Give a Graduate the Gift of Investing | theprimagecorp.com

By EMILY GLAZER

If you want to give a high-school or college graduate a gift with a big financial impact, go beyond writing a check.

Giving the gift of investing?with individual stocks, bonds or investment accounts and even some financial planning?will help a young adult get started on the long road to financial security.

Individual Stocks

One way to engage young adults in investing is by having them invest in things they know and like. So why not buy a graduate a few shares in, say, a tech company, a favorite retailer or eatery. Chat about why you think that particular stock is a good pick (you should be confident that it is before buying) and a good long-term investment.

Stephen Horan, head of private wealth at the CFA Institute, a nonprofit association of investment professionals, says he received stock in American Electric Power from his grandmother when he was 20. ?It gave me the experience of what it meant to own a stock, what the process was, what a brokerage account statement looked like,? says the now 44-year-old.

Shares in companies that sell consumer staples (think soap and toilet paper) may not be exciting, but they tend to fare well in down times. So they are good options for long-term growth. And many of these companies offer dividend reinvestment plans, or DRIPs, in which stock dividends can be automatically reinvested, says Dayana Yochim, consumer finance expert at financial-services firm Motley Fool.

Elwood Smith

Ms. Yochim says she gave her teenage nephew a beginning investor kit for $100 through discount brokerage ShareBuilder.com so he could buy shares that offer DRIPs. ?It was the perfect example that you don?t have to have thousands of dollars to get started,? she says.

Another option is to transfer stocks and bonds you already own to the grad so he or she can reap any capital gains?and learn about managing wealth?says Kimberly Foss, founder of wealth-management firm Empyrion Wealth Management.

Bonds

Many people still prefer giving low-risk investments like Treasury bonds. For those, Mr. Horan suggests Series I savings bonds, which have a variable rate that?s adjusted for inflation every six months. Such products will teach the grad that the buying power of the dollar changes over time. But with the paltry rates on bonds these days, you may want to limit the amount of money you invest in these, he says. Series I bonds can be purchased online for a minimum of $25 at TreasuryDirect.gov.

Investment Accounts

If the graduate has a job and has earned taxable income this year, get him or her started on retirement planning with a Roth individual retirement account. Since contributions to a Roth are made with post-tax income, withdrawals way down the road will be tax-free.

Consider matching some or all of his or her contributions for a period of time as an incentive. This will get the grad familiar with the concept of an employer match for retirement-savings plans, says Rande Spiegelman, a vice president at Charles Schwab. ?They?ll get into the habit of carving out whatever dollar amount they can afford per paycheck,? he says.

There?s no minimum initial investment required by law to open a Roth, though some IRA providers set their own minimums. You can contribute up to $5,000 annually to a Roth or as much as the person earns in one year, whichever is less.

Mr. Spiegelman suggests a Roth IRA with a low-cost index fund or exchange-traded fund, such as the Vanguard Total Stock Market ETF, which is broadly diversified. (Minimum investments may apply.)

Debt Relief

Consider giving a graduate a ?get-out-of-debt card? he or she can use in an emergency. Specify its amount and one-time use for specific situations, Ms. Yochim says.

?We?re not talking about a trip-to-Cancun emergency,? she says. ?We?re talking about a real one that could potentially really throw a wrench in their long-term financial well-being.?

A Little Advice

A session or two with a financial planner (fees can run about $100 to $300 per hour) will help a grad get started on saving, budgeting and paying down any debt. Those with a job lined up can get advice on allocating money in a 401(k) plan, choosing insurance and figuring out flexible spending accounts.

Write to Emily Glazer at emily.glazer@wsj.com

Printed in The Wall Street Journal, page WSJ2

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