Holiday Gift Ideas for or by Investors

With the holidays right around the corner, I thought I'd mention a few gift ideas for those trying to please the investors in their families, and for those who are investors trying to impart their values. I think the ideas listed below are better (from the investor's point of view) than the latest gadget, the cute little booties babies always seem to get, or the ugly sweater or socks no one ever wears in public. The gadgets, usually expensive, become obsolete quickly. Baby clothes, if ever worn, end up in the attic, along with all the other useless relics we collect over our lifetimes. Sweaters are only worn at family gatherings to please the gift giver. You get the idea.

Savings Bonds

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):

EE Bonds
  • 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.

I Bonds
  • 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.
Shares of Stock

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.


$100 a Month ETF Portfolio

Since I wrote some suggestions for beginning investors and started a couple of model portfolios (here and here--note that the dividend stock portfolio is non-diversified), I received several requests for a portfolio that starts out with smaller sums of money. So here's an ETF portfolio to this end.

The allocation I chose is a moderately risky one, is meant for the long term, and is certainly not the best fit for everyone (see my suggestions for more on this). The goal of this portfolio, as with the others, is to show how one's wealth can grow by developing an investing plan and sticking to it. This and the other ETF portfolio are also meant to show how contributing small sums on a regular basis will eventually lead to large gains. There are various risks involved. If you choose to follow any of these (and others') sample portfolios, bear in mind that the risk you take is your own. Please do your own research and/or consult an investment professional.

With that out of the way, here is the eventual intended allocation:

37% US stocks (VTI)
14% International stocks (VEU)
5% Real Estate (VNQ)
7% Commodities (DBC)
18% Total Bond Index (BND)
19% Intermediate Term Treasuries (IEF)

The average expense ratio is around 0.2%.

The portfolio will work as follows. It will use a broker like Sharebuilder, which charges $4 a trade when you buy fractional shares. As I like to limit my commissions to 1% of my trades, purchases will be made in the portfolio when the cash balance reaches $404 ($400 to invest and $4 for the commission). Every month (on the 11th or thereabout), $101 will be added to the cash portion of the portfolio. This is the monthly amount we put away for investing. When it reaches $404 (every four months) it will be invested. Starting out, I'm assuming we have already saved $404.

Purchase prices will be determined as of market close the previous day. For example, if the purchase is made on a Tuesday, the ETF's closing price on Monday will be used. Given the $4 commission expense, the portfolio starts out with a 1% loss. Commission expenses will be calculated into the purchase price. For example, the first $404 was spent on BND, which closed at 74.60 yesterday (11/10/08). Four hundred dollars was spent buying 5.3619 shares. Factoring in the $4 commission, our actual purchase price is $75.35 per share.

Initially, purchases will be made alphabetically (BND, then DBC, then IEF, etc). Subsequently, investments will be made into the ETF that is farthest from its target weighting. If all positions are at their target weighting, I will again proceed alphabetically.

Dividends will be automatically reinvested (commission free) as they come in. Payout dates will be used for receipt of the dividends and they will be reinvested at the closing price on that day. For sake of ease, cash will not earn interest. Were this a real life portfolio, I'd keep the cash in an online savings account, such as at ING Direct or HSBC Direct, unless the broker's money market sweep had a better yield.

All portfolio updates will be posted here. The portfolio will be tracked in the spreadsheet below, and for easier viewing here.

Note that a similar portfolio composed of no transaction fee index mutual funds might provide a greater long term return because of less fees. The ETF portfolio has two sets of fees: broker commissions and the ETFs' expense ratios. No transaction fee mutual funds generally have higher expense ratios than similar ETFs, but purchasing them does not involve commission expenses. One reason this portfolio uses ETFs is that most low fee index mutual funds require relatively high initial investments (e.g., Vanguard requires $3,000 for its funds).

Another reason is that the ETF portfolio might actually be cheaper in the long run. As the portfolio's value grows, commission expenses will be an ever smaller percentage of the portfolio's value. At some point, depending on how much the portfolio is worth, the sum of broker expenses and ETF expenses may become less than the mutual fund expenses.

One way to minimize expenses in an ETF portfolio is to increase the amount per trade. That is, as it is currently set up, the portfolio has a 1% commission expense. (As the portfolio gets larger over time, commission expenses as a percentage of the portfolio's total value will become smaller and smaller.) Were we to buy $800 worth of shares per trade (say every eight months), that expense would drop to 0.5%. An additional way to lower an ETF portfolio's expenses would be to find a lower priced broker. As of writing, Zecco offers 10 free trades a month (but no fractional share purchases) when your account is valued at $2,500 or over. SogoTrade charges $3 a trade.


ETF Portfolio Underweighting US November Update

October was another volatile month, and the ETF portfolio lost another 10%. The S&P did even worse, losing almost 12% over the same period. As of 11/7/08, the ETF portfolio is down 23.4%, while the S&P 500 is down 24.78%.

As last month, the portfolio has been weighed down by the souring economies abroad. International TIPs (WIP) are down 21.58% since August, for example. Inflation was a major concern when the portfolio was started. How long ago that seems.

Although only 56% stocks, the portfolio has trailed the S&P 500 for much of the last four months. Only on a few occasions did it outperform. Were I to start it today, I might have allocated less to TIPs and more to short term domestic bonds, purchasable through the ETFs SHV and SHY. The portfolio might now be down far less had these ETFs been among its holdings.

Nevertheless, since I still believe that most of the world's growth will be abroad one, two, three decades from now, I'm not going to change its allocations. When foreign economies get back on track, I have a feeling the portfolio will outperform the S&P 500 by a good amount. Until then, I'm content getting more shares at a lower price. Let's see if this pays off.

The Model ETF portfolio's original description and list of holdings is here. All updates, like this one, are available here.

Dividends received and reinvested:

BND $0.30 * 6.73 = $2.019 [74.60]
BND $0.2687 (October) * 6.73 = $1.80835 [74.60] 0.0513 more shares
BWX $0.126 * 17.274 = $2.173122 [49.62] 0.0439795 more shares
WIP $0.208 * 14.2224 = $2.66438 [44.58] .05276 more shares

Fresh $500 invested:

VTI $69.07 total 1.4979397 shares at 46.11 1737.05/27.57397 = $62.996

VWO $140 total 5.62927 shares at 24.87 1486.18/42.46127 = $34.883

RWO $140.93 total 5.296 shares at 26.61 1024.16/26.052199 = $39.31184

RJI $150 total 20.71823 shares at 7.24 1321.92/123.139732 = $10.73512

SPY $500 total 5.327083 shares at 93.86 11500/92.166083 = $124.77475