Buying stock for baby

[Kiasmine]

I'm buying a stock for my baby, over the years we would like to add to either this stock or buy additional (if she desires) as she ages. I feel purchasing stock is a better gift than the latest toy. It will help her financially in the long and she will learn about the all mighty dollar.

Anyways, my question is. Should I go for the ol' Disney? Maybe coke, a bank, not sure. I would think a dividend or utility co?

Also should we have a custodial account or just buy the shares in her name?

Opinions please

TIA

[kcowan]

You need to decide why you are doing it. If it is to teach the joys of dividend investing, then that will be different than if you want them to relate to the company (e.g. Disney)?

[Kiasmine]

You need to decide why you are doing it. If it is to teach the joys of dividend investing, then that will be different than if you want them to relate to the company (e.g. Disney)?

a little of both, it's easier to learn when you can relate. oil companies, not so interesting to a 5yr old. Mattel, Vtech and Dis....now were talkin....

When comparing between companies, should I focus more on the moat and dividend?

[augustabound]

I asked a similar question earlier this year.

To date, we started an RESP with a $2000 and are in the process of converting it to td-efunds. I'm still thinking about buying her stocks, just a few shares as long as transaction costs aren't prohibitive.

And I second Keith's comment here, you need to think about your motives, that's what I needed to do after Maxfax comment in the thread I linked. Giving her money or stocks isn't teaching her anything about earning and valuing money, but showing her the shares, dividends etc and also teaching about the powers of compounding can big helpful.

To update my link also, my cousin now has an Apple iPhone to play with. But, he is finally enrolled in college.

[augustabound]

When comparing between companies, should I focus more on the moat and dividend?

How long do you plan to hold these shares? Long term holds, I would focus on industry leaders that pay a dividend, have stable cash flows. Moats yes.
I'm thinking Proctor and Gamble, Coke etc. at the right price of course.

[mpav]

For my lil dude's RESP I do a mix between Transcanada and Royal Bank...each year I used the investment to buy one or the other. Early days so not much money to diversfy, but those two are cornerstone stocks.

[ThinkDividends]

I bought 1 share of Disney for my nephew at www.oneshare.com

[Pickering]

Had a similar situation in that we wanted to do something for our Grandkids. Came to the conclusion that dropping $ 250 every Christmas was just going to clutter up the basement. Not meaning to be Scrooge - the kids all have plenty of toys and many Aunts, Uncles etc that keep the inventory current. Wife still gives them the toys anyways.
What i did was commit to $ 1,000 each initially and $ 250 for each one on Jan 1 of each year and set up an un-registered trust. A little cumbersome but it worked. I had to pay all the taxes.
When they came out with the TFSA it was perfect and we rolled everthing in over the past couple of years and have in effect created a tax free endowment for the kids.
Education and whatever is for their parents to provide - our intention is to provide a fund that will be split proportionately as they each reach 25. It may fiance travel, weddings, houses, businesses or whatever they may wish.
Have had a number of investments but got into XFN & XEG when both were yielding over 5 %. Yield is down on the last years contributions but the kids are still under 5 and we are evaluating.
Will be very interested to sit and watch how this fund will grow over the next 20 something years - my guess is that they will remember this one over some long forgotten over-priced disposable toy.
My wife still has her TFSA but we have have lost the personal benefit of one TFSA but .....

[Michael D]

RESP.

[marty123]

Anyways, my question is. Should I go for the ol' Disney? Maybe coke, a bank, not sure. I would think a dividend or utility co?

I don't think it matters at all if we're talking about a baby. Might as well buy an indexed stock like XIU or IVV. The market may crash, but they'll never be worthless. If Disney, Coke or RBC file for bankruptcy in 15 years(*), the only thing the child will have learned when they're old enough to cash the certificate, is a lessson in diversification.

Buying a Disney, Mattel or Coke stock is probably more impactful as part of a lesson about saving and investing. That's something that won't be understood until the child is 10 or older. It also reduces the timeline and the risk.

(*): Yes, who thought that GM or Nortel weren't bluechips in 1995?

[Quebec]

A RESP account will get you govt grants and the money will be protected from taxes while in the account. Within the RESP you can buy things like efunds and cheaply create a diversified portfolio. If I were you I would concentrate on the RESP first.

However, for the educational experience, it is easier to explain to your child or nephew how a single company works (relative to an index fund). It is not useful to start before age 9-10 or more as someone else mentioned. For my nephew, now in grade 8, I went with a Bank of Montreal (BMO) dividend reinvestment program (DRiP). I just transferred one share from my own BMO DRiP to start the "in trust" account for the nephew. The idea of having it "in trust" is that the child actually owns the shares.

The DRiP allows you to make extra purchases of BMO stock every month (if you wish) and the minimum amount to invest is $0 (other DRiPs have optional cash purchases minimums of up to $500 so they are less appropriate for gifts, and with some DRiPs you can only buy every 3 months). There are no fees to start the DRiP (if you can get your hands on a certificate for a single share) or to make optional purchases. There is a small fee to sell the shares. Details can be found here: http://www.computershare.com/bmo

You then get a statement from Computershare every 3 months which shows the amount of the reinvested dividends, and any additional purchases. I forward those statements to my nephew and answer his questions. This is being used for Xmas gifts only. Since I am buying shares of a single company the amounts involved are being kept small (about one share a year). The value is in the education more than the actual investment.

Warning: extra work involved. (1) You have to keep track of the ACB, which changes at least every 3 months due to the reinvested dividends. (2) Also finding a certificate for a single share of the chosen company can take a while. You can try the share exchange board at http://www.dripinvesting.org/Boards/Boards.asp at your own risk (I've never had any problems in the course of buying and selling over a dozen times there, but there a no guarantees), or the Canadian Moneysaver message board (http://www.canadianmoneysaver.ca/rc_msg_topic.aspx), which I've never tried.

BMO of course is not the only choice; there is a list of Canadian DRiPs here (http://cdndrips.blogspot.com/) but most are income trusts (I would stick with the corporations).

Good luck!

[fin0007]

If you had say $ 4,000. Pick one bank among, RY, TD or BNS. Pick a pipeline, ENB is my fav. Insurance would be GWO, the source of cash for the POW empire and finally CNR. Though something like Canadian Shareholder, they can all be put on a DRIP plan. I'm not really a fan of an RESP. I would buy the stuff and promise I will only review the investments every five years. I would look for absolutely certain, but I wouldn't make an investment decision until the five years were up.

[adrian2]

I'm not really a fan of an RESP.

Why is that? Free money from the government (CESG); yes, please.

[Michael D]

Procter and Gamble. something will be smeared all over/dunked on the kid for the next 20 years from this company.

[fin0007]

Adrian;

Hate to be baited. As you know it's not free money, it's income to the student when withdrawn. All I will say about is that student's life rarely unfolds as planned. Anyone who considers an RESP contribution should check out all the rules. The fed contribution is only 20% of the parent's contribution. I've got $ 5,000 stuck in an RESP and two kids who have no plans to go back for further education. But being under 30 and still single, their plans change like the weather.

Adrian, there are books written on the topic and so the best advice is don't assume the government's intentions are all noble. One thing is guarantee it's not free money, it's just money with strings attached. But Adrian, you already knew that.

[adrian2]

As you know it's not free money, it's income to the student when withdrawn.

It is free money and in the vast majority of cases there is no tax due when withdrawn by the student. I'm just winding down RESP for kid #2, and in my experience the education assistance payments (= CESG + growth) did not even cover the student's available credits for one year of university (out of four years).

By the same token, you should refuse a raise offered by your boss because it is taxable. If you own a CCPC in Ontario, you may want to send back the HST transition credit money sent by the provincial government, because it is considered taxable income to the CCPC.

I've got $ 5,000 stuck in an RESP and two kids who have no plans to go back for further education.

WADR, sorry about your particular situation, but you are a small minority. You can keep the RESP open for up to 25 years, and if the kids are not going to use it, open up some RRSP room for yourself so you can tranfer the growth with no penalty. In any case the CESG growth over that period would likely more than compensate for a less likely tax penalty.

Bottom line, my guess is that your $5000 RESP consists of:
$4000 original contributions - there is no tax due whatsoever when the plan is collapsed;
$800 CESG which was never yours, but you got it interest free from the government, and if kids don't go to post-secondary, you'll have to return it;
$200 growth (interest) which you can transfer to your RRSP if kids don't go to post-secondary

So you're right, the CESG came with strings attached, kids have to go to college / university / etc. But the worst case is no worse than if you had invested the money in a non-registered account in the first time.

there are books written on the topic and so the best advice is don't assume the government's intentions are all noble

Please enlighten me what those intentions truly are.

[Quebec]

Free money from the government (CESG); yes, please.

Plus the provincial equivalents of CESG in Alberta and Quebec. Plus extra federal grants for low-income families. Free money indeed!

[fin0007]

I went back to the TD Waterhouse account where the RESP account is. Had pretty good luck with investment. Not sure which year the contribution was made but the purchase was BNS shares. The shares have a cost $ 1526 and a market value of $ 4,800. I've had them for a while. My son still needs a bit more education, he just won't admit it yet. The funds will probably get used.

[ThinkDividends]

I bought 1 share of Disney for my nephew at www.oneshare.com

Now that my nephew is turning one, I want to give him $100 worth of stock.

I don't think I can do it in a RESP since he is not my son.

Any ideas? I want to give him $100 every year for his birthday until he turns 18.

Thanks

[pmj]

No restrictions on subscriber - beneficiary relationship for individual RESPs - only for family RESPs - eg http://www.gpcapital.com/00002358.aspx#Family

[Quebec]

Now that my nephew is turning one, I want to give him $100 worth of stock.

In my Nov 21, 2010 post I discuss two options: (1) the RESP; (2) the single stock DRiP.

For my one year-old son, I plan to contribute $2500 a year, so the RESP with index funds or ETFs is clearly the most appropriate option (govt grants, diversification, etc.)

But for my high school-aged nephew, I give him $50 a year for Xmas, so I went the bank stock DRiP route ("in trust" account). He's accumulated 4 or 5 BMO shares at this stage, so I am not too scared about the lack of diversification considering the $ amounts involved. The financial crisis a few years back illustrated to my nephew what can happen to share prices in a bad market (lesson: not a sure thing, these shares...). It also showed him how buying low can lead to nice returns... And the value of reinvesting dividends instead of buying candy. So it's been a good educational experience so far.

If you start DRiPs for you nephew, at $100 a year you could pick two stocks, e.g. a bank and a pipeline. The risk at the end is that the kid gets control of the account when he turns 18, and he does not have so spend it on something wise. He could sell the stocks and gamble the proceeds away for example. We shall see...

[ThinkDividends]

In my Nov 21, 2010 post I discuss two options: (1) the RESP; (2) the single stock DRiP.

If you start DRiPs for you nephew, at $100 a year you could pick two stocks, e.g. a bank and a pipeline. The risk at the end is that the kid gets control of the account when he turns 18, and he does not have so spend it on something wise. He could sell the stocks and gamble the proceeds away for example. We shall see...

Thanks Quebec - Could I do this with U.S. stocks (Disney/Coke) or am I restricted to Canadian stocks under the DRIP method?

[rishitibriwal]

We have purchased single stocks in GE (which has a SPP through BNY Mellon), Disney (direct SPP - see their website) and also bought single shares in BMO and BNS through one of the share exchange boards. Our kids are 12 and 7 so I asked them to think about somethings that they use and enjoy and the older one came up with the idea of Disney and lights (hence GE ). The banks were our idea. This was put in place in 2009 and we used the kiddy money we had received from the Government to buy the initial and subsequent shares (having been transferring all cash into separate savings accounts we set up when the kids were born).

Having set up these DRIPs (in trust for the kids for GE) and directly in their names for the rest (both Disney and Computershare allow this), we let them open the statements each time and then show them how much they earned by not using the money and comparing it to their non existent bank interest in their savings accounts, which are now funded with their allowances and gifts.

They are, hopefully, learning about compounding and savings and recently my son asked about how he could invest the $300 in his checking account!!

I believe that while there is the risk that one of these could become worthless at some point, hopefully the lessons learned along the way are worth it.

If the OPs kid is still too young to have a say, my view would be to go with something like Disney so that you can then say to him/her at some point in the future that you own a small piece of Mickey Mouse!

R

[Quebec]

Thanks Quebec - Could I do this with U.S. stocks (Disney/Coke) or am I restricted to Canadian stocks under the DRIP method?

You can DRiP US stocks, but a few years ago it used to be pretty complicated, I don`t know if if has changed. Back when I was DRiPing actively, you needed cheques in USD from an actual US bank to make your optional cash payments. So for DRiPs I stuck with Canadian stocks. I've actually liquidated most of them a year ago (except two banks and my nephew's BMO) to make my life easier (fewer T3s or T5s at tax time, and no more constantly updating ACB tracking spreadsheets). I got into dripping when I had $10k in assets and the stock trading commissions were $30 (buy $1k each of ten stocks, that`s a 3% fee one way!). Now that I have more assets, less free time and that the commissions are $5 (at the terrible Questrade), I can`t be bothered with DRIPs anymore. But for my nephew I am happy with this method.

Good luck!