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Chapter 1: What is the main topic discussed in this episode?
Investment accounts for kids and international stocks are off to a stellar start. That and more on this Saturday personal finance edition of Motley Fool Money. I'm Robert Brokamp, and this week I'm going to lay out the pros and cons of five types of accounts to consider when looking for an investment account for your kids, grandkids, or other youngins in your life.
But first, let's look at some news items from this past week. Last year, international stocks returned 32%, their best year since 2009. Also, their outperformance relative to the S&P 500, which returned 18%, was the largest margin since 1993. Well, this year looks to be continuing that trend.
International stocks have returned more than 9% so far in 2026 as of this taping on the morning of February 19th, compared to just 0.6% for the S&P 500. According to Ben Carlson of Ritholtz Wealth Management, this is the best start of the year in terms of international outperformance over U.S. stocks since 1995. One explanation is the drop in the U.S.
dollar, which is down approximately 10% since the beginning of 2025. But international stocks are also cheaper, and that's still the case, despite the recent outperformance. According to Torsten Slocke of Apollo Global Management, the forward P.E. of the S&P 500 is 40% above the forward P.E. for the MSCI World XUS Index.
Turning to our next item, on February 13th, the Bureau of Labor Statistics announced that inflation in January was 2.4%, down from 2.7% in December. But if you looked at your electricity bill recently, you may not feel that prices are declining. The cost of electricity rose almost 7% in 2025, and a report from Goldman Sachs says that U.S.
families shouldn't expect any near-term relief thanks to AI data centers rapidly boosting demand while power supply expands slowly. According to the report, data centers account for 40% of the electricity demand growth, and we should expect electricity prices to climb another 6% through 2027, though impacts will vary by region.
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Chapter 2: What investment accounts are available for kids?
Unfortunately, electricity isn't the only item that is costing more due to data centers. According to a recent Wall Street Journal article, tech giants chasing AI infrastructure are outbidding home builders for land, potentially worsening an already severe housing shortage. And this building boom is also driving up competition for materials and labor.
The journal article quoted Neil Kobel, a home builder in Georgia, who said he's having trouble finding skilled workers, and quote, when you're competing with Amazon, they're going to put more wire in one building than in all the houses I've ever built in my lifetime, end of quote. And now, the number of the week, which is 5.2 years. That is how often, on average, the U.S.
stock market drops 20% or more, and it drops 30% or more every 8.9 years, on average, according to a recent report from Henry Neville of Band Group. The report looked at 59 previous market peaks and found that three things make a drawdown more likely. a lack of volatility, inflation that is too high or too low, and expensive valuations.
The current market meets two of those criteria, especially that last one. Up next, which account to choose if you want to teach your kids about investing when Motley Fool Monday continues.
Kauppakeskus Liken liikkeet palvelevat sinua Lielahdessa. Click Shoes myymälästä löydät kenkämuodin suosikkimerkit Rieker ja Skechers sekä paljon muuta. Hiusvinkistä hiusmuotia, kauneutta ja hyvinvointia. Kauppakeskus Liken helppo tykätä.
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Chapter 3: How did international stocks perform recently?
As a parent, grandparent, or, well, meaning adult, one of the most powerful gifts you can give a child is a head start on building wealth. Beginning early allows the magic of compound growth to work its wonders over decades. Plus, it gives you the opportunity to teach the next generation all about the ups and downs of investing in real time.
However, choosing the right account for a kid can be surprisingly complex, with each option offering distinct advantages and trade-offs. So, for this episode, I'm going to highlight some of the pros and cons of the five most common options, and they are custodial accounts, brokerage accounts owned by adults, the new Trump accounts, Roth IRAs, and 529 college savings plans.
Let's start with custodial accounts. And these are just brokerage accounts. But since a minor can't completely control a brokerage account until they reach the age of majority, it has to be a custodial account. These are usually called UGMAs or UTMAs. The Uniform Gifts to Minors Act was passed in the 50s. Most states now also allow the Uniform Transfer to Minors Act, the UTMA.
past in the 80s, that generally has more flexibility. So it's generally better to go with the Atma if you can, but it does depend on your state because not every state allows the Atma. What are the pros of these? First of all, investment flexibility. It's a brokerage account, so you can pretty much buy whatever you want.
Also, UTMA is allowed for investments in real estate and alternative assets. There are some tax advantages for unearned income. This is the so-called kiddie tax that applies to anyone who is under the age of 18 or under the age of 24 if they are a full-time student. There's also rules regarding
whether they have so much earned income that it exceeds 50% of their support, which doesn't apply to most people. But basically, the tax advantages are that the first $1,350 of unearned income, that's capital gains, dividend, and interest, is tax-free. And then the next $1,350 is taxed at the child's rate. And then beyond that, it's taxed at the parent's rate.
And I should point out that these numbers change every year. And another benefit of custodial accounts is there's no contribution limits. You can contribute as much as you want. However, there could be gift tax consequences. That is, in 2026, if one person gives another person more than $19,000, they have to report it on Form 709.
Generally, you don't have to owe taxes because that just then eats into your unified lifetime gift and estate tax exclusion, which is $15 million per person, twice that if you're married. It's generally not an issue for most people, but it probably does mean you have to file an extra form if you give more than $19,000. So what are the downsides of custodial accounts?
Well, first of all, it's an irrevocable gift, can't take it back, and the money must be used for the kid's benefit. You lose control when the kid becomes an adult, and this will depend on the state and the type of account you choose.
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