Christmas is almost upon us and buying presents for the children and grandchildren is a priority. Some youngsters already have all the expensive toys they could want. Their collections include multiple examples of similar shiny items, many of which will end up in landfill in a few years’ time.
Why not give an investment as a gift? It could be shares or managed funds. The shares could be in a specific company or in an Exchange Traded Fund that covers a whole market or sector. Buying shares in major, well-known companies can be a very profitable long-term investment.
It can also provide a great learning experience, teaching the young person over the years something about the world of business, good times and bad, profits and dividends.
There is no minimum amount when buying shares but there is a minimum brokerage cost of either about $29 if they are bought through an online trading account set up in the child’s name, or $88 if bought through a full-service broker.
The cost can be a significant portion of the purchase, but that may be acceptable if it’s a very long-term investment and the education element is considered valuable. Investments can be in the adult’s name, as trustee for the child if desired, using the contact details of either.
An investment in a managed fund can be started with $2000 minimum, or $1000 if a regular savings plan of at least $100 per calendar quarter is added. Funds designed to achieve growth make most sense. They could invest in shares, property, overseas or a balanced mix.
One grandmother invested $2000 each for two granddaughters in Perpetual’s Industrial Share Fund when they were small and added about another $8,000 each in ad hoc amounts over the next few years.
Now in their early 20s the girls each have around $50,000 invested.
Dividends were reinvested to maximise the growth, as they should be in most cases. When buying direct shares it is best to choose a company that offers a dividend reinvestment plan, and to arrange the reinvestments after the shares have been purchased.
When buying gift investments for young adults shares can also be a good option. Brokers can recommend shares in companies that might interest the young person. Managed funds can also get young people started into investing and help them develop their skills.
Another option that some grandparents like is to add a few thousand dollars to their grandchildren’s super. They cannot access it until age 67, or probably 70 by then, but a small amount added now will make a very large difference to their retirement benefit due to compound interest.