One staple of gift giving, to the dismay of many American children throughout the years, is savings bonds. There are two types that you can get, EE and I. You can buy them online at Treasury Direct and at most banks. The minimum purchase for both is $25 (though it may be $50 at a bank). For both, the annual purchase limit per individual is $5,000.
Here are some facts about both (Treasury Direct has all the info):
- Fixed interest rate, determined by taking six month averages of five year Treasury market yields and multiplying the figure by 0.9.
- Rates for new bonds are adjusted every six months, in May and November.
- The rate announced November 2008 is 1.3%.
- The interest is compounded every six months.
- Must be held for at least one year.
- If you redeem them within five years of purchase, you lose three months of interest.
- If you buy the bonds in paper form, you pay half their face value. They are worth full face value 20 years after purchase.
- Exempt from state and local taxes.
- They stop paying interest after 30 years.
- Interest rate determined by combination of fixed rate and inflation (determined by the consumer price index).
- Both rates for new bonds are adjusted every six months, in November and May.
- The fixed rate announced November 1, 2008 is 0.7%. The inflation rate, announced at the same time, is 2.46%. This makes for a composite rate of 5.64% (more info at the Treasury site).
- Must be held for at least one year.
- If you redeem the bonds within five years, you lose three months' interest.
- Earn interest for 30 years.
- They increase in value each month and interest is compounded twice a year.
- No state or local tax on interest earned, and federal tax can be deferred until redemption. Estate, inheritance, and gift taxes (federal and state) still apply.
Another gift investors might appreciate receiving or giving, is shares of stock. There are a few websites that sell stock certificates. These include One Share, and Frame-A-Stock.
While the idea is a good one, I would avoid such merchants. As far as I know, you can only buy one share at a time. Unless you think the stock certificates will have separate value as collectibles (which they might), it's not worth paying all the fees (framing, transfer, shipping, etc) to buy just one or a few shares. Apart from the upfront costs, there is another difficulty. The receiver of the gift will have to do some paper work later on if he or she decides to sell the shares. Also, it would be a little hard to reinvest dividends on those stocks that pay their investors.
So, if you would like to buy shares of stock for someone (particularly children), I suggest you open up a trust account at a discount broker for them and buy the stock there. While not as presentable as framed and gift wrapped stock certificates, you can buy more shares for the same amount you would spend on the certificates. Also, all dividends would go into that account, which would make it easier to keep track of and reinvest. If you pick the right stocks (an index ETF or mutual fund would probably be better--something you can't do with the stock certificate merchants) for a child, when he or she turns 18 there may be a nice sum waiting for him or her. (For example, if you invested $100 into Philip Morris 20 years ago, those shares will receive around $75 worth of dividends next year, if the payout remains the same. The account would now also have shares of Kraft and Philip Morris International, which also pay dividends. The account would receive more per year in dividends than was originally invested.) This would teach the child the value of investing over long periods.
There are many business/investing games out there. People either love or hate these. Two of my favorites are Railroad Tycoon 3 and Trevor Chan's Capitalism 2.
In Railroad Tycoon, you play the CEO of a railroad company. You lay tracks, buy and maintain trains, transport goods, mail, and people, buy and build factories, farms, hotels, power plants, etc, all while compete against other railroads (either computer players or other humans in network games). You can issue bonds and shares, and buy and short sell stock of other rail companies.
Once you have enough shares of another company, or if you are a particularly good manager, you can buyout your competitors. The stock market portion of the game is loads of fun, particularly catching your opponents in short squeezes. The heart of the game, though, is about managing costs and maximizing profits. There are various scenarios in the campaign mode, as well as open scenarios that you can make for yourself. It's fun and very educational.
In Capitalism 2, you are the CEO of a company. There are various campaign scenarios and ones that you can construct yourself. You can own real estate and media stations, mine and sell raw materials, manufacture goods, sell your own and other companies' goods as a retailer, trade stocks, or do all of these things. There are dozens of products. If you want to manufacture high quality ones (price, quality, and brand name affect demand) you must do R&D or purchase the technology from your competitors, if they're willing to sell it to you (you can also try to merge with them by buying up their stock). Just as in Railroad Tycoon, you can issue shares and borrow money, and set your dividend rate. There is no short selling, unfortunately.
The game is so deep, from hiring a CFO, a marketing and/or a technology officer, to training employees, to producing goods in one city with cheap labor and selling them in another with higher prices, to selecting a brand strategy and advertising your goods, etc, that it and its predecessor (Capitalism 1) have been used in business schools as teaching aids. It is quite addictive and makes one appreciate just how much goes into running a company.
Both these games have dated graphics, but unlike with first person shooters, this is not very important.
There are lots of investing books out there. Investors may appreciate such a gift. Note, however, that there are some investors who are so frugal they would appreciate it more if you borrow the book from the library.
Subscriptions to Newsletters and Business Periodicals
There are all sorts of investing newsletters and periodicals out there. Investors may appreciate each of these. Try to look for those with free trials, so that if the gift receiver does not like it, you can get them something else without spending more money. Personally, I think investing newsletters are a waste. Periodicals can be good, but they are often available for free on the internet. For example, why subscribe to Money magazine when you can pretty much read all of its articles on CNN's website?
This least thoughtful of gifts is often the most appreciated. The gift receiver can do whatever he or she likes with cash, whether buying something with it or investing it.
From all of the above, I would prefer to receive cash. As for giving, I'm getting I Bonds for those of my family members who have trouble saving. My girlfriend's brother will probably not be very happy with this, but instead of eating Subway sandwiches (that's where most of his money goes) he'll have some pocket change and a smaller belly a few years down the road.
Do you have any other ideas? Please post a comment.