The holidays, a time to take -- and give -- stock
Long after the holiday sweater has been returned or the game delegated to the bottom of the toy box, shares in a company can be a present that holds the potential for a longer-lasting impact.
“It’s a gift that keeps on giving, especially if there’s a dividend attached,” said James Russell, principal and portfolio manager at Bahl & Gaynor Investment Counsel. “It’s certainly a more meaningful gift that could be used and held for years, as opposed to a returnable item that is not fully appreciated.”
Beyond possessing a stake in a public company that can increase -- or not -- in value, giving stock to someone, particularly a younger person, offers an opportunity to learn valuable lessons about the world of finance.
“It’s quite an educational experience, and it makes the stock market less scary and more accessible,” said Art Hogan, chief market strategist at Wunderlich Securities. “It can have the double benefit of getting a young person interested in investing, which may work to their benefit longer term,” offered Russell.
Both Russell and Hogan point to low-fee brokerages (Fidelity, Schwab or TD Ameritrade, to name a few) as relatively easy vehicles for making the purchases. The recipient can then “go online on any given day and see how their stocks are doing,” said Hogan.
For those who like the idea of giving stock, but don’t want to bother with brokerages, online or otherwise, other options include a stock gift card offered by stockpile.com. They function much like an Amazon (AMZN) card that allows the receiver to use the value stored to make purchases on the company’s site.
Available for the past year, Stockpile’s cards are sold at gift card racks at retailers including Target (TGT) and Sam’s Club (WMT). They come in denominations of $25, $50 and $100 and can be used to buy fractional shares of more than 1,000 stocks, including Apple (APPL). They can also be purchased online, and like other gift cards, include upfront fees of nearly 15 percent to 20 percent of the face value.
The downside is, while easy to purchase, the receiver still has to go through the process of opening a brokerage account because Stockpile handles its equity offerings through a registered broker, Stockpile Investments Inc. Recipients can also bypass the whole stock idea and switch out the card to a favored retailer.
The company says a quarter of its accounts are owned by kids and teenagers, which likely makes it unique among brokerages.
Hogan fondly recalled a childhood friend’s father, a stockbroker, helping him purchase small quantities of stock in his youth, which got him interested in the business that became his career.
It also led to an adult practice of giving a share of Walt Disney (DIS) to any niece or nephew born into his family, a gift that multiples when it involves godchildren. “I’m Irish Catholic, so I’ve done it about 36 times,” Hogan quipped.
The process of giving equities to a child or teenager is relatively easy, thanks to the Uniform Gifts to Minors Act (UGMA), which varies by state but allows a minor to own assets, with a custodian overseeing the account.
And while the cold world of finance may not seem that personal, you can tailor your gift to the individual, giving the athlete on your list shares in Nike (NKE). Or the woodworker might be pleased to receive a stake in Lowes (LOW) or Home Depot (HD).
Beyond giving to individuals, investors who hold stocks can get a tax break by gifting shares to institutions. “If you gift appreciated stock to a not-for-profit, like the Red Cross, or to your college or another organization that receives such gifts, the full value of that gift will be tax-deductible for the receiver, and the college gets to sell it without tax ramifications,” said Russell.
Another idea would be to give stock to an organization in someone else’s name, a symbolic move that can be noted in a card, suggested Russell. In this case, the tax benefit goes to the person giving the stock, not the individual named. “It’s a nice gesture where everybody wins.”
If you’re thinking of such a move, Russell pointed out that now might be the time because the rules about tax deductions involving donations to nonprofit groups might change under a Trump administration.