For that very special graduation gift, try stocks

April 19, 1992|By Harry Greyard | Harry Greyard,Knight-Ridder News Service

If a relative or friend graduates from school this spring, you might be fretting over what to give as a gift.

Some people give towels, some give cars, some give pens.

Here's another idea: stock.

That's the recommendation in the April 8 edition of Personal Finance newsletter.

Stock can be an appropriate gift even for children graduating from preschool or elementary school. By the time children are in grade school, they can start to understand the concept of stock ownership, says Todd Ehret, the researcher at Personal Finance who wrote the article.

"For somebody in grade school, you could give them 100 shares of something like Coca-Cola," says Mr. Ehret. "You're going to have to talk to them in basic terms and just explain what stock is and that they own part of this company now. As they get older, you can get into other things as to why a company does well."

Mr. Ehret says gifts of stocks offer several advantages, including:

* Educational value.

* Growth potential.

* A tax shelter.

Thanks to the Uniform Gift to Minors Act, you can give up to $10,000 a year to a child without being taxed on the gift, or $20,000 if you're married and file jointly.

My hunch is that most people don't give $10,000 per child -- especially at a preschool graduation. And you certainly don't have to give 100 shares. Even a gift of a few shares could pique a child's interest in stocks.

That's important. Anyone who's sunk most of his or her investment into certificates of deposit has to feel some envy toward people whose stock portfolios have jumped in value recently. After all, CD interest rates have plummeted.

With education earlier in their lives, perhaps the CD holders would have learned more about the potential risks and rewards of stock investing. History shows that stocks are a better long-term investment than fixed investments. And when you're talking about children who won't need college money for 10 or 15 years, that's long-term.

"Not only are stocks a great way to teach, but we think they will far outperform CDs or bonds or anything like that," Mr. Ehret says. "We think they will return 10, 15 or 20 percent on an annual basis."

Jimmy Nicholson is a believer. The Pageland, S.C., retailer began buying stocks for his three children when they were youngsters more than 20 years ago.

"The real secret is to start with them when they're real young," says Mr. Nicholson. His investments took care of college expenses for all three children.

"That's a lot better than paying all the money for college at one time. The right stocks can build up into a pretty nice nest egg."

Mr. Nicholson's recommendation:

"I'm totally convinced that people should put it in a growth stock," he says. "Instead of paying big dividends, growth stocks keep splitting. Those are the ones that build up the best."

Mr. Ehret agrees. His newsletter's favorite growth stock right now is Eli Lilly. It's undervalued compared with most of the pharmaceutical companies, he says.

A couple of Mr. Nicholson's favorites have been Southwest Airlines and Walgreen.

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