Stocks for the stockings

If you’re looking for a gift that won’t go out of style, you might consider something of a financial nature that will grow in value. Depending on your budget, it could be a few shares of your favorite mutual fund, a head start on a retirement or college savings plan or a book about investing.

While the idea of tucking stock certificates into a stocking is appealing, this sort of gift might require you to give the recipient some advance notice, which can ruin the surprise. But don’t let that put you off to the idea, said Don Cassidy, senior research analyst with fund tracker Lipper Inc.

“The long-term virtue of this idea, what you’ll begin to create, is a terrific lifetime habit that will give a person a great deal of lasting benefit,” Cassidy said. “That weighs a lot more than the short-term thrill of tearing off the wrapping paper.”

There are a couple ways to give securities as gifts, Cassidy said. You can either purchase shares of a stock or mutual fund outright, or you can transfer shares of something you already own into the recipient’s name. If you decide to transfer something you already own, it’s more tax-efficient to give a security that’s appreciated in value over the last year, assuming you’re giving to someone in a lower tax bracket than yourself. You wouldn’t want to give away something in which you’d seen a loss, because then you couldn’t use it to offset gains.

Whether buying new or transferring an existing security, you will need to know some basic information about the recipient, including Social Security number and address. If they are younger than 18, you may need to establish a gifts-to-minors account.

Carefully consider the needs of the recipient when choosing your gift. For a younger investor with a longer time horizon, a growth fund might be appropriate. If retirement savings is the goal, you might prefer a target-date fund, where the asset allocation automatically adjusts over time. But don’t make things more complicated than they need to be; sometimes a simple index fund or exchange traded fund works best.

If you want to start or contribute to college savings for a grandchild, talk to the parents about whether they’ve established a 529 plan. If they haven’t, consider helping them to open one. For new college grads who have just started their first jobs, assistance in opening a Roth IRA may not be as exciting as a new iPod, but it will go a long way toward helping them find financial independence.

In all cases, particularly those where you hope the gift will inspire the recipient to continue saving and investing on his or her own, low-cost, no-load funds are best, Cassidy said. No-load funds are favored by do-it-yourself investors because they avoid sales fees associated with brokers, cost much less and deliver higher returns over time. An early introduction to this type of investing can reap great rewards, Cassidy said.

A good way to augment such a gift is with a user-friendly instruction manual, such as “Mutual Funds for Dummies,” by Eric Tyson, or “The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success,” by Christine Benz. Also useful are subscriptions to magazines written with an eye toward educating individual investors, such as BetterInvesting Magazine, published by the nonprofit National Association of Investors Corp., or the journal of the American Association of Individual Investors, another nonprofit group.