Money Matters Monday 4th December 2017
Give a Gift of Real Value
Christmas is almost here 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.
Consider an investment
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 economic times and bad, profits and dividends.
There is no minimum amount when buying shares but there is a minimum brokerage cost of of about $29 if shares 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 considerably long-term investment over a number of years, 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 $2,000 minimum, or $1,000 if a regular savings plan of at least $100 per calendar quarter is added. Funds designed to achieve growth make most sense: investments in shares, property, overseas or a balanced mix.
One Grandmother’s story
One grandmother invested $2,000 each of her two granddaughters in Perpetual’s Industrial Share Fund when they were very young and added about another $8,000 in ad hoc amounts over the next few years. Now, in their early twenties, the girls have around $50,000 invested each!
In this particular case, 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 compatible with the recipient’s interest – for example, technology, or renewable energy, or transport. Managed funds can also get young people started in investing and help them develop valuable financial life skills, as well as confidence and experience.
Topping up Super is also a great gift
Another option that some grandparents like, is to add a few thousand dollars to their grandchildren’s superannuation. Grandchildren cannot access it until their 60s at least but a small amount added now will make a very large difference to their retirement benefit due to compound interest.
If you’re interested in the idea of an investment gift, please contact us.
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