Here's A Holiday Gift No One Wants But They Should

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This holiday season, wouldn’t it be great to rub your bleary eyes on a December morning to find your stocking (or religious/culturally appropriate footwear of your choice) groaning with the gift nobody ever returns?You know the green stuff I’m talking about, though in case my family is reading, what I actually want is one of those chocolate oranges that you whack on the table and split into individual slices.

Let’s say you do want to give (or hint strongly that you’d like to receive) a monetary gift, but not cash — something more interesting, less likely to be spent idly, and with a chance of growing at more than zero-point-something per cent. Here are a few investment gifts you can put on your list.

Savings bonds

Series I savings bonds (I-bonds for short) are guaranteed to keep up with inflation and are easy to buy and relatively easy to gift. The paper savings bonds of your youth are no longer available, although you can buy someone an electronic savings bond and then print a paper certificate

Buy and gift savings bonds through the federal government’s TreasuryDirect site. TreasuryDirect has caught a lot of flak, including from me, for being hard to use, but it’s better than it used to be, and they’re working on making it easier. Give it a try.

A 529 College Savings Plan contribution

A contribution to the college fund of a friend or relative is unlikely to be appreciated by kids hoping for a Wii U, but it sure makes parents happy. To do so, you’ll need to know which 529 plan the recipient uses and, in some cases, the beneficiary’s social security number.

Yes, as the New York Times wrote about recently, they should make this easier. Of course, if you trust the recipient, you can always write a check and mark it “college fund.”

Shares of an ETF

An exchange-traded fund (ETF) is a mutual fund that trades like a stock. If you buy an ETF share in your own brokerage account, you can then gift it to someone else’s.

So which of the thousands of ETFs on the market make good gifts? I put the question to Allan Roth, author of How a Second Grader Beats Wall Street and writer of the Irrational Investor blog.

He recommended a matched gift set of Vanguard’s total US stock market (VTI) and total international stock market (VXUS) ETFs. (You can also buy a single all-world fund like Vanguard’s VT or iShares’s ACWI.)

“The recipient essentially owns the world—every publicly held company on the planet (for practical purposes),” Roth said via email. He also added a wildcard: one lottery ticket.

“The lesson would be that the perfect stock portfolio would always be accumulating the world and buying one lottery ticket a year to satisfy the part of the brain that needs the excitement.”

Minors aren’t allowed to own ETFs directly; the best way to give them shares is via aUGMA/UTMA account, which is like a box that says, “Assets in this box must be used for the benefit of the child and will be fully owned and controlled when they turn 18.” (In some states, it’s 21.)

Assets in a UGMA are taxed at the child’s rate, usually zero. Any brokerage can help you set up a UGMA; it’s not as complicated as the clunky acronym makes it sound.

A book

Admittedly, as a gift, a personal finance book as a gift is as likely to be as well-received as a diet book, so better save this one for a new college grad, a younger sibling—someone used to receiving your sage counsel.

Here are two of my favourite books on investing, in addition to Allan Roth’s book which I mentioned earlier:

  • Elements of Investing, by Malkiel and Ellis. It’s short, smart, easy to read, and covers everything you need to get started as an investor.
  • Investing Made Simple, by Mike Piper. Mike is a CPA, blogger, and author with the ability to explain anything in plain language. And his books are cheap.

An individual stock

There are a number of online services that will buy one share of stock from a well-known company and send a genuine paper stock certificate to your loved one. This has nostalgia written all over it, and I mention it only to explain why it’s a dumb idea.

First, it’s expensive. The service often costs as much as the actual stock share.

Second, any of the books I recommended will explain why investing in individual stocks is a bad idea. You get extra risk with no extra benefit over, as Allan Roth put it, owning the world.

As a gift, an individual stock has all the appeal of a flimsy electronic toy, except it’s not even fun. Stick with the lottery ticket. It’s only a buck.

The gift of giving

One last idea. If you have investments that have gone up in value (in tech-speak, they have unrealized capital gains) and your loved one has a favourite charity, you can donate investments to the charity. The charity gets the cash and you get a tax break.

This isn’t an investment gift per se, but call it an investment in a better world.

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