Monday, June 15, 1998

Stock for Grads
By Heather Wilhelm (

It's that time of year again. You know what I'm talking about. Every time you open your mailbox there's a note inside from some kid you haven't seen for ten years or maybe have never seen at all. "Guess what?" it says, "Jimmy Jr. is finally graduating from high school." What? You don't remember him? How could you forget? He's your brother-in-law's second cousin twice removed. In this case, Miss Manners and Peggy Post would probably agree that a simple congratulatory card is all that etiquette requires. However, let's assume Jimmy Jr. is your godson and Hallmark's very best isn't quite what you had in mind.

Traditionally, graduates receive gifts like fancy pen and pencil sets, picture frames, maybe even a trip. For my high school graduation, I got a couch for my dorm room. I have a friend who got a nose job. Seriously. Those gifts are fine I guess, but Chelsea Clinton really made out as far as the Fool is concerned. The first daughter received $1,027 worth of Coca-Cola stock as a high school graduation gift. Aside from the fact that Chelsea's stock is worth more than my $250 couch, there are a few other reasons why it made such a great gift. Allow me to explain.

o Return. If you're not already Jimmy Jr.'s hero, you will be in ten years. Had I received that $1,027 of Coca-Cola when I graduated 10 years ago, my shares would now be worth an unbelievable $16,493. Of course, not all stocks are going to return the whopping 32% a year that Coca-Cola did. Here's a more conservative gauge -- the S&P annualized 10-year return over that same time frame was about 17%. That would turn your $1,027 into $4,936. Not too shabby. I'd gladly trade in that old lumpy couch for that stock.

o Flexible. Your gift can cost as little or as much as you want -- to an extent, of course. Remember, we want quality stocks, not quantity. Don't run out and buy $20 worth of a penny stock. In ten years, those certificates will be scrap paper for the kids to write on. It's better to buy one share of a good stock than 100 shares of a speculative penny stock. The key is to think of this gift as a long-term investment and buy good solid companies.

o Easy. The whole process can take place in the privacy of your own home. Just call up your friendly discount broker and explain that you'd like to purchase stock as a gift. Actually, the broker I checked with said it requires a letter. Big deal. So it really just entails a stroll to your mailbox. Bottom line, giving stock as a gift will keep you out of the local mall. So unless you really, really like those smoothies from Orange Julius, this is a good option for you.

o Very Foolish. An alarming number of kids these days leave high school and even college without learning one thing about managing their money. A shocking 51% of the respondents of a recent Fool poll give their local schools a failing grade for financial education. It's no wonder so many recent grads end up drowning in the depths of credit card debt. Giving stock to someone getting ready to make their way in the world is a great way to introduce them to the world of finance. While I'm talking Foolishness, here's another good idea -- forgo the greeting card and buy a copy of one of the Fool's books. The very first page is blank and a great place to write a quick note of encouragement. That card will be in the trash before you can say "Pomp and Circumstance," but the book will be a treasured memento and a great reference book for years to come.

What's not to love about a gift of stock? I can't think of one reason why it wouldn't make an ideal gift for your grad. It's a gift that keeps on giving. So after Jimmy Jr. has collected his diploma and tossed his cap, slip him a stock certificate and welcome him to Foolishness.

** Oh, one last note courtesy of TMF Taxes and your local Internal Revenue Service office -- there are a few tax issues that you need to be aware of when giving stock as a gift, so be sure to check out TMF Taxes' article on the subject.

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