What to Get a College Graduate

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If you read my previous post you know that my nephew just graduated from a 6 year Pharmacy program. You may also recall that we’ve been talking about all the saving, spending and investing that he is about to commence with a starting salary north of $130,000 per year. Of course there’s that mortgage-sized $150,000 school loan hanging over his head. Luckily, his generous parents are happy to let him live in their house as long as he wants and rent-free.

All the talking about Financial Independence got him fired up enough to open a brokerage account at Vanguard and buy a few shares of VTI to get the ball rolling. With the market at the all time high recently he’s already made a few dollars – on paper. It’s great that the market moved up after his initial trades because it’s certainly easier to get excited about investing when you see the account balance grow without lifting a finger.

I wasn’t so lucky when I naively dabbled in the market back in 1998 – 80% of my “investments” were wiped out in the dot-com crash. Of course, I did buy actual shares of “hot” tech companies and not index funds like my nephew. Bought at the top, sold at the bottom. Classic.

My nephew knows that his Vanguard funds can decrease in value anytime but, more importantly, he knows not to sell. Still, there is no denying that seeing green in the beginning of your investing career is encouraging. It’s like a spark that starts a roaring fire or a first hit that starts an addiction. As he matures as an investor he’ll build up tolerance to the ups and downs just like the rest of us steady old index fund trading junkies out there 🙂

Deciding on the Graduation Gift

I spent a lot of time thinking about what to get my nephew. Back when I graduated from college my sister gave me a Cannondale bike which I enjoyed for 15 years before its untimely death. I’m not a big fan of giving and receiving gifts in general but I must admit that THAT was an awesome present.

The bar has been set pretty high and once again, by my sister. Her and her husband got their son a gold Baume et Mercier watch as a graduation present. Apparently this was something that my nephew really wanted. I tried to talk him out of it telling him my own Baume et Mercier story, but I guess it did not work. Turns out they spent $7,000 on that watch. Alrighty then… Moving on…

I thought about getting him a mountain bike. Not only would it be a nice gift but a memorable inside joke as well. Problem is – he already has a good bike.

What else does a college graduate want nowadays? I could get him a new computer, an iPad or some other gadget but all of it seems so transient and fleeting. In just a few years most gadgets become old news, trashed or recycled.

I can write a check and let him spend the money on whatever he wants. Personally, I think it’s a bit tacky to give cash to a family member. More importantly, knowing my nephew the money would probably be spent on drinking (worst case) or travelling (best case). I have no problem with spending money on travel – quite the opposite. But whatever I give is not going to cover the whole trip (he likes overseas travel) and the memory will quickly fade. Books are always good, but I’ve already given him a couple (like this one and this one) and graduation warrants something more substantial.

I wanted to give something tangible and lasting to remind my nephew of all the hard work he put into getting an advanced degree and the opportunity that awaits.

Then it finally hit me – why not just give him Vanguard index fund shares as a gift! What can be better than a few shares that are basically guaranteed to appreciate forever AND pay out dividends regularly? You wanna practice what you preach…well this is it! Don’t buy stuff – invest instead. Watch it grow. Get motivated to invest more. Fan those flames!

Gifting Shares Within Vanguard

I called Vanguard and inquired about giving my nephew shares as a gift. Turns out while it’s possible to transfer existing shares to anyone, it’s a lengthy process that requires paperwork and coordination on both sides. I explained that I preferred for it to be a surprise and didn’t want to sell or transfer any of my own shares, but simply buy new ones in his name.

Unfortunately there’s no way to get that done without getting my nephew involved and filling out paperwork. Not giving up yet I asked if I could somehow deposit money into his account without actually giving him a physical check. They confirmed that’s an option!

If both people have a brokerage account at Vanguard one can initiate a transfer from their Money Market account into the other person’s Money Market account. You do need to know their account number for this to work.

To complete this transaction they asked me to stay on the line and enroll in Vanguard Voice Verification. An automated system prompts you to say “At Vanguard my voice is my password” 3 times which then authorizes you to make certain sensitive transactions over the phone. After that’s done you receive an email with a link to activate Voice Verification. Once clicked you are all set.

All that was left to do was to call the representative back and initiate a transfer of funds from my account into my nephew’s. This transfer took just one business day.

I called my nephew to congratulate and explained a somewhat unorthodox present. By this time he’s already read my email. That email laid out the framework and the Money Market deposit was just an icing on the graduation present cake. However, I did stipulate one condition – he has to invest his gift money into a fund of my choosing.

If it sounds a little restrictive there is a good reason (I think). You see, he is very interested in real estate investment but has zero chance of getting into REAL estate any time soon. I decided to use this opportunity to sample another approach to real estate investment – REITs. Solid dividends, potential appreciation, ability to invest in small increments, liquidity without leaking toilets make REITs a cool way to get exposed to real property and hopefully get even more stoked about investing!

The Reception

I gotta say – I wasn’t 100% sure how he’d like a gift like this. While I thought it was pretty cool, it doesn’t mean he’d agree. Being 24 years old and fresh out of college it’s natural to want shiny things that you can touch instead of long-term financial plans and phantom REIT shares.

I’m happy to report that my nephew was genuinely happy and thought it was one of the most thoughtful gifts he’s ever received. Not a small praise from someone wearing a new $7,000 gold watch!

Hopefully this post will encourage someone to look beyond buying things as gifts for a college graduate. Several conversations, personalized financial advice and a few shares can make a fundamental difference in a young adult’s life. Get ’em hooked early!