Here’s a great gift idea for the college graduates in your life - get them a brokerage account.
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O.K., so perhaps saving and investing money isn’t the first thing on the mind of a newly minted, debt-laden college grad. But starting early is the greatest advantage, and these kids have plenty of time to watch even the smallest contribution multiply.
“In fact, the right time to think about it isn’t college graduation, it’s kindergarten graduation,” said Lena Haas, senior vice president of retirement, investing and savings at E*TRADE Financial Corporation.
According to a recent study by E*TRADE Financial Corporation, most online investors (53%) said a retirement account would be the best gift to ensure financial success – more than a down payment on a home (25%), cash (17%) or a new car (5%).
While a tax-advantaged IRA would have to be set up by the graduate, a brokerage account with an initial contribution deposited by the giver would be a nice start to a lifetime of saving and investing.
I like the idea of presenting a worthy graduate with a printout of what my gift, say $200, could be worth some years down the road - maybe $2,000? That would provide a nice picture of the power of compounding interest and introduce the attractiveness of investing early.
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According to John Sweeney, executive vice president of retirement and investing strategies for personal investing at Fidelity Investments, giving shares of a stock or a mutual fund shows that you’re thinking about their future and you’re committed to their long-term success.
“It also teaches them about being an owner,” he said. Having ownership in a company gives the grad certain shareholder rights, creating a sense of responsibility and awareness of a particular business or industry.
The good news is, most college grads realize the value of starting early and would probably appreciate it if someone took the initiative to get them started. Among the youngest adults in the E*TRADE study (under age 34), 36% said they would prefer a retirement account over a down payment, cash or car, for setting themselves up for financial success.
And they are very concerned about their financial future. The E*TRADE study also asked investors what their biggest worry was, and surprisingly, not having enough money saved for retirement came out ahead of losing a loved one for the under 34 age group.
Once the grad gets a job, he or she can set up a plan to automatically invest a certain amount every month, so they don’t even have to think about it. And this can be in addition to an employer-sponsored 401(k) account.
Sweeney said the person giving the gift may choose to make recurring contributions to the graduate’s account, say, every year on their birthday, by mailing in a check with the account number on it.