023)
  • Revenue Growth: 10.19%

Thinking about spending money on a toy for your kid? You’re not the only one. In America alone, consumers spend roughly $2.5 billion each year on toys. Instead of spending money on toys, spend the money on Mattel stock for a gift that will last much longer than a toy.

Mattel is the famous toymaker of timeless brands like American Girl, Barbie, Hot Wheels, and Fisher-Price. They also specialize in video games for children, like the uber-popular online game, Minecraft. They have operations in 35 countries and have a market capitalization valued at $8.7 billion.

Mattel has extraordinarily popular toy brands, but their value really lies in the intellectual property of these brands. Whenever there’s a new Barbie or DC movie, Mattel gets a big check. This is what keeps them relevant and ahead of other toy companies. Recently, they have expanded their brand by partnering with other companies, like Disney and Nintendo.

9. Netflix (NASDAQ: NFLX) Netflix logo

  • Price: $357.42 (as of close Jan 23, 2023)
  • Revenue Growth: 6.46%

Like many other companies on the list, Netflix is a household name that isn’t going anywhere anytime soon. While they have faced some competition in recent years, they are still a Goliath in the streaming space with more subscribers than the populations of Spain, France, and the U.K. combined.

Many streaming companies have secured subscribers through original content that viewers can only get on the platform. The popularity of shows like The Crown, Peaky Blinders, and Stranger Things have ensured that people won’t be hitting the “unsubscribe” button anytime soon.

Netflix has also invested heavily in its family-friendly content to attract parents who want to distract their children with a cartoon while they cook dinner or relax. If your kids love their Netflix cartoons or love to pick the movie for family movie night, consider buying them stock in Netflix so they feel like they’re a part of the action.

How to Help Your Kids Buy Stocks

Buying stocks for your kids is simple once you have the right investment account in place for your kids. Here are the steps you need to take to help your kids begin investing in stocks.

Set Up a Custodial Account

The first thing you will need to do is set up a custodial or joint brokerage account on your kid’s behalf. This will allow them to buy stocks as the official account holder and officially gain control of the account when they reach legal adulthood.

There are certain financial advisors and brokerages that don’t allow parents to set up custodial accounts, so you will need to find one who does. Fidelity is one broker that will allow you to create a brokerage account for your child no matter where you live.

Finding a broker isn’t the only decision you need to make when opening a custodial account. You also need to decide what type of account you want to establish for your child. These are three popular options for parents who want to start investing for their children.

Custodial IRAs

If your child has begun to earn money on their own, custodial individual retirement accounts (IRAs) are a great way to get your teenager investing.

There are two types of custodial retirement accounts that you can choose from: traditional IRA or Roth IRA. A traditional IRA lets you contribute to the account tax-free, while a Roth IRA lets you withdraw from the account tax-free.

Roth IRAs are popular for parents who set up custodial IRAs for their children because the child won’t need to pay tax on their funds when they decide to make withdrawals. However, the decision to open a traditional or Roth IRA is ultimately up to you.

UTMA/UGMA Accounts

If you plan to give your child the funds to take them from a beginner to an expert investor, you may consider opening a UTMA/UGMA account.

UTMA/UGMA accounts are a popular custodial brokerage account for parents who want to freely gift their children funds to begin stock investing. There are some subtle differences between UTMA accounts and UGMA accounts, but the gist is that they are convenient for parents, relatives, or loved ones to transfer funds or property to a child.

Benefactors can gift up to $16,000 per year ($32,000 for married couples) before they are subjected to gift taxes. The funds can be used to invest in stocks, ETFs, mutual funds, crypto, and more. The money can be withdrawn and used as long as it’s to benefit the child. Once the child reaches the age of majority, the account will belong to them to do with it what they wish.

529 Plans

If you want to open a brokerage account to help save for your child’s education, a 529 plan is the way to go.

529 plans are accounts that are designed to help you and your child pay for their education with fewer taxes. Unlike other custodial accounts, parents and family members can contribute to the account with no limit. However, the account can only be used to pay for education expenses.

You may be limited to certain investment options with a 529 plan, like ETFs and index funds. However, the account offers flexibility in changing its beneficiary if, for instance, your child decides not to attend college. You can transfer the funds to another child under the condition that they use the funds to pay for school and educational expenses.

Purchase Stocks with Your Kids

Now is the time when you can sit down with your kids and explain to them what investing is all about.

Talk to your kids about the differences between the Nasdaq Stock Market and the New York Stock Exchange. Walk them through why a company sells shares of stock and what shareholders gain from it. Explain why diversification of an investment portfolio matters and why they should buy and hold stocks.

Answering these questions before you purchase stocks will help them understand the significance of the process and prepare them to become more financially savvy as adults.

Here’s Why Kids Should Start Investing Now:

Your kids may be hesitant to begin investing in the stock market. After all, it’s a very grown up and confusing activity! But teaching your kids to invest is one of the best gifts you can give them.

There are several benefits to purchasing stocks with your kids when they’re young. The first is that it teaches kids about personal finance and money management. Money is one of the number-one causes of stress in adulthood, so teaching your children about budgeting, investing, and saving will prepare them for managing their finances after they leave the nest.

The second important lesson kids can learn from investing is patience. Earning money from investments takes time, often several years. Your kids will need to develop the patience it takes to let their stocks mature in value. This character trait will serve them well in personal finance, investing, and beyond.

When you sit down to begin the journey of investing with your kids, talk to them about what to expect from the process, its importance, and why you are getting them started in the first place. This will help them understand the overall process and make investing far less intimidating – which is the whole point.

Invest in Your Child’s Future

Buying stocks for your kids can help them build a nest egg for their future and teach them important financial skills that will help them throughout their life.

To learn more about investing for kids, check out our Investing for Teens 101 guide to walk you through the ins-and-outs of getting started.

The post Best Stocks for Kids in 2023 appeared first on Millennial Money.

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