How to Give the Gift of Investing

Consider giving the gift of investing.

The season of giving is upon us. That brings agonizing over what presents and gifts to give kids, grandchildren, or Godchildren.  Instead of buying the same old gifts, maybe it is time for something different? 

Can you think of any better gift than one that grows over time and benefits the recipient far into the future? Consider getting your loved ones the gift of investing. 

How to Give the Gift of Investing

Why Encouraging Investing Matters

Investing is a long-term mindset, and the sooner investing starts, the more it can accumulate over time. By encouraging a young person to set money aside regularly very early on, that person can see it grow in value over sixty years rather than twenty for a 50-year-old just getting started.

Furthermore, the ups and downs of the market tend to even out given that longer investing timeframe.

>> See Don’t Try to Time the Market; Just Invest

The investing habit is easier to form when money isn’t immediately and critically needed for basic needs. And, as a wise investor yourself, encouraging your young people to invest with an investment-specific gift is a beautiful way to teach them a critical skill.

Four Ways to Give the Gift of Investing this Holiday Season

Here are four gift ideas to inspire you:

  • Fund a ROTH IRA
  • Set up and/or contribute to a College 529 Plan
  • Give US Government bonds
  • Involve the entire family in charitable giving decisions

Let’s explore each in more detail.

1 – Fund a Roth IRA

Consider funding a Roth IRA for your special young person. It’s a special retirement account with fewer restrictions than traditional IRAs. It’s ideal for younger people because Roth IRAs have restrictions for those who make too much money.

If a minor works and has earned income, anyone can fund a Roth IRA for that person with the lesser of $6,000 or the amount of earned income. 

Roth IRAs grow tax-free and distributions are tax-exempt after the account owner reaches 59 ½ years of age. 

>> Learn more about Roth IRAs in this Investopedia article.

2 – Set Up and/or Contribute to a Child’s College 529 Plan

Another gift idea is to fund a child’s college 529 Plan. 

Money in a 529 Plan generally grows tax-free and distributions are tax-exempt if the money is used for qualified education expenses.  Anyone can contribute to a 529 Plan and name anyone as a beneficiary. 

While there is no federal tax deduction, some states allow a tax deduction for 529 Plan contributions. This provides a benefit to the giver. 

For the beneficiary and the beneficiary’s parents, a 529 Plan that you start funding when the child is born will definitely grow into a respectable tuition payment fund by the time the child enters college, participates in an apprenticeship program, and/or needs to pay up to $10,000 in student loans.

Also, a 529 Plan will not negatively affect your young person’s financial aid opportunities.

>> See What is a 529 Plan?

3 – Give the Gift of US Government Savings Bonds

US Government Savings Bonds are traditional gifts but that doesn’t mean they are not a good idea. 

The Series-I bonds may be especially timely as their return increases with the level of inflation.  If, as many investors feel, inflation is back, then I-Bonds make sense. 

As explains,

Series I savings bonds are a low-risk savings product. During their lifetime they earn interest (7.12 percent through April 2022) and are protected from inflation.

The minimum term of ownership is one year, with no early redemption penalties after five years.

From a tax perspective,

Savings bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes.

Interest earnings are subject to Federal income tax.

Interest earnings may be excluded from Federal income tax when used to finance education (see education tax exclusions).

4 – Involve the entire family in charitable giving decisions

Giving the gift of investing can also be about charitable giving and including all family members in those decisions. 

It not only teaches kids about investing and money but helps build a tradition of giving that unites the family. Kids participate in the decisions where to give and can do research into the philanthropies. 

Imagine gathering once a year as a family to decide on which organizations the family will contribute to and how much to each one.  Any family that makes charitable contributions can do this, creating a valuable and good teaching moment for all involved.

How Pendragon Capital Can Help With Investing Gifts

Remember that investing carries risks, penalties, and tax implications so be sure to consult your investment and tax advisor beforehand. Pendragon’s approach is one of modern value investing and involves a touch of the contrarian.

If you need perspective on the gift of investing – how to do it, why do it, when to do it – don’t hesitate to reach out to Pendragon Capital.

Thanks for reading.

Subscribe to Pendragon's Newsletter

Image credit: Gift Cover (Fukusa) with Carp in Waves, Cleveland Museum of Art

“The motif of carp in rough water originated in China. The expression “carp jumping over the Dragon Gate” (liyu tiao longmen) refers to attaining success in life, or, historically, to passing the imperial examinations for civil service. Dragon Gate is a steep gorge of the Yellow River at Hejing in Shanxi province, and it was once said that if a carp swimming upstream could surmount the gorge, it would instantly transform into a dragon and fly into the sky. In Japan, therefore, a gift cover (fukusa) like this would have been appropriate to celebrate the recipient’s achievements.”

Note: This blog article is intended for general informational purposes only. Nothing in it should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.