I am dating myself by saying this, but when I graduated from high school my father gave me a portable manual typewriter. I appreciated the gift, and it was useful for a time in college. However, technology rapidly made it obsolete.
That’s the trouble with most traditional graduation gifts. The iPod that was ultra-cool in 2006 may be only a paperweight now.
My family has discovered a better way to honor young graduates.
Next month, my nephew Stewart will graduate from college, and we in his extended family think he has a great future ahead of him. Because we want to invest in that future, we’re giving him a group gift: money to start an IRA.
Stewart’s oldest brother has contacted siblings, parents, grandparents, cousins, aunts, uncles, and others who might want to contribute. The brother is collecting checks of any size, and each donor will be listed on a card Stewart will get along with a check. He will never know how much each person gave, but he will know something more important: all the people who voted for him with their dollars.
My family started doing this eight years ago when Stewart’s oldest brother graduated from the University of Washington, and we’ve done it three times since then. Experience leads me to expect that we’ll collect $1,000 to $2,000 for Stewart.
As I have in the past, I will recommend a mutual fund for the IRA and help with the paperwork necessary to open the account. Every time we do this, I wrestle with the choice of what mutual fund to recommend. I’m inclined to favor a diversified global-equity fund with low expenses. With only $1,500 or so to start, the choices unfortunately don’t include Vanguard funds, which require initial investments of $3,000. However, the Dodge & Cox fund family has a global stock fund that fills the bill nicely, and this is what I plan to recommend to Stewart.
If he achieves a return of 10 percent annually on this money, at age 65 a graduation gift of $1,500 should be worth more than $82,000. This may not be enough to pay for Stewart's retirement, but it’s a nice start.