How to buy stocks as gifts for Children

Looking for a special gift for a child's birthday or graduation? for Christmas? or any other occasion such as a baptism or first communion? Think investments such as stocks. These long term investment instruments make great gifts for children, mainly because children have a long term investment horizon. Meaning they have time on their side.

As a parent or family member it's extremely rewarding to be able to help that special child starts building wealth for her future. Along with the gift you can also add children investment literature that teaches the child the value of money and the value of investing (buy at Amazon.com or bookstore.) Its important to realize that despite the latest Stock Market crisis, stocks overtime have provided better than average returns to investors with long term objectives.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Internet Access

1. 
   Investing for children

   The first step is to decide how to invest in or buy the shares of stock you are planning to give. The easiest and most financial efficient way to buy stocks for children as gifts is through Dividend Reinvestment Plans or DRIPs. Many companies accept direct investments from anyone who wants to invest. This means that you can invest without going through a broker and without paying high fees and commission. You can give the gift of one share of stock or more if you wish. Once you buy the first share for the child anyone can continue adding to the account by buying more shares. You can also buy more shares at different times, for example one share for her birthday, another share for Christmas etc. The dividends earned by the shares of stock can automatically be reinvested to buy more.

2. 
   Investing for children

   The second step is to decide how to invest in these DRIPS. There are basically two ways to invest in DRIPs. First, you can contact the individual companies via their Investor Relations department and ask if you can purchase shares of stock directly. The second way and the way I recommend is to use a DRIP service company. You can do a search on the internet by the key words: DRIPs or buying stocks direct.

3. 
   Investing for children

   The third step is to decide what to invest in or what companies' s shares to buy or what type of portfolio you want to set up for the gift. Since this is a gift for a child you want to keep two things in mind, first the child has a long term horizon until retirement and second you want to buy shares in companies that offer growth for the child long term horizon. A term used in the industry is growth stock for companies that don't pay too much dividends but invest the profits in future growth. Another term is income stock for companies that pay a good size dividend to the shareholders.
   
   In addition to growth stock you want to think about income stock as well because the dividends from these shares will be reinvested by the DRIP to buy more shares for the account. Buy what you know, this means investing in the companies whose goods and services you use daily. This is a good starting point, use this idea along with the concept of owning basic industries, such as food, banking, utilities, energy etc. and deciding what to buy looks easy. What these industries have in common is that they provide goods or services that people need regularly.

4. 
   Investing for children

   The fourth step is identifying familiar companies to determine which competitor is the best to invest in. Keep in mind that you’re focusing on the long term. You can use vast of free information from the internet such as yahoo finance or google finance. Think about companies in the likes of Disney World, Clorox, Exxon, Johnson and Johnson etc.

5. 
   Investing for children

   Lastly, you buy the share of stock as a gift for your child, grandchild, niece or nephew. If you decide to buy directly from a company, you will receive a statement from the company representing the purchase. However if you buy from a DRIP service company the child would have an account set up and later in addition to buying more shares of the same company, you or anyone can buy her shares in a different company. Remember that the gift of a share of stock may represent an excellent start to a healthy financial life for a child.

Tips & Warnings

• Do your homework, there is plenty of free information online and libraries on the subject of investing.

[Lilfix]

on 3/10/2009 Very nice article! I have saved to favorites so I can share it with my friends...Thanks for sharing! RRCR5*

[yessharon]

on 1/2/2009 Great advice for investing for our children.