Starting a Stock Account for Kids

On Friday I finally did what I have been wanting to do for over two years. Start a stock account for my children!

I opened a brokerage account with Scottrade because I have my personal one with Charles Schwab and I wanted to diversify. Scottrade also has cheaper stock commissions ($7 vs $9 for Schwab) and I wanted to test them out.

As a quick note we trust our financial guru, William Jordan, with all of our retirement investments. I do have an account that I like to ‘day trade’ though because I LOVE the stock market! I highly recommend you talk to William about your retirement needs, no matter how small. His first recommendation? Get 6 months (at least) of savings in the bank. We LOVE him! He is not just the stock market, he is also everything else. 🙂 I could do a whole post about just him along but I want to talk about my stock picks for my kids.

Brokerage Companies

There are quite a few other brokerage companies so if you are looking to do the same thing, I would investigate a few options. I like Schwab because I’ve been with them for the longest and trust them most.

Tax Implications

There are also quite a few tax implications in setting up a custodial stock account for your children, as well as possibly hindering any financial aid for colleges you may apply for in the far distant future. Do your research!

What To Buy?

Hopefully my account will become active for them both on Monday afternoon before trading ends. If not, on Tuesday then.

I will be buying:

SWNTX – It’s a mutual fund that I have been active in for over a year. I like it as it has a good rating, good payouts, and keeps going up!

COP – You need a good oil and gas company in your portfolio. COP has done very well for me over the years. I’m usually buying and selling the highs and lows at random points, or where I feel comfortable doing so.

MAT – I have never owned Mattel but for Sam, I have to buy in! The girl loves her barbies. Up 21% YTD, it’s already done very well but I am of the belief the economy is picking up so hopefully it will continue to do well.

LF – I have never owned Leap Frog either and it is up 44% this year but my kids love their Leapsters and I have heard nothing but raves for the Leap Pad so I’m going to try this stock out.

Buying when they Dip:

USB – You need a good bank stock in your portfolio and my step-mom works for USB. It’s a strong bank that is not at the top, didn’t get into big trouble with the mortgage problems in the last year, and has been performing VERY well. For the last few years it would always bounce between $22 and $28 so I would buy and sell accordingly but right now it is at $31! I sold the rest of my stock and am waiting for it to take a small dip before I buy in again. I will be buying a few shares for the kids.

KO – Pepsi or Coke? I used to ONLY drink Coke but now I prefer Pepsi however I like KO as a stock the best! It’s doing well so I’m waiting for a dip.

DIS – Of course I need Disney in their portfolio! It’s only right! I have been buying and selling this stock for about a year and it’s currently at a high for the last year or so. It’s done 15% YTD so far! Go Disney! I’m waiting for it to dip to buy in for the kids.

How to Buy?

I won’t be buying a ton of the 7 stocks above right away.

For SWNTX, I will invest 10% of the full account. Possibly another 10% in another week or so. I can take that money away at anytime but for right now it’s a fairly safe bet. The other three stocks, I will be buying half of what I plan to end up with. That way, if it dips I will buy again in a few weeks. If it REALLY dips I can keep slowly buying in so it leverages my cost. At most I would want to do 4 buys of the total stock. I usually do two, maybe three. Everyone has their own strategies. I’m usually too impatient buying in. With selling, I will sometimes do it a lot more slowly.

For a quick example, let’s say that I want to buy a total of $200 in Leap Frog. It’s at $8 right now.

I would buy 12 shares to start with, plus the $7 commission fee. After a week or two, I will see what it does. If it dips to $7, I might buy another 10 shares. However, if it goes up to $12 suddenly I might just sell! The downside to LF is that there is no dividend.

Let’s take COP. If I wanted to have a total buy in of $500, I need to check out the price. The stock is at $76 from Friday. Eek! I know, it’s high. If I’m only working with $500, then I won’t have too many shares to purchase so I would probably purchase 6 on the first day. Take a chance… It was at $76 on Friday but a week before that it was $78. It was pretty high right now so I need to decide when to buy in. At some point, you just need to jump in. COP has a 3.5% yield, so if I buy $500 now, at the end of a year I will have earned $17. If you factor in the $7 commission, then it would be $10. Not much, but if at the end of that year, the stock was at $86 and I decided to sell, I would have earned $63 (that’s minus the commission for selling the stock as well).

MAT, DIS, and USB are all $30’ish stocks so that is a good place to play at for me with the kids accounts. With SWNTX, you can buy in at any amount (I think!) and it’s always nice to slowly get into that one as well. It creeps up and down and if you do three or four buy-ins over the course of a month, you can average out pretty well.

So, duh, the quick lesson here is try to have stocks with good yields if you are going to keep the stocks for the long haul. I usually have a mixture of both. There are many many times where I have no time to look at stock prices during the day, so I just have to be glad that I’m usually picking strong stocks to begin with.

I do have to say that buying and selling stocks that don’t have yields can be VERY fun as well.

Those are the stocks I’m investing in for my children. I want to find a good book to read them at some point and start explaining this to them over the next few years. I want them to be involved.

I have about 15 other stocks that I go back and forth that I like to play with in another account. I’ll have to list those later!

What is your favorite stock?