The holiday season often means pressure to give just the right gift. Rather than grabbing something online or at the mall that will be gifted and forgotten, what about a gift with the long-term in mind? An investment gift would appreciate in value over time and be useful to your recipient for years to come.
"The first step is to think about what you're hoping to accomplish. What's the reason you're not giving a sweater and want to do something more?" asked Kimberly Bridges, director of financial planning at BOK Financial®.
You may want to introduce a loved one to investing or begin a shared experience, she said.
"This is a gift that doesn't end when the present is opened," she said. "It's opening the opportunity to share your knowledge and love of investments with someone you love."
The benefits of investment gifts
National surveys have found additional benefits to giving any sort of investment as a gift, especially to younger generations.
A survey of 2,000 parents of kids aged 5-17, conducted by OnePoll for BOK Financial, looked at how important parents consider financial education and found that most (82%) agree that financial responsibility starts at home.
You may want to start with a youth savings account to establish early savings habits when they're young and then consider the gift of investing as a way to continue those conversations.
"It's really important to teach children about money, stewardship and eventually, how to invest. You can graduate high school and college without ever learning how these things work,"- Kimberly Bridges, director of financial planning at BOK Financial
Investment gifts could also be for anyone on your holiday shopping list that you want to get engaged with financial literacy.
According to a recent Standard & Poor's Ratings Services Global Financial Literacy Survey, 57% of adults in the U.S. are financially literate. An investment gift could be an entry point to help someone feel safe about starting to invest since they aren't risking their own money.
"You may want to gift a portion of your stock portfolio to get them started with investing," Bridges said. "There could be legacy stock, something that's been in the family portfolio for years, or some low-basis stock that you need to diversify out of."
Charitable gift giving
Another key motive may be to transfer your personal values related to charitable giving to the next generation. "If you've been able to amass wealth through wise investing, you may want to share your passion for charitable giving with your loved one," said Bridges.
One way to combine the two priorities is by making a gift to a donor advised fund and adding your loved one as an advisor. "Then you could work together to manage the investments and make grants from the fund to support charities you both care about," Bridges said.
The best charitable gifts—whether made to a donor advised fund or directly to a qualified charity—are assets that have appreciated in value and would be subject to capital gains tax if you sold them, she explained. Charities will benefit from the gift's full value, and you will benefit by not realizing capital gains taxes.
How do I give an investment gift?
Gifting an investment such as a stock gives your recipient the benefit of increases in the stock's value over time. To gift to a child, they will need to have a custodial brokerage account, or you can help them set one up as part of the gift. These are also known as Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) accounts. To gift a stock to an adult, you can purchase it in your brokerage account and transfer it to theirs. Work with your broker to understand the correct process.
Of course, gifting a stock will require knowing your recipient's account information. So, for the physical gift, you may want to create a card stating your gift intention, like a gift certificate. Then, work with them to get the stock into their account.
A gift means it's no longer yours
Bridges also cautions when giving an investment or any other gift: "Once a gift is made, you give up control of the outcome. Whether you are giving a vase that is a family heirloom or stock that has been in the family for generations, once the gift changes hands, the recipient can do what they want with it."
Whether your motive is to create a shared interest, improve your tax burden, or aid in wealth building, Bridges recommends working closely with your tax and investment advisors to determine the type of gift appropriate for your loved one. They'll help you choose the most appropriate stocks to gift and advise you on any tax rules and implications at play.
Consider a new, long-term approach this year for a meaningful and memorable holiday gift.
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