December is here, and for some, it may feel like the clock on their holiday shopping time has begun to tick down rapidly. However, the perfect gift idea may be closer than you realize. In fact, it may be as close as your online brokerage account.
No matter which December holiday, birthday or other occasion you’re shopping for, investments can make great gifts, and stocks in particular can be great options for family members of all ages, friends or anyone else. If your immediate reaction is one of uncertainty, the results of a recent Yahoo! Finance/ Ipsos poll may offer reassurance.
According to the poll, 68% of Americans said they would be happy to receive some kind of investment as a holiday gift, and only 6% said they would be unhappy to receive one. Of course, children might not immediately see the benefits of such a gift.
However, with a little time and effort, you can teach them about investing and set them up for more solid financial footing as they get older.
Why gifting stocks can be a great idea
Warren Buffett, whose net worth is now around $118.5 billion, bought his first stock when he was only 11, so he’s been growing his wealth for over 80 years. He’s often referred to as the “Oracle of Omaha” for his uncanny ability to predict the stock market’s moves, and he didn’t pick up that skill overnight.
Additionally, Buffett has often pointed to compounding, which is essentially the interest earned on top of interest, as a key foundation for the growth of his wealth. Of course, not everyone will be as successful as him. However, starting your kids out at an early age with their first stock and teaching them about compounding will help establish a firm financial foundation on which they can continue to build for the rest of their lives.
Of course, virtually everyone can benefit handsomely from a gift of stocks, no matter what age bracket they fall into. As the price of that stock gradually moves higher, their wealth will continue to grow, assuming you bought well-known names whose value will grow steadily over time.
In fact, gifting stock is a great way to not only give something of value now but also to help the recipient grow their savings at a much faster rate than if you had given them cash to put in a savings account.
Even if the stock you give doesn’t rise immediately or displays volatility in the uncertain market environment that we’re in right now, it will still give your kids or anyone else who hasn’t invested much some important lessons about investing, saving, the markets and other areas of finance.
Here are four different categories of stocks that might make great gifts, depending on whom you’re giving them to.
Stocks with brand-name recognition
One category of stocks that will appeal to pretty much anyone is blue chips and other well-known brand names. Here are some suggestions:
- Apple (AAPL)
- Meta Platforms (META)
- Amazon (AMZN)
- Alphabet (GOOGL)
- Microsoft (MSFT)
- Nike (NKE)
- PepsiCo (PEP)
- Coca-Cola (KO)
- Sony (SONY)
- General Motors (GM)
- Ford (F)
- Target (TGT)
- Walmart (WMT)
Many of the stocks on that first list are also excellent choices for kids, but there are many others that could speak particularly well to a child’s specific interests. When giving stock to a child, it’s best to also explain the basics of owning stock.
For example, they might want to own shares of a company they like because being a shareholder is like owning a very small piece of the business. Here are some suggestions of stocks that might appeal to kids:
- Mattel (MAT)
- Hasbro (HAS)
- Warner Bros. Discovery (WBD)
- Paramount Global (PARA)
- Nintendo (NTDOY)
- Snap (SNAP)
- McDonald’s (MCD)
- Netflix (NFLX)
- Hershey (HSY)
Of course, almost any stock could be on this list, depending on the recipient’s specific interests.
If your goal is to provide mini income streams in addition to long-term stock-price appreciation, dividend stocks may be the way to go. Here are some suggestions of stocks that have attractive dividend yields:
- Starbucks (SBUX)
- Verizon (VZ)
- Comcast (CMCSA)
- Johnson & Johnson (JNJ)
- Exxon Mobil (XOM)
- General Mills (GIS)
- AT&T (T)
- United Parcel Service (UPS)
- Lowe’s (LOW)
- Home Depot (HD)
Of course, the list of healthy dividend stocks is quite long, so there are many others not included on this list, including tech names like Microsoft, which isn’t usually bought because of its dividend. These are just some of those with better brand recognition.
Finally, impact stocks or those with an ESG (environmental, social and governance) focus can not only provide exposure to such names but also enable the recipient to support a company that addresses specific issues or concerns they might have.
Millennials have shown a particular proclivity for impact investing, although it is gaining in popularity among all generations of investors. Of course, impact stocks can take many forms. For example, many investors want to own shares of companies that are beneficial to the environment, such as these:
- Tesla (TSLA)
- BYD (BYDDY)
- Ideal Power (IPWR)
- ChargePoint (CHPT)
- Blink Charging (BLNK)
- First Solar (FSLR)
- SolarEdge Technologies (SEDG)
- Enphase Energy (ENPH)
- NextEra Energy (NEE)
Of course, impact stocks don’t necessarily have to address the environment. You could make a case for many stocks that aren’t traditionally considered impact or ESG names. For example, one new area that’s starting to gain consideration as an impact-oriented sector is biotech.
Some investors may want to own the stocks of companies working on treatments for various hard-to-treat or widely prevalent diseases that may be affecting them personally or a loved one. Here are some suggestions:
- Eli Lilly (LLY)
- AbbVie (ABBV)
- Amylyx Pharmaceuticals (AMLX)
- Coya Therapeutics (COYA)
- Biogen (BIIB)
- Rocket Pharmaceuticals (RCKT)
- NRx Pharmaceuticals (NRXP)
- Ventyx Biosciences (VTYX)
- Regeneron Pharmaceuticals (REGN)
Some last things to keep in mind when gifting stocks
If you’ve decided to move forward with gifting stocks for the holidays, there are some implications you should know about before buying any. In particular, you should be fully aware of the tax implications associated with gifting stocks, especially in significant dollar amounts.
The first thing to do would be to make sure you don’t inadvertently trigger the gift tax. This tax is easy to avoid as long as you limit your gift to any one person to less than $17,000 in 2023. If you do go over that amount, just remember to file the necessary paperwork with the Internal Revenue Service applying the amount over $17,000 to your lifetime gift exclusion of $12.92 million. Thankfully, there are no monetary limits on gifts to spouses who are U.S. citizens and dependent children.
One other tax to consider is the capital gains tax. The good news is that you don’t pay capital gains tax on stock you give away. However, the person you give it to will have to pay this tax on all the gains the stock has made since you originally purchased it — not since you gave it to them.
As a result, it can benefit you to give the stock to someone whose capital gains tax rate is lower than yours. However, it’s a good idea to keep this tax liability in mind — and possibly only give stock you purchased recently.
Additionally, the so-called “kiddie tax” would apply if you give stock that has incurred dramatic gains to your dependent child, who then sells it. While their capital gains tax rate would probably be 0%, any unearned income, in this case, capital gains, over $2,500 is taxed at their parents’ marginal tax rate.
Of course, all these notes basically amount to a crash course in taxes that could apply when gifting stock. Thus, it’s a good idea to look more deeply into any of the above that are particularly concerning for your specific situation.
Additionally, it might make sense to speak with a financial advisor before buying stock with a plan of gifting it to someone for the holidays or some other celebration.