Santa Claus needed some advice on gift-giving during this busy holiday season, and turned to Shari Greco Reiches, Co-Founder and Chief Visionary Officer of Rappaport Reiches Capital Management, and the author of “Maximize Your Return on Life - Invest Your Time and Money in What You Value Most.”
Santa: Shari, I’m so glad I tracked you down! It’s the busiest time of year for me and the elves, and this year we’ve had requests for gifts of stocks or mutual funds, even something called cryptocurrencies! I don’t know the first thing about money. Can you help?
Shari: Santa, Happy Holidays! Relax, I’ll get you through this. There’s lots of great reasons to gift stocks or stock funds during the holidays, and I’m going to tell you why it makes sense, and the most effective ways to do so. The good news—you can stick with building toys for the kids. It’s usually parents or grandparents that should focus on money-related giving.
Santa: Sounds great! So, tell me, what are the benefits of gifting stocks? I can see the joy on a child’s face when they get a train set, or a bicycle. But will they shout with joy when getting a—what do you call it—an index fund?
Shari: Good point, Santa. OK, so the joy may not be immediate. But teaching a child about investing is an opportunity to talk about what the future may bring them. How people and companies create wondrous new technologies. What their role might be in that growth and innovation! That can be exciting.
Santa: The benefit of delaying gratification today, for a better tomorrow!
Shari: That’s it. Gifting stocks teaches the importance of saving and investing for the future. Patience. Discipline. Old fashioned ideas, but like the compounding of interest, they have such impact over time.
Santa: So, what’s the best way to give stocks? Do they still use those certificates with the fancy pictures?
Shari: No Santa, everything has gone digital. But I’ve got some smart strategies. For starters, most parents are thinking about saving for their kids’ college education. The most efficient way to start saving – gift to a 529 College Savings Plan account with your child as the beneficiary. Relatives or even friends can also make gifts. You can invest in funds holding stocks, the earnings grow tax-free, and qualified withdrawals are free from federal and state income taxes.
Santa: And I’ll bring the children the books that will make them learn over the years leading up to college!
Shari: Great idea, Santa. Here’s another one. Lots of kids earn money from part-time or summer jobs. You know, babysitting, or shoveling snow. If they have earned income, a parent can make a gift to a Custodial Roth IRA. Let’s say a child earned $1,000 from working as a camp counselor. They can keep that money, while you gift $1,000 to the Roth IRA which can be invested in stocks and funds. The money grows tax-free, and they may not need to touch it for 50 years!
Santa: Wow, 50 years! That won’t not bring an immediate scream of joy.
Shari: I know. I did this for my girls with their first jobs, and often got a “thanks mom, what’s for dinner?” But now that they are in the working world and are contributing to their own 401(k)s, they appreciate those Roth IRAs.
Santa: Are kids the only ones that should get gifts of stocks or funds?
Shari: Santa, giving stocks or funds that have appreciated quite a bit over the years to a non-profit is a very effective strategy. By gifting these securities directly, you get rid of the capital gains you would have incurred if you had sold the securities and donated the cash proceeds, which may increase the amount available for charity by up to 20%.
Santa: What about cryptocurrencies? Do those make good gifts?
Shari: That’s a little trickier Santa. I’d stick with traditional stocks or funds, that have a long history of creating wealth. Cryptocurrencies are more speculative—maybe not a great gift.
Santa: Oh Shari, you have been so helpful! I’ll stick with toys for all the boys and girls, and you keep educating their parents on smart ways to give stocks and funds. Merry Christmas and Happy Hannukah!