Skip to comments.Giving Financial Gifts That Grow
Posted on 12/07/2005 11:54:19 AM PST by Sonny M
If you're looking for a gift that won't go out of style, you might consider something of a financial nature that will grow in value. Depending on your budget, it could be a few shares of your favorite mutual fund, a head start on a retirement or college savings plan or a book about investing.
While the idea of tucking stock certificates into a stocking is appealing, this sort of gift might require you to give the recipient some advance notice, which can ruin the surprise. But don't let that put you off the idea, said Don Cassidy, senior research analyst with fund tracker Lipper Inc.
"The long-term virtue of this idea, what you'll begin to create, is a terrific lifetime habit that will give a person a great deal of lasting benefit," Cassidy said. "That weighs a lot more than the short-term thrill of tearing off the wrapping paper."
There are a couple ways to give securities as gifts, Cassidy said. You can either purchase shares of a stock or mutual fund outright, or you can transfer shares of something you already own into the recipient's name. If you decide to transfer something you already own, it's more tax-efficient to give a security that's appreciated in value over the last year, assuming you're giving to someone in a lower tax bracket than yourself. You wouldn't want to give away something in which you'd seen a loss, because then you couldn't use it to offset gains.
Whether buying new or transferring an existing security, you will need to know some basic information about the recipient, including Social Security number and address. If they are younger than 18, you may need to establish a gifts-to-minors account.
Carefully consider the needs of the recipient when choosing your gift. For a younger investor with a longer time horizon, a growth fund might be appropriate. If retirement savings is the goal, you might prefer a target-date fund, where the asset allocation automatically adjusts over time. But don't make things more complicated than they need to be; sometimes a simple index fund or exchange traded fund works best.
You might be disappointed to find that obtaining actual share certificates is not as easy as it once was; it often incurs charges, which can raise the cost of your purchase substantially, said Steve Marbert, a certified financial planner in Augusta, Ga. If what you really want is to offer incentive for the recipient to open their own account, you might prefer to give them cash, or a check, and a promise of investing help.
"You might just give them a card with a check made out to the fund company and a note saying 'We're going to do this on your behalf,"' Marbert said. "Then tell them after the holidays, in January, we'll sit down together and set up this account for you."
If you want to start or contribute to college savings for a grandchild, talk to the parents about whether they've established a 529 plan. If they haven't, consider helping them to open one. For new college grads who have just started their first jobs, assistance in opening a Roth IRA may not be as exciting as a new iPod, but it will go a long way toward helping them find financial independence.
In all cases, particularly those where you hope the gift will inspire the recipient to continue saving and investing on his or her own, low-cost, no-load funds are best, Cassidy said. No-load funds are favored by do-it-yourself investors because they avoid sales fees associated with brokers, cost much less and deliver higher returns over time. An early introduction to this type of investing can reap great rewards, Cassidy said.
"Number one, long term, they will be a no-load buyer and a more cost-conscious investor and not lean so heavily on the advice of financial professionals," Cassidy said. "And two, it will force them to do a little self-educating, which is always a good thing. At the very least, if they are going to rely on someone else, they can ask intelligent questions."
A good way to augment such a gift is with a user-friendly instruction manual, such as "Mutual Funds for Dummies," by Eric Tyson, or "The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success," by Christine Benz. Also useful are subscriptions to magazines written with an eye toward educating individual investors, such as BetterInvesting Magazine, published by the nonprofit National Association of Investors Corp., or the journal of the American Association of Individual Investors, another nonprofit group.
For other financially savvy gift ideas, check out Sharebuilder.com, which offers a range of "Investor Starter Kits," including one geared toward kids. For someone who needs help with the basics, personal finance software, such as Microsoft Money or Quicken, can help with everything from balancing a checkbook to planning a household budget. If you want to take things a step further, you could pay for a session with an independent, fee-only financial planner. Often with young adults, it helps to hear advice from someone other than a parent.
"I've had clients bring their kids in to sit down with me, and it's a great gift for getting them to start focusing on their future," Marbert said. "It's an excellent way to teach them how to fish instead of feeding them for a day."
Future conservatives in training...
LOL. I remember when all the kids were starving in Ethiopia. My parents said that they were giving 10K to charity and that therefore we would be getting only a small amount for Christmas. I thought they were joking.
I got several gifts like that recently.
And they were donations to organizations I don't even like.
FWIT: I got one of those as a kid, and to make sure it never happened again, formed me own "Help a homeboy" out fund for myself saying "we be taking donations, no need to spare for somebody else".
Granted I was in grade school, but it worked.
Then again, I was a greedy little SOB who just wanted more money and tried to charge my parents interest if they borrowed a buck.
I also wanted to charge them surcharges for making change.
my sister does that. basically, it's a way to not have to buy people anything while telling others how allegedly
charitable you are.kids love getting just what they would never ask for.