Stocks for newborns: Baby's fortune starts now

OK, so you don't have to aim for millions. But time and a little savvy can really pay off as your child grows. Here are 8 expert picks and some tips on where to begin.

By Kim Peterson May 4, 2012 9:32AM
Credit: Kim PetersonForrest Gump hit the jackpot when a friend invested his money in "some kind of fruit company" -- also known as Apple (AAPL). The stock went public at a split-adjusted price of $2.75 and is now worth nearly $600.

Wouldn't it be great to give a newborn the same stock market bonanza? If only.

In today's volatile markets, perhaps the most we can do is invest some cash in a reliable, well-priced stock and hope it goes somewhere.

The right choice might turn into a college tuition in a couple of decades. Or a down payment. We just have to figure out what to pick.

And that's what led us to create the Stocks for Newborns series that has been running all week on Top Stocks. Investors are so focused on short-term plays these days, jumping in and out of picks at a moment's notice. We asked our panel of experts to take a step back. Waaay back. If you were going to buy a stock for a newborn today, one with a 20-year or 30-year horizon, what would you choose?

We got eight thoughtful picks covering a number of industries, including technology, energy and retail. You can read about the choices here:

Monday
Tuesday
WednesdayOK, so once you're armed with that knowledge, what's next? You need to buy the stock and transfer it, which can be time-consuming. You have a number of options.Image: Financial adviser talking with clients © NULL/Corbis

First, you can open an account with a discount broker or a full-service broker. Usually, this involves filling out a few forms and sending the broker a deposit before you even get started. The broker will want to see your account funded before turning you loose to pick stocks.

You can try asking your broker for an actual certificate of stock ownership, but that might come with a hefty fee -- up to $500 in some cases. The paper stock certificate is on its way out; some companies don't even offer a paper certificate to shareholders anymore. It's all going electronic. But the good news is that the electronic transfer of shares as a gift is relatively painless.

Another option is to find a plan that lets you buy stock directly from a company. These plans are known as dividend reinvestment plans, or DRIPS, and they are often done without hefty brokerage fees, though some might charge a nominal fee. Some companies offering their own DRIP plans are Caterpillar (CAT), McDonald's (MCD), Coca-Cola (KO) and General Electric (GE).

But there's one caveat to many DRIP plans: You have to be a shareholder of record first. So how do you become a shareholder of record? The answer is in a third option, which allows you to buy one share of a company and get a shiny stock certificate to boot.

Websites like GiveAShare.com specialize in giving one share of stock as a gift. Sometimes customers are looking to become a shareholder of record for those DRIP plans, says co-founder Rick Roman. GiveAShare even devotes a portion of its website specifically to DRIP plans.

Other customers want to buy one share for a child. The certificate itself is of value, Roman says. In fact, if you sell the stock, you have to return the certificate to the broker you're working with. So customers often choose to protect the certificate by having it framed.

GiveAShare can handle a credit card transaction -- unlike many brokerages -- but it's limited to selling one-share increments. It sells only the most mainstream stocks (you can see the list here), so many of the ones our experts recommend won't show up on its site.

Picking a stock as part of a long-term investment strategy is extremely difficult, Roman said. "I used to think that I could really beat the market, and I think I've been humbled a few times," he added. Haven't we all.

But keep in mind that when you're buying a stock for a newborn, you aren't looking for that Forrest Gump lightning bolt. You just need something slow and steady for the long haul. If you're lucky, you'll see some nice splits and share price growth. Check out this chart on Coca-Cola's website, which shows that one share in 1919 has since split so many times that it has turned into 4,608 shares today. At Thursday's closing price of $77.44, that equals $356,844. And Coca-Cola's board has just recommended another 2-for-1 stock split.

There's another benefit to buying stock for a newborn. It gives the child an early education about stock ownership and business operations. Roman said the most popular baby stock gift is Disney (DIS), mostly because it comes with such a nice stock certificate. But owning a stock like Disney also gives a firsthand peek into how the stock market and public ownership works.

So for the next newborn in your life, consider buying a chunk of stock as an investment in the future. It sure beats a diaper cake.

For more investing basics, check out MSN's New Investor Center.
16Comments
May 4, 2012 5:45PM
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My father 'bought me' $100 worth of stock when I was born (in 1953) and didn't find out about it until my my dad's death in 1998.  If I knew about my holdings when I was 16 I probably would have gotten a new car.  As it is I was able to afford a condo in 2001 and am currently living on those funds due to unemployment.  Compounding interest for 45 years can add up to a sizable sum.  But the market is always a gamble - when asked I usually tell people not to invest their 'dinner' money - because it could disappear tomorrow, but just a little attention - over time it could return a great deal.  Of course the market was different in the 50's than it is today.
May 4, 2012 6:10PM
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I have heard you can set up an IRA for your kids, and pay them for household chores. Let's say little Timmy cuts the grass and takes out the trash, and you pay him $20, $30, $40 a month starting when he's 10 years old. 
Now that would be sizable when he's 25 or 30. Or even better, when he's 59 or 65!
May 4, 2012 8:40PM
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This is something that I have already done for my two grandkids.  They were born and i set them up with a TD Ameritrade account and put $1,000 in their accounts.  Their dad can invest it for them and they are doing ok.  I am hoping that when they are old enough to understand they have stock that they will learn about investing.  Many people don't understand how the stock market works.  One person on here asked about corporations sharing more with investors.  Two weeks ago I purchased stock that will return over a 6% dividend based on what I purchased it for.  So far, it has gone up 18%in value.  Someone else mentioned brokerage fees.  You do need to watch out for those. I don't want to mention any particular brokerage but there are accounts for as little as o.17% or so; you just have to know what you are getting into.  Brokerage fees can eat your $.

May 4, 2012 5:20PM
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Talk to your broker about opening up a tax deferred account for your kids college education, or if it is someone else's baby, talk to them and their broker about how to donate some stock as a gift for this purpose. That's the best way.
May 4, 2012 8:51PM
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Opened a 529 Plan for our 8 month old granddaughter. $5,000 to open and $500 per month for 18 years. If she is as smart as her Mom and Grandmom there should be additional funding available through a scholarship(s). While a college education is not a guarantee of

anything, I plan to provide every advantage possible for this precious little one. 

May 4, 2012 3:42PM
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not a bad idea, if you can pay the rent
May 5, 2012 10:06AM
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Smile Open up an account to young children so they can pass it on to their children and on forward. That makes a lot of sense.Confused
May 4, 2012 7:50PM
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Up down, go around, let's get real here, these corporations are making huge profits.  How about sharing more with investors? 
May 4, 2012 3:18PM
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Wow! Last headline was so fake we now get baby pics. zzzzzzzzzzzzzz....
May 4, 2012 6:12PM
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Lol.  Ok marks, line up.  The wealthy wall street creeps want your soul from cradle to grave.  You'd not remember the 401k bust that wall street raped your parents with and caused them to work until death, no retirement funds left  because their 401k funds were swallowed by the greedy pigs at wall street.

Are young parents really that stupid?  To reinvest in wall street in their kids name?  Hell no!!!!

 

 

Occupy Wall Street Lives

May 4, 2012 2:29PM
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"Stocks for new borns . . . ."

 

Great . . . . Now Wall Street wants to steal money from babies. Have you now shame, Wall Street?

May 4, 2012 8:42PM
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Buy silver and hold it.  **** Wall Street.  They are nothing but pimps and NWO Jew bankers.
May 4, 2012 6:28PM
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Don't forget that brokerages charge fees, annual fees that eat up any potential long term profit. IMHO: Investing in stocks is for rich people with money to throw away.
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