Thoughts of gift-giving often run to gadgets, homemade items, food, books, and gift cards. While these ideas are great and can be thoughtful and unique, they are consumable to some degree. Another option is to give something that has the potential to really keep giving: investments.
When you prepare to give investments as gifts, here are some things to keep in mind:
1. Make it tangible. If you are giving an investment for a child, find a way to make it tangible. It’s a little more fun if there is an item to unwrap and hold. Consider buying stock in something that the recipient really likes, such as a video game company or a company that makes the child’s favorite snack. Then, find out if you can get a framed stock certificate. Many companies and brokers offer this service for gift-giving purposes.
You may also want to consider getting the recipient a bond that can be redeemed later. These are considered a little safer than stocks, especially if you get a Treasury security. Think about bonds that adjust for inflation for an even better gift. Although you can no longer get paper bonds issued from TreasuryDirect.gov, you can still get a certificate for gift purposes.
2. Consider a fund. Another option is to invest in a fund. Even if the recipient never adds to it, there is still the potential for growth. It’s often possible to start small, so you don’t need a large amount of money to make this gift. Choose a low-cost index fund or ETF (exchange-traded fund) so the fees seen with managed mutual funds don’t eat up the returns.
You can also find out if the minor recipient has a 529 plan or a Roth IRA. If he or she does, make a contribution to that account. Many brokerages make it fairly easy to contribute these accounts.
3. Talk with parents about custodial accounts. If you want to give the gift of investment to a minor who isn’t your own child, and you aren’t just giving a stock or bond or adding to a 529 plan, you will need to check with that child’s parents in order to coordinate the account.
It’s fairly easy to open a custodial account with most brokerages, and the money in this type of account is considered the child’s; he or she gains control upon reaching the age of majority. However, these accounts normally have to be managed by the parent or legal guardian, so you will need to coordinate your gift.
The gift that continues to give
Giving an investment can be a great way to provide a gift that continues to give. You can help the recipient build a stronger financial foundation, and you can also help him or her learn the importance of investing in building wealth.
Carefully consider the possibilities. Thanks to the Internet, discount brokerages, and other companies and options, it is possible to help a recipient get started with any amount.
Miranda Marquit is a freelance writer and professional blogger specializing in personal finance, family finance and business topics. She writes for several online and offline publications. Miranda is the co-author of Community 101: How to Grow an Online Community, and the writer behind PlantingMoneySeeds.com.