For the past 10 years, Mary Lou and Bill Akright of Leawood, Kan., have carried on a Christmas tradition of giving their grandchildren a few shares of stock.
It started with investments of $50 for each of their three oldest grandkids in Quaker Oats, the food company later acquired by PepsiCo. The seven younger grandchildren have received shares in McDonald's.
The Akrights took advantage of stock-purchase programs that the companies offered to open accounts with small amounts of money. Dividends in the accounts were automatically reinvested in the form of additional shares.
By pumping money into these companies at Christmas and on birthdays, the Akrights have helped their 10 grandchildren learn about Wall Street while building small nest eggs that someday can be used to pay for college, a car or a down payment on a house.
"We wanted to be able to participate in their education, and not just give them another toy," Mary Lou Akright said.
Whether you choose individual stocks or mutual funds, there are several suitable gift-giving strategies to follow. Keep in mind that minors cannot own securities directly, so you'll need to set up custodial accounts for them.
If choosing individual stocks, invest in companies with which the kids are familiar, or may be someday.
That's what Kelly Klug of Olathe, Kan., is doing. She's preparing to form a family investment club for her three youngsters, ages 15, 12 and 8.
"I'm going to ask for input from them, maybe have each of them name two of their favorite products or foods, and then I'll go to the library and research the companies," Klug said.
One of the cheapest and easiest ways to trade small amounts of stocks is online. Services such as Sharebuilder.com (www.sharebuilder.com) and BuyAndHold.com (www.buyandhold.com) allow you to open accounts and they charge relatively small fees to make trades.
At Sharebuilder.com, for example, you can choose from more than 4,000 companies and pay only $4 each time you invest.
Mutual funds present a simple way to acquire a diverse group of stocks. Liberty Young Investor Fund and USAA First Start Growth are among those that are geared for kids and offer educational materials.
Among other alternatives:
The National Association of Investors Corp., an umbrella organization for investment clubs, offers a Low-Cost Investment Plan. Members can purchase stock in any of about 150 participating companies for an initial setup fee of $7 plus the price of one share of stock, plus in most cases an extra $10 to cover possible fluctuations in the share price before the transaction is completed. Larger investments can be made once the account is established.
A family membership in the organization costs $39 a year. There's also a youth membership that costs $20 annually. For more information, go to www.better-investing.org or call (877) 275-6242, Ext. 331.
Some companies offer dividend reinvestment plans, or DRIPS. In many cases, you can start by buying one share of stock directly from the company for low or no fees. As the name implies, dividends are reinvested in the accounts in the form of additional shares. For a list of the companies, go to www.kidstock.com.
Finally, if your tolerance for risk is low, consider giving your youngster a gift of a U.S. savings bond or a certificate of deposit.