ALSO
-
Giving A Financial
Gift
Well Worth The Effort
By Andrew Leckey
In
recent holiday seasons, financial presents given to children
by well-meaning parents and grandparents have become the gifts
that keep on taking.
Forget about being
educational and fun. Kids unhappily learned that stocks go down,
mutual funds go down and their college funds are worth half what
they were three years ago. If these were the good gifts, who
needs coal in their stocking?
Dozens of reader letters
I've received reflect this sentiment:
"For several years,
I have given at Christmas a certificate in this fund to my children
and grandchildren. Should I maintain this program? It does not
look too promising."
"Several years
ago, I bought this fund for my grandson who is now 13. The fund
was set up to pay for college. It has not performed well and
I'm considering moving the assets into something else."
Neither of those grandpas
is giving up but they're disappointed. Others wonder whether
they should skip financial gifts and wrap up computer games.
Well, it is worth the
effort. Giving a financial gift makes a statement that you're
taking an active interest in future well being of those you love.
If it helps a child learn about investing by following a stock
or fund, so much the better. And you can still give additional
gifts.
The market runs in
cycles. Many parents funded college educations during the bull
market. If you believe these cycles will continue, you can expect
the market to turn and your investment to prosper.
"When kids are
young, they have time on their side, and now is also a good time
to buy because prices are cheap," said Marilyn Capelli Dimitroff,
certified financial planner with Capelli Financial Services Inc.,
Bloomfield Hills, MI. "People love stocks when they're high
and hate them when they're low, when it should be the other way
around."
You can make a tax-free
gift of up to $11,000 annually to each child, and if husband
and wife contribute, the total can be $22,000 per child. This
sum includes smaller gifts, such as $50 at Christmas. The current
lifetime limit on how much can be transferred to your heirs free
of estate tax after you die is $1 million.
"For grandparents
and often parents, gifting investments to children still makes
sense because it's an opportunity to remove assets from their
own estate," observed Mark Balasa, certified financial planner
with Balasa Dinverno Foltz & Hoffman financial advisors,
Schaumburg, IL. "Even as college costs continue to accelerate,
they also have the opportunity to buy investments that are 40
percent off their earlier prices."
Stocks
and funds are handy gifts.
"It's important
to give a gift that has some meaning to a child and many of the
companies offering dividend reinvestment plans are easily recognized,"
said Charles Carlson, editor of the DRIP Investor (wwww.dripinvestor.com)
newsletter on dividend reinvestment plans, Hammond, Ind. "With
DRIPS, it often costs only $25 or $30 to buy stock directly from
the company and you can add to your holdings through dividends
and voluntary cash payments."
These DRIPs ring a
bell with kids:
- Wm. Wrigley Jr. Co. (WWY), chewing gum giant, up 6 percent this year and boasting a three-year annualized return of 10 percent, can be reached at www.wrigley.com or 800-446-2617.
- Harley-Davidson (HDI), famous motorcycle maker, had a three-year annualized return of 16 percent even though it's down 6 percent this year. It can be contacted at www.harley-davidson.com or 866-360-5339.
- Wal-Mart Stores (WMT), the No. 1 retailer that's down 2 percent both this year and in three-year annualized return, is at www.walmart.com and 800-438-6278.
It's
not easy finding funds with positive returns or low minimum initial
investments.
"Don't base a
selection too heavily on what the market looks like now, for
you're giving the gift as a long-term investment in which you
weather difficult patches," said Peter Di Teresa, senior
analyst with Morningstar Inc., Chicago. "When it's a first
investment, consider a fund that's a good foundation for a portfolio."
One core holding is
Vanguard 500 Index (VFINX), a "no-load" (no sales charge)
fund with $3,000 minimum. It can be contacted at 800-662-7447.
Its three-year annualized return is a negative 13 percent.
Here are three-year
annualized returns of some Di Teresa no-load fund suggestions
with $1,000 minimums:
- Artisan Mid-Cap (ARTMX), 800-344-1770; up 3 percent.
- Ariel Appreciation (CAAPX), 800-292-7435; up 10 percent.
- Selected American Shares (SLASX); 800-243-1575; down 6 percent.
Several
children's programs featuring colorful educational materials
have been lackluster due to their growth stock emphasis.
Monetta Express Investment
Program requires $250. Its Monetta Fund (MONTX) 800-666-3882,
had a three-year annualized decline of 11 percent. Liberty
Young Investor Fund (SRYIX), 800-338-2550, $2,500 minimum,
had a three-year annualized decline of 17 percent. USAA First
Start Growth Fund (UFSGX), 800-382-8722, $3,000 minimum,
had a three-year annualized decline of 25 percent. All three
are no-load.
Consult your accountant
about tax advantages of 529 College Savings Plans and Coverdell
Education Savings Accounts. In addition, no-load funds set up
as trusts include Royce Trust & GiftShares (RGFAX),
800-221-4268, $5,000 minimum, three-year annualized return 8
percent, and American Century Giftrust (TWGTX), 800-345-2021,
$2,500 minimum, three-year annualized decline 21 percent.
