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Should Marcelle's granddaughter invest a $1,000 gift in bank stocks—or is there a better option?
Q. I gave my 18-year-old granddaughter $1,000 as a Grade 12 graduation gift. She worked this past summer and the rest of this year’s university is already paid for, so I suggested she open a brokerage trading account and put the $1,000 toward two Canadian bank stocks. Is that a good idea? Or is there a better way for her money to grow?
– Marcelle
A. A graduation gift of cash is a great idea, as I’m sure your granddaughter would agree. But investing the money in just two bank stocks definitely is not. Nothing against the financial services sector, but there are too many unanswered questions for me to be excited about that plan.
First and foremost, your granddaughter needs to decide what the money is for. Is it for a new laptop? An emergency fund? The first seed of a down payment on a house? An early deposit into her retirement savings? Or is it for a raucous reading week trip to Daytona Beach next February? The answer to that question will determine whether the stock market is the best place for her money.
Really, your suggestion to put the money in bank stocks would only make sense if the intention is to save for retirement. The reason is that the time horizon for all the other uses of the money is just too short—a pullback in the stock prices would be disappointing for you both. I think capital preservation should be your goal at this point, not growth. And anyway, you aren’t going to see much dollar growth from that sum of money.
I applaud your efforts to help her get into investing at a young age. Well done. But perhaps help her open a Tax-Free Savings Account (TFSA*) at a discount brokerage or with a robo-advisor. Then you can work with her to ensure that the money is invested in something conservative, and in keeping with the goals she has for that money. Whatever she chooses, this is a great opportunity to help her learn about money. And that, in my opinion, really is the most amazing part of your gift.
Compare The Best TFSA Savings Accounts in Canada »
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