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Stuff the Kids' Stockings with Stocks and ETFs

What do you get for the child who already has every toy and every game? Why not a piece of the American dream?
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Looking for a present to give your kids? You may want to get them into investing with the gift of a stock or an exchange-traded fund (ETF).

Morningstar put together a list of 12 stocks and three ETFs that you can consider. The first issue you’ll have to decide is whether to buy your children stocks or ETFs. Of course, there’s no reason why you can’t do both.

“One school suggests buying kids stocks of companies whose brands they know and love,” wrote Morningstar investment specialist Susan Dziubinski.

“Advocates of this approach argue that kids will be more interested in investing if they’re investing in something they have a connection with. Kids can then better understand that they own small pieces of actual businesses.”

The other side of the argument is that “with such a long runway, you’re better off giving the children in your life a well-diversified mutual fund or exchange-traded fund, because they have time on their side to accumulate serious wealth,” Dziubinski wrote.

“Young investors may be more likely to stick with investing by avoiding the extreme volatility that can come with buying individual stocks.” And plenty of low-cost ETFs hold companies that kids know.

Stocks, ETFs to Choose From...

Here are Morningstar’s selections of stocks and ETFs, in alphabetical order.

Stocks 

ETFs

Alphabet: Morningstar analyst Ali Mogharabi assigns the company a wide moat (durable competitive advantage) and puts fair value for the stock at $160. It recently traded at $100.

“Alphabet dominates the online search market with 80%-plus global share for Google, via which it generates strong revenue growth and cash flow,” he wrote in a commentary.

“We expect continuing growth in the firm’s cash flow, as we remain confident that Google will maintain its leadership in search. We foresee YouTube contributing more to the firm’s top and bottom lines.”

Further, “among the firm’s investment areas, we particularly applaud the efforts to gain a stronger foothold in the fast-growing public cloud market,” Mogharabi said.

iShares Core S&P 500 ETF: Morningstar analyst Lan Anh Tran gives this fund a gold rating, the firm’s highest. She calls it “one of the best options for U.S. large-cap exposure.”

Her colleague Dziubinski notes that “the top holdings of this fund read like a who’s who of names that kids would recognize, including Apple  (AAPL) - Get Free Report, Microsoft  (MSFT) - Get Free Report, and Alphabet.”

Further, the fund “provides low-cost exposure to U.S. large-company stocks featured in the S&P 500,” she said. “It’s therefore a diversified portfolio featuring companies that are financially viable, representing about 80% of the total U.S. market capitalization.”