Every time I read an article about teaching kids about investing or creating generational portfolios, Altria (MO), Exxon (XOM), Coke (KO) and McDonalds (MCD) seem to show up more often than not. Maybe this is because die-hard dividend investors are the ones trying to get their kids to invest or maybe it is because some of these companies were passed on from their parents to them in a portfolio. I wonder how these people approach the subject with their kids (often times kids 10 years old or younger). Does it go like this?:
Parent: “Hey, that money grandma gave you. Let’s see if we can make that money grow a lot”
Child: “I want to spend it to buy Pokemon cards”
Parent: “Instead of one Pokemon card today, maybe you can buy 5 instead a few years from now”
Child: “Ooh, how do we do that” (this is obviously a hypothetical child)
Parent: “We become part owners of a company and when they make a profit they give us some money and as they make more profits, the part we own becomes more valuable. Win and more win”
Child: “What company”
Parent: “There’s this company I like, called Altria”
Child: “What do they do?”
Parent: “They make cigarettes”
Child: “You mean those things that you told me will kill me painfully and I should never touch?”
Parent: “Ok, forget about that, you know McDonalds?”
Child: “You mean the place where we don’t eat very often because I’ll turn unhealthy and fat?”
Parent: “Ugh. You know Coca-Cola?”
Child: “You mean that sugary stuff which you tell me is bad for me?”
And so on….
How do you tell a child that it is ok to make money from companies that are ruining us or the planet? There is also one more thing wrong with this picture. If these are the companies being invested in because they were passed down to the parent, then logic dictates that you should look at why the grandparent chose that company to pass on. Was it because this company has existed for a 100 years then? Or did they buy those companies before they were behemoths and relied on the growth?
I often see opposition to this based on the thinking that there are not enough stocks out there that are not downright harmful. Take this recent comment on Seeking Alpha responding to me:
That is absolutely not true. So how does one select companies to talk about investing with a child? IMHO, just invest in things they are interested in. They choose the product, you choose the company. For example if you child is into construction equipment you can choose Caterpillar (CAT) or Deere (DE) for them. They are into cars, you choose a car company, preferably one that is not cheating on emissions or killing people to save pennies. They are into games, you choose a game company. Garbage trucks? Waste Management (WM). Movies and Toys? Disney (DIS), Netflix (NFLX). The only stock we own in our son’s portfolio currently is Tesla (TSLA). As he gets more money, he has chosen either Facebook (FB) or Netflix as his next investment. Instead of pipeline supporting, gas burning utilities, consider CAFD.
There is zero reason to choose socially irresponsible stocks in an educational portfolio for a child. Making money from the downfall of humanity and the planet is easily avoidable.