Whether it is an act of kindness or that game console that your child has been asking for all year, a thoughtful gift is what we all want to give our loved ones.
Few of us actually remember what we got or gave last year and even fewer still enjoy what we were given last year. What you buy your loved ones and what you give them are two different things when you really think about it.
The well-known phrase “the gift that keeps on giving” describes a gift that is meant continually to invoke the feelings people have when they receive it. It implies that a gift that provides enjoyment over and over again is better than one that provides that feeling only once.
Steven Schultz, the head of investment marketing at Momentum Investments, says an investment is one way of providing a loved one with a gift that keeps on giving.
Schultz says giving an investment as a gift is uncommon. “However, resisting the feverish temptation to purchase the latest tending toy, gadget or fashion apparel could make for a far more meaningful and differentiated gift for a loved one this festive season.
“Consider the prospect of giving your child their pre-university gap year abroad in 2034, or your partner that dream tropical vacation in 2026, or how about your parents a new car in 2020 to enjoy in their retirement?”
He says although these gifts may appear to be extravagant at first glance and perhaps unaffordable, they may, in fact, be achievable.
“Regardless of how ambitious your desire for gift-giving this festive season is, all that is required is time and the foresight to start investing today.”
Then you are faced with the question: which is the best type of investment as a gift?
Schultz says while the decision to invest on behalf of a loved one this festive season should be intuitive, it is more difficult to decide what to invest in.
“Where and how much to invest will be influenced by a number of factors, including affordability, the time horizon until the investment is expected to be redeemed and the personal characteristics of the recipient,” he says.
Schultz says that, when considering where to invest, a good place to start is the intended purpose of the gift, which should take the recipient’s dreams and passions into account.
“For example, if the intention is to fund a holiday in two years’ time, perhaps a conservative unit trust investment or money market fund that is able to provide certainty of returns, while limiting the effect of market fluctuations on the investment, would be worthy of consideration.
“Alternatively, if the goal is more ambitious and time is on the recipient’s side, why not consider a longer-term investment, such as a share portfolio or more aggressive equity-focused unit trust?”
It is possible to give a loved one an investment that has been funded by a once-off lump sum, Schultz says. However, if you have the financial means, there may also be significant benefit in making a regular contribution to this investment, such as via a monthly or quarterly debit order.
Depending on the recipient’s specific goals and unique characteristics, the optimal investment may vary.
Schultz says as a point of departure, there may be merit in considering a tax-free savings account or a simple savings product.
Although it is true that, the younger the recipient, the greater the opportunity to start investing early on their behalf, this should not be a disincentive to giving adults an investment as a gift this festive season, says Schultz.
“In some ways, it may even be easier to start planning for a meaningful goal for an adult, such as a sibling, cousin or parents. Good luck to the parent who takes on the challenge of postponing their child’s first car in favour of ensuring that their 19-year-old gets a meaningful head start on their retirement savings.”
However, Schultz says, if the intention is to give an investment gift that is slightly more exciting and engaging, there may be benefit in buying shares on behalf of your loved one. “Why buy your loved one a new cellphone, when you could be giving them a direct ownership interest in Apple, Samsung, MTN or Vodacom?”
Schultz says the prospect of giving an investment in place of a conventional gift also provides parents with an opportunity to educate their children about the world of finance and investments. This is a far more valuable gift when one considers South Africa’s low levels of financial literacy.