Reader Mail – Gift for a Newborn

From Alan Rogowsky: “Dyslexics have more fnu.” I forwarded this to a good-humored dyslexic friend who replied: “I don’t get it.”

From Bob Downs: “Perhaps because I belong to organizations aimed at uniformed service members, I can beat quotesmith a goodly bit on medicare supplement plans and auto insurance. The price on the Plan D medicare supplement, for example, is $16 per month less than Blue Shield, the lowest price on quotesmith. However, I appreciate the column because it affirms that [I’m doing well].”

From Yunah K: “I would like to make a gift of $200 to the newborn son of a good friend. My first instinct was to look into a 20 year treasury bond, but my husband suggested that an equity would probably be a better idea given the time frame. What do you think?”

Your husband is right. Apart from the fact the Treasuries can’t be bought in such tiny denominations, over the long run, equities — ownership of business enterprises — are likely to do better, on average, than risk-free loans. (A Treasury bond represents a loan to the US government.) For those who simply cannot afford any risk, it’s worth “paying” for safety by way of a lower expected return. But young Elvis, here — he’s just getting started. And the longer he has to invest, the more likely that equities, for all their ups and downs, will eventually outperform Treasuries. Indeed, given the way inflation can wipe out bond values (in real, inflation-adjusted terms), you could argue that bonds are actually the riskier bet for someone with a very long time horizon. Inflation can knock the heck out of stock prices, too; but for the most part they eventually bob back up, riding on top of the newly-inflated price levels.

That said, given the small size of the gift — more than I give friends’ newborns, but still — I wonder if you shouldn’t give it to the parents to combine with something else they are doing along these lines. This would also avoid the hassle of having to get the actual stock certificate and then transfer it into the newborn’s brokerage account.

(How about clipping two $100 bills to a good investment guide and gift-wrapping that?)