How To Give Investments As A Gift

Giving a gift that “keeps on giving” may be a worn-out saying, but it truly is a thoughtful way to give a gift.  There are many ways to give an “ever-giving” gift, but financial gifts like investments might be one of the best examples of this kind of generosity.

The great thing about investments is that they can increase in value through appreciation, interest, or dividends. This is what makes them ideal as a gift.

If you think that you’d like to give investments as gifts, here are some ways you can do so.

Savings Bonds are backed by the government

Savings bonds are easy to purchase and can make for great investment gifts. Savings bonds are issued by the U.S. Treasury Department in order to fund government activities. They are essentially mass-sourcing loans from people with a promise to repay the loan with interest when it matures.

Given that the bonds are backed by the federal government, it means that the potential default on your bond extremely low. This just means that it is unlikely that U.S. government will fail to pay back the bond.

Series EE and I Bonds

The most common type of savings bonds is the Series EE Bonds and Series I Bonds. Series EE Bonds pay a fixed interest rate that is decided at the time of purchase. Series I Bonds pay a variable rate of interest, which means that the bond will earn the fixed rate plus an estimation of the inflation rate. The inflation rate is calculated every six months over the lifetime of the bond.

You would purchase the savings bond at a lower than face value rate. Over time, the bonds will accumulate interest. The bond will mature over a fixed period of many years. At the end of this period, your gift recipient can redeem the savings bond for the cash value.

You can buy a savings bond through the Treasury Department’s website, also known as Treasury Direct. To purchase a savings bond, you need to create an account on the website.  Then, you will have to link your bank account to the Treasury Direct website. Finally, you can purchase bonds whenever you need to give them as a gift. In order for your recipient to receive the gift, they will need to set up their own account.

The bond cannot be redeemed for at least 12 months. The gift recipient can choose to cash in the bond early, but typically that would come with a penalty. If your recipient decides to cash out in the first five years, then they will lose the last three months of interest. This penalty may act as an incentive for the recipient to actually save the money instead of just spending it.

Pros of Savings Bonds

Savings bonds are easy to give as a gift. You will know that you are helping to fund your gift recipient’s future and that they will be unable to use the money until they are a little bit older.

Sometimes, if you give cash to kids, they spend it on silly things are regret it later. By purchasing them a savings bond, you know that they will have access to this money when they need it.

Cons of Savings Bonds

Although the idea of giving someone money to use later sounds like a great idea, they may run into an emergency in the near future. Savings bonds are not the most “liquid” types of investments, meaning they are not always easily converted into cash right away.

Also, it is extremely difficult to obtain paper copies of U.S. savings bonds. If you really want one to represent your gift as a real, tangible thing to the recipient, you’d have to purchase with it your income tax refund. This can be an inconvenience for some people.

Giving an individual stock may be slightly more exciting than a Savings Bond. Although both allow you to present an investment gift to your loved one, owning a piece of their favorite company may be more interesting to them—especially for someone who might have an interest in investing.

Where to buy stocks

Unlike savings bonds, there are many ways to buy an individual stock as a gift. The number of options and the ease of transfer makes this a better option if you are looking for convenience.

If you aren’t sure where to get started, here are some easy options for giving stocks as gifts.

• Betterment. With Betterment, you can donate shares from taxable accounts to charitable organizations.
• GiveAShare. You can give stock as a gift though GiveAShare, but the options are somewhat limited. Most of the stocks available are for companies that have a household name like Coca-Cola, Disney or Apple.
• Computershare. Computershare will connect you to companies that sell individual stock. It handles most of the legwork, so you just have to buy the stock. Some of the companies have a minimum purchase amount, but the requirement will vary by company. It is a very popular platform that makes gifting stocks easy.
• Buy directly from the company. Many companies allow you to purchase individual stocks directly from them. However, the process might be complicated. To find out if a company sells individual stocks as a gift, take a look at their website or call their customer service line.

Pros of stocks

Your gift recipient will be able to watch their stock grow (or decrease in value.) It can be a good learning experience for a young investor and hopefully inspire them to continue investing on their own.

Cons of stocks

Most of your stock buying options come with fees. Although the fees may be minimal, they could add up if you have many recipients to give to this year. The fees may cut into the amount of stock you are able to give.

You may want to give investments in the form of a mutual fund, instead of individual stocks.

The process for giving mutual funds as a gift is very similar to the process of giving individual stocks as a gift. Some companies, like Vanguard, will allow you to transfer mutual fund shares as a gift. The recipient of the mutual fund gift will need to have an account with the company that the fund is offered through.

It is likely that you will have to set up an account with the company that offers the mutual fund first. After you have purchased the gift, you will then have to transfer it to the account of your recipient.

Keep in mind that many companies have a minimum amount required to purchase mutual funds—and they can be large. If you don’t have $3,000 or $5,000 to start an investment account, this may not be an ideal investment gift to give.

Pros of mutual funds

Mutual funds make a great gift that will be poised for long-term growth. If you are giving to young kids, then this is a great way to start an account that will grow with them.

Cons of mutual funds

Transferring a mutual fund can be a tedious process. Depending on the company you choose to work with, it may involve a lot of paperwork.

Before you give any investments as a gift, make sure to take a close look at tax laws that affect gifts. Although most gifts will be well under the $15,000 exclusion limit for 2018, you should ensure that your gift will not incur any tax penalties for the recipient.

If your gift is above the threshold, then make sure that your recipient knows about the tax rules so that they are not surprised by the penalty at the end of the year.

Giving investments as gifts are a great way to ensure that someone gets a valuable gift that could increase in value as time passes. Look into your options and choose the investment type that is ideal for you to give. Also, make sure that it is ideal for the recipient to get and benefit from.