It’s that time of year again, when Christmas shoppers flock to the malls, often without any idea of what to get their loved ones. In such uncertain economic times, perhaps a good idea is to take a more pragmatic approach to gifting and buy someone an investment that will hold them in good stead in the long term.
It’s that time of year again, when Christmas shoppers flock to the malls, often without any idea of what to get their loved ones. In such uncertain economic times, perhaps a good idea is to take a more pragmatic approach to gifting and buy someone an investment that will hold them in good stead in the long term.
Nadia Muller, manager of legal and compliance at Sygnia, says the novelty of a gift often wears off or it is only used a few times. “In my view, investments may be the better gift, especially for young people, as they can aid them in becoming more financially savvy and give them a financial foundation on which they can grow their wealth over time.
“The consequence of receiving such a gift is that it’s the gift that keeps on giving. It is very much forward-looking and provides more longevity than any gadget or gift card,” says Muller.
As counter-intuitive as it may seem, she says buying an investment as a gift is more likely to have a real positive impact on a person’s life than almost any other present, because it will encourage that person to perhaps start thinking about investments if they are not already doing so, or give them a substantial leg-up.
It’s a gift that is best suited to children because it kills two birds with one stone: it is effectively a way for parents to save for their children’s and grandchildren’s futures and it teaches them about the importance of starting a savings plan from a young age and understanding how to save, invest and spend money wisely.
Nevertheless, Muller says there is nothing wrong with getting an investment as a gift for your friends or extended family members too.
“Being a financial role model for your child is essential. Similarly I think it’s wise to be a financial role model for friends and family…even if it’s not for Christmas per se, but perhaps in saving for a big milestone, like a wedding. If you are in a position to do it, it may well give such a friend or family member the start that they were looking for and maybe could not afford themselves.”
When choosing an investment gift, Muller says in her opinion it’s best to stick to tax-free saving accounts (TFSAs) and low-cost index-tracking unit trusts. The former allows annual contributions of R30 000 with a lifetime contribution limit of R500 000 and is appealing because it’s an investment that is exempt from income tax, dividends tax and capital gains tax. The latter makes for a good gift because tracker funds are passive investments and that means there is no active management in selecting the underlying shares.
Says Muller: “I’m a firm believer in keeping things simple and that extends to investments. A TFSA is a flexible, general purpose savings vehicle and this product serves as a highly tax efficient way of saving. And, an index-tracking unit trust fund, in my view, is one of the most cost effective ways to save and access index-tracking investments.”
An investment might seem like an anti-climax on Christmas morning, but Muller urges those on the receiving end to see the bigger picture and not cash the investment in within days of receiving it, as this would defeat the purpose.
“The idea of an investment as a gift is for such a gift to provide some financial benefit in future – it is not intended to be a short-term investment,” says Muller.
“The giver of such a gift should also have the right intention in mind,” she adds, whether it be to secure the recipient an education, their first car or for them to become financially independent. “The intention should not be part of the giver’s tax-planning exercise.”
There is always a chance that someone may not appreciate an investment as a gift, much in the way that some people think of gifts of cash and gift vouchers as thoughtless. In such cases Muller suggests that you explain the reason behind your gift and show that it is coming from a good place.