How to Start Your Child's Stock Portfolio

The types of portfolio management strategies are as diverse as they are convoluted, and building a stock portfolio can seem like a dry, boring, and very adult task. Frankly, many adults find it a rather tedious topic, too. This doesn’t have to be the case. In fact, getting kids involved in building a stock portfolio is not only a smart financial move, but a fun and educational one, too. Creating a portfolio for your child will give you an opportunity to teach them about stocks, the stock market, and financial responsibility, while giving them something to watch, build, learn about, and have fun with. To get started, here’s how to start your child’s stock portfolio.

Practice first.

The first thing you want to do, even before you start your child’s stock portfolio, is practice. There are a couple of ways to teach your kids about investing in the stock market. First, you might consider sitting down with them and creating a mock portfolio. To start off, just pick a few (maybe two to three) companies that they’ll understand (big chain stores and restaurants or toy and food brands, maybe). Use those stocks to show your child how the market changes, and what those changes would mean for the money you invest, by showing them in the real stock market.

That’s the quick, crash-course-at-the-kitchen-counter way to help your child get involved in their stock portfolio; however, there are other ways too, which may be even more fun for your kid. You can find a wide range of stock market simulators and stock market games online, or buy a cheap software version. One of the best, most popular games of this genre is The Stock Market Game. They can be played individually, or in teams, so you can get your other kids, your child’s friends, or even yourself involved, as well. This is a great way to help your child learn the ropes of investing without any pressure or confusion, a fun sort of trial-run before you start your child’s stock portfolio together.

Let them choose.

Once you’re ready to get into the meat of things, it’s time to choose your stocks. When you set out to start a child’s stock portfolio, it’s important to keep their age and interests in mind. Help them brainstorm companies that they have a real interest in, like favorite chain restaurants and stores, or toy and food brands. It also may benefit you to guide their decisions toward companies that produce tangible goods, not just services. Being able to hold a toy or eat a meal from a company they’re invested in will make it much more fun for your child, and they’ll enjoy being able to really get behind the company. This will also make it easier to explain to your child what being a shareholder means, and what it really means to be invested in a company’s financial success. You might also want to guide your decisions based on your child’s hobbies and daily activities, so they can invest in things they regularly use or really enjoy using, which will further increase their positive associations with that brand or company when you get to actually investing.

One last note on choosing the right stocks: In order for your child to feel involved and excited about their portfolio, you want to leave the final decisions up to them. Guide them to good choices by offering examples, helping them brainstorm, and explaining exactly what being a shareholder means, but leave the final decision-making up to them. This will help them feel much more involved and excited about the whole idea.

Create custodial accounts.

When you’ve chosen your stocks (or exchange-traded funds), it’s time to actually start your child’s stock portfolio. It's not a simple matter of opening an account and giving them the password: Children cannot have brokerage accounts of their own, so it will be up to you to open a custodial account for them. The Uniform Transfers to Minors Act (UTMA) and the Uniform Gifts to Minors Act (UGMA) allow parents to open tax-benefited accounts on their children’s behalf, which will be transferred over to them when they come of age (the age varies from state to state). Then, you should look for an online broker than fits your needs—preferably one with no to low fees. Some accounts also offer tips for successful long-term investing and courses for kids or teens, if your child might be interested in getting more involved. Then, all you need to do is collect the requisite paperwork (including both your and your child’s social security numbers), and open a brokerage account for them.

Look to the future.

There are a few more things you want to consider as you set out to start your child’s stock portfolio. First, you want to think about your goals; meaning, what exactly you want your child to get out of this, and what that means for both of you. A stock portfolio of their own is obviously the first thing they’ll get out of it. They will also have the opportunity to learn financial responsibility, understand the stock market, and have a hand in their own finances from a young age. Which leads to the second part: Set attainable, tangible goals with your child to get them excited about learning the ropes and monitoring their investments. Teach them how to keep track of their individual stocks and profits, and offer incentives to do so; for example, you can promise them a new toy or meal at a favorite restaurant (preferably one in their portfolio!), when their portfolio earns enough profits to cover it. This will help make the money more “real” to them, something useful and exciting, rather than just numbers on a computer that they shouldn’t worry about for another decade or so. It also makes the idea of receiving compensation from their work, investment, and patience seem much more exciting and real.

Finally, set long-term goals about your child’s involvement and control over their portfolio. Start with a handful of stocks that they can easily understand, but consider and discuss giving them more control over diversification and growth as they get older so the idea doesn’t just become the thing-of-the-week and stagnates in the years between now and when the investments are entirely theirs. At the beginning, it’s fine to remember their young age and have a prominent role in their investment, but as they get older, make sure your investment strategies grow with them as well. That way, your young investor is making both short- and long-term investments from day one.