Well, after a short hiatus (due mostly to a poorly timed computer failure) the Friday Link Highlights are back! I know, I’m excited too.

• JD at Get Rich Slowly has a good post on giving personal finance books as gifts, including discussion of whether such books make good gifts and some age-based recommendations.
• Jonathan at My Money Blog has a good post about setting up a Roth IRA as a gift. There are some restrictions, but if they qualify I think this is a great idea, for the same reason I like gifts of stock rather than the perennial savings bond.
• Also at My Money Blog, during my PC forced down time Jonathan wrapped up his series detailing how he re-built his retirement portfolio from scratch. Lots of information, and his thought process is well laid out.  
• For real estate folks (or stats junkies like me), Barry at Financial Page has the Third Quarter National Home Price Index. Not looking good for sellers, but the investor in me is certain there are deals to be had…
• With the end of the year fast approaching, tax time is coming soon. Jeremy at Generation X Finance has a nice post about how to tell if you will fall under the alternative minimum tax (AMT) and what to do about it if you do.
• Speaking of the AMT, KMC has an article about why your tax refund might be delayed if Congress doesn’t pass a fix for the AMT formula soon. Let’s all hope our legislators take prompt and decisive action on this topic. Ha.

Glad to be back in the saddle here (do blogs have saddles? I’ll assume they do). Have a great weekend everyone! 

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Old and Busted: Savings bond

When it comes to gifts, one that nearly everyone has received at some point is the US Savings bond. They are easy to buy and people think of them as a good “investment for the future” compared to a check.

But people are wrong.

EE Bonds sold between November 2007 and April 2008 will pay a fixed 3% interest rate. That’s hardly keeping up with inflation, much less increasing in value! Additionally, cashing the bonds in the first 5 years costs three months interest as a penalty, and the bonds won’t reach face value for 20 years!

Obviously, from a financial standpoint savings bonds don’t make much sense (or cents). But other than a check, what is a fiscally minded giver to do?

New Hotness: Shares of Stock!

Forget about savings bonds and 3% returns, consider giving shares of stock instead! Giving shares is a better option for several reasons:

• Greater growth potential. Since 1926, the average total return for the S&P 500 in a 20 year period (the time it takes a bond to mature) is almost 406%, compared to 100% for a savings bond. (Source)
• Multiple ways to grow. With a stock, you can make money through share price increases and dividends, and stock splits can compound your gains (resulting in the higher returns above.)
• Increase financial knowledge. Perhaps the biggest benefit of giving stock, particularly to young people, is that it can increase their interest in investing. Talking about money is one thing, actually owning a piece of Disney or Coke is much more interesting!

Is There a Catch?

Obviously, the return on a stock is not guaranteed like a savings bond. The figures above are based on the S&P 500 index as a whole, the performance of an individual stock may be less, or even nothing if the company goes out of business.

You can reduce the risk by buying only big blue chip companies. The risk of Disney going out of business is pretty small (though not zero)! Another way to reduce risk, though maybe at the expense of “coolness”, is to give shares of an exchange traded fund (ETF). ETF’s are basically mutual funds that trade like stocks, so you can diversify and reduce risks.

So this Christmas, ditch the bonds and give something that will really appreciate (and be appreciated.) Stocks in everyone’s stockings! 

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