Dear DTA,
I’m thinking of starting up an investment account for my child. Are there stocks that are better suited for this? What about investment accounts? I’d like to pass on some lessons and enthusiasm for investing. Thanks.
-Alexander P.
Hi, Alexander.
It’s great to hear from you. Appreciate you taking the time to write in. We love to hear from readers.
That’s a very interesting question.
First, I must say that what you’re doing is fantastic.
Teaching your child the valuable lessons of compounding in such a firsthand manner is amazingly thoughtful and instructional.
I can only wish I would have had a parent do something like this for me.
Now, I must say that I’ve been using an incredible investment strategy since 2011.
This strategy helped me go from below broke at 27 years old to financially free and retired at just 33, as I discuss in my Early Retirement Blueprint.
I say that not to brag.
I’m telling you this to show you how powerful it is.
It’s powerful for everyone. But I think it could be especially powerful for a child due to the additional time you’re affording that compounding process.
The strategy is… dividend growth investing.
Fellow contributor Dave Van Knapp put together his Dividend Growth Investing Lessons to explain exactly what this strategy is, why it’s so powerful, and how to successfully execute it.
This strategy basically advocates buying shares in world-class enterprises that pay growing cash dividends, holding those shares for the long term, reinvesting that growing dividend income, and watching the wealth and dividend income pile up.
Think companies like Apple Inc. (AAPL), PepsiCo, Inc. (PEP), and Johnson & Johnson (JNJ).
Those are just a few examples of what I’m talking about.
You can find more than 800 US-listed dividend growth stocks by checking out the Dividend Champions, Contenders, and Challengers list.
That list is an invaluable resource that has compiled data on stocks that have raised their dividends each year for at least the last five consecutive years.
As I mentioned earlier, I personally used this strategy to positively transform my life.
I went from powerless and penniless to wealthy and free.
Systematically investing my hard-earned savings into high-quality dividend growth stocks allowed me to build the FIRE Fund, which is my real-money stock portfolio.
That portfolio now generates the five-figure passive dividend income I live off of.
If this worked for me in my 20s and 30s, just imagine how much better off your child will be when you give the investing an extra decade or two!
Now, I’ve always recommended to invest in what you know.
This is an easy way to start investing.
You can look around your house to find some of the best investment ideas.
The toothpaste brand you use. The food you consume. Even the utility company that’s providing the electricity you use.
This could be a fun exercise for your child, allowing them to be personally involved in the process.
Have them take a look around at some of the everyday products and/or services your household consumes, then research the companies behind all of that.
You’ll probably find that some of these companies are making a lot of money.
And that translates to an ability to pay out growing dividends to shareholders.
This is an awesome source of totally passive income that grows all by itself.
Believe me, your child will love seeing those regular payments come in. And it’ll serve as a positive reinforcement mechanism, encouraging the reinvestment of those dividends to make the portfolio grow.
As for some of the best investment ideas at any given time, make sure to follow my Undervalued Dividend Growth Stock of the Week series.
Every Sunday, I highlight a high-quality dividend growth stock that appears to be undervalued at the time of publication.
These stocks undergo rigorous analysis and valuation before being presented. I also include valuation opinions from professional equity analysts to give readers extra perspective.
These stocks are some of the best long-term investment opportunities out there.
And we share these ideas at no charge!
I’m excited for the journey you’re about to take on with your child.
No matter how you decide to go about it, I’ll leave you with my biggest recommendation of all.
Start today.
I wish you luck and success.
— Jason Fieber
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Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.