FOOLISH FOUR PORTFOLIO
'Tis Better to Give... a Stock!

By Barbara Eisner Bayer (TMF Venus)

HILLSBORO BEACH, FL (Nov. 30, 1999) -- It's that most wonderful time of the year, when Salvation Army Santas ring their department store bells and carolers serenade us with "Silent Night" throughout the day, as everyone lovingly (and sometimes desperately) searches for the perfect gift for loved ones. Egads -- there are only 25 shopping days left until Christmas!

Parents elbow kids for the latest "Toy Story" merchandise, while grandparents wonder if the kids already have a Hacker Barbie. But before throwing yesterday's hard-earned bucks into today's hot item, think about giving the gift that lasts a lifetime. No, not jewelry (unless I'm the recipient), but stock.

Not only is gifting shares of equities a hook to help a child become interested in investing; it's a gift that keeps on giving, via dividends and price appreciation. Assuming a conservative return of 10% per year, a 10-year-old who sets aside a mere $10 a month will see the funds grow to more than $174,000 by the time s/he reaches age 60. That's a lot of moolah, especially considering that these days $10 won't even get you a Buzz Lightyear.

A stock certificate in and of itself might not mean very much to a child, so it's important to package it in an appealing manner. Consider buying stock in a company that the child has frequent encounters with -- Kellogg, Mattel, Wrigley, or Coke, to name a few. (Although if you go for the latter two, make sure the child has a good dental plan as well.) Attach the certificate to the item and wrap. Each time the child has breakfast, or rips Barbie's head off her body, she'll be thinking about her company.

Gifting a stock isn't all that hard, once you know the ins and outs. One way is to set up a custodial account with any broker. Under a custodial account, both your name and your loved one's will be on the account. The child is treated as the owner of the monies, but the custodian (you!) controls the investments. Any gains, income, or dividends on the account are taxed at the child's level, which, unless you are gifting stock to the next Shirley Temple, is beneficial from a tax perspective. There will be a minimum amount necessary to open the account (around $500), so check with your broker for specifics.

There are two types of custodial accounts, which apparently were named after Fred Flintstone's expletives: an UGMA (Uniform Gift to Minors Act) and an UTMA (Uniform Transfers to Minors Act). The major difference between the two is that an UTMA allows you to maintain control over the money for a longer period of time. You can read more about it in our Tax area.

If you already own shares of a stock, it will be easier (and cheaper) to gift them. Simply transfer one or more of your shares into the child's name. In order to do this, secure a "stock power" form from a broker or the company's transfer agent and fill it out.

The name of the transfer agent is printed on your stock certificate, but things change so quickly these days, it's best to call them directly and confirm. While they're on the phone, take the opportunity to get specific instructions on exactly how to transfer the share(s).

After filling out the form, which necessitates knowing the child's social security number, bring it to a bank or broker to receive a medallion signature guarantee. (If you are in New York City, a Medallion cabby's signature will not be accepted.)

Finally, return the medallion along with the stock certificate to the transfer agent. Remember to complete an IRS Form W-9 to certify that you are not subject to backup withholding. If you are sending it via mail, make sure it's registered and insured. Once the stock certificate is signed it's fully negotiable.

If you currently hold your stocks in a "street name" you will need to obtain a stock certificate from your broker. This is called "ordering out" and, like its Szechwan counterpart, costs about $25. No tipping is needed, however, and don't expect it to arrive by bicycle. Once you have the certificate, follow the instructions in the above paragraphs.

Gifting a stock is better than giving clothing or toys as it never goes out of style. Unlike chocolate, which disappears in a nanosecond, equity can last a lifetime. And it enables us to rewrite the lyrics to our favorite Christmas standard:

"On the first day of Christmas my grandpa gave to me
A share of Wrigleys in a pear tree.
On the second day of Christmas my grandma gave to me
Two shares of Coke, and a share of Wrigleys in a pear tree."

Merry gifting!

Related Links:

  • Gifting With DRIPS
  • More Tax Info
  • Charitable Donations

    Read More Foolish Four Reports


  • Top Dow Stocks
    ( RP Order )

    11/30/99

    1. Philip Morris
       (NYSE:MO)
    2. * Caterpillar
       (NYSE:CAT)
    3. * Eastman Kodak
       (NYSE:EK)
    4. * General Motors
       (NYSE:GM)
    5. * DuPont
       (NYSE:DD)
    6. JP Morgan
       (NYSE:JPM)
    7. Int'l Paper
       (NYSE:IP)
    8. SBC Comm.
       (NYSE:SBC)
    9. Exxon
       (NYSE:XON)
    10. 3M
       (NYSE:MMM)

    NOTE: Today's Foolish Four stock selections are marked with an asterisk.

    Foolish Four Portfolio

    11/30/99 Closing Numbers
    Ticker Company Dly Pr Chg Price
    CATCATERPILLAR INC3/16$46.38
    IPINTL PAPER3/16$52.19
    JPMMORGAN (JP)Unch.$131.50
    MMMMINNESOTA MIN'G/MFG5/8$95.56

      Day Week Month Year
    To Date
    Since
    12/24/98
    Annualized
    Foolish Four .81% -.71% -4.14% 20.76% 22.55% 24.26%
    S&P 500(DA) -1.33% -1.94% 1.92% 13.58% 13.65% 14.64%
    NASDAQ -2.49% -3.24% 12.46% 52.15% 53.56% 58.10%
    DJIA (DA) -.64% -1.01% 1.38% 19.87% 20.03% 21.53%

    Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
    12/24/9814MMM73.571$95.5629.89%
    12/24/989JPM105.514$131.5024.63%
    12/24/9822IP43.551$52.1919.83%
    12/24/9824CAT43.083$46.387.64%

    Trade Date # Shares Ticker Cost Value LT $ Val Ch
    12/24/9814MMM$1,030.00$1,337.88$307.88
    12/24/989JPM$949.63$1,183.50$233.88
    12/24/9822IP$958.12$1,148.13$190.00
    12/24/9824CAT$1,034.00$1,113.00$79.00
      Cash: $119.51  
      Total: $4,902.01  

    Key
    • S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.
    • DJIA (DA) = dividend adjusted. Dividends have been added to the total return of the DJIA.

    Note
    The Foolish Four Portfolio was launched on December 24, 1998, with $4,000. Additional cash is never added, all transactions are discussed and explained publicly before being made, and returns are compared daily to the S&P 500 and the Dow. (Dividends are included in the yearly, historic and annualized returns.) Stocks are chosen once per year using a formula based on dividend yield and price. See The Foolish Four Explained for details.