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Long-Term Investment Gifts for a Baby

Original post by Maggie McCormick of Demand Media

The birth of a child provides an opportunity to give a small gift that grows significantly in value over time. Those who want to avoid the typical gifts of books and toys should opt for a long term investment gift. Intended to mature over several years' time, your gift can set up the child for a comfortable early adulthood.

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Savings Bonds

Savings bonds are perhaps the most traditional investment gift for a baby. Whether you purchase a Series EE bond or a Series I bond, you can expect the amount to double over 20 years and continue to earn interest until the bond is 30 years old. It is a safe investment, which means that it doesn't offer high returns, but you won't lose your money. The downside is that bonds take so long to mature; the baby won't necessarily be able to reap the full benefits if she wants to use them to pay for her first year of college.

529 Plans

A 529 savings plan is an educational investment account that allows your money to grow tax free. Each state manages its own 529 plans and the investment options vary by state. You can start the account for as little as $25, according to BabyCenter.com, and all family members can contribute to the same account. When the baby grows up and uses the money for qualified educational expenses (tuition, books or room and board), the earnings are tax-free. Since the account is tied to the stock market, there is a chance for greater returns, but there is also the chance that your investments can lose value in the short-term. It's easy to transfer the benefits to other children, should the baby not need the money in the account.

Coverdell ESA

The Coverdell ESA is similar to a 529 plan in that it allows your money to grow tax-free for the baby's education. It's also tied to the stock market, which can have fluctuations. The main differences are that there are lower maximum contribution limits ($2,000 per year for the Coverdell ESA vs. a lifetime maximum of up to $380,000 for the 529 plan) and that the child will eventually gain control of the money in the account, regardless of whether she uses the money for education or not. In some ways, this can be beneficial, as not all children will grow up wanting to go to college -- but if a strong education is part of your plan for her, then it may not be the smartest investment.

Alternative Investments

Stocks, bonds and other types of investment accounts aren't the only things that can grow in value over time. Jewelry, antiques, art and collectibles can also appreciate. If you're looking for something a bit more off the beaten path, think of investing in something like an original work of art by a famous artist, items made of silver or gold or collectible items like baseball cards. The downside is that these things may grow to have sentimental value as well, which can mean that the child will not want to sell the item if she needs the money.


                   

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About the Author

Maggie McCormick is a freelance writer. She lived in Japan for three years teaching preschool to young children and currently lives in Honolulu with her family. She received a B.A. in women's studies from Wellesley College.


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