3 top shares to buy for your grandkids

Credit: Angie Nan

Warren Buffett bought his first stock in 1941, when he was just 11 years old. Amazingly, one of his biggest regrets is that he didn’t start earlier!

As ridiculous as that may seem to most of us (who hadn’t even made secondary school by that age), Buffett clearly appreciated the power of compounding, and recognised how it could benefit him.

Unfortunately, children aren’t generally taught to invest at such an early age – share market investing 101 isn’t in the curriculum like English or fractions. As such, most individuals don’t start investing until their 20s or even their 30s, removing two or three decades from which they can harness the power of compounding.

How you can help them

Indeed, history has shown us that investing for the long-term is the best way to build wealth.

Setting aside some money and buying some shares for your grandkids could be a great way to give them a head start in life, helping to ensure they have a bigger pool of funds available when they need to buy their first car or put a deposit down for their first home.

As a quick example, the chart below shows how a one-off $5,000 deposit could turn into more than $23,000 over 20 years. That’s assuming no further deposits are made and based on an 8% return, which some would consider to be a conservative measure.

Source: ASIC MoneySmart

Source: ASIC MoneySmart

Of course, not every company is going to be worth buying and holding onto for multiple decades, but these three businesses could be a good place to start looking.

CSL Limited (ASX: CSL) is a global biopharmaceutical business that has generated huge gains for investors over the last 20 years or so.

Although the shares aren’t necessarily cheap, the company is expected to continue growing earnings at a reasonable clip, while it also has plenty of international exposure. That is important as it provides it with protection against a potential downturn in any specific economy.

As a producer of products designed to treat various bleeding disorders and diseases, the company also possesses defensive characteristics. These are products that individuals will need no matter the state of the economy. Shares are currently trading for around $113 each, and could be a good choice for your grandchild’s portfolio.

Another business that possesses defensive characteristics is Bapcor Limited, formerly known as Burson Group Ltd (ASX: BAP).

The company provides many of the parts required for the repair and servicing of older vehicles which consumers tend to hold onto for longer during times of heightened uncertainty, creating a greater need for repairs and thus, a greater demand for Bapcor’s products.

As is the case with CSL, Bapcor’s shares aren’t cheap. But sometimes you have to pay a premium for quality, and it could still be a reasonable option for long-term investors. After all, the company is still growing by acquisitions while it is generating strong same store sales growth as well.

As one of the longest surviving businesses on the ASX, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), or Soul Patts, is another great business that you should take a closer look at.

The company has often been compared to Warren Buffett’s Berkshire Hathaway business in that it is run by a quality management team, has an ultra-long term investing approach and is exposed to a wide array of industries.

Better yet, unlike Berkshire Hathaway, Soul Patts also pays a nice dividend which is expected to continue growing over the coming years. In other words, it would truly be the gift that keeps on giving.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Berkshire Hathaway (B shares). Motley Fool contributor Ryan Newman owns shares of Bapcor. The Motley Fool Australia owns shares of Bapcor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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