All I Want For Christmas Are These ETFs

By Tim Parker | November 15, 2011 AAA



The holidays are here and there's no doubt that you have somebody to buy for that seems to have everything or doesn't want anything. Cash may seem a little too impersonal and you know that if you try to purchase something, it will probably be money wasted. For decades, enterprising gift givers have used their knowledge of the investment markets to give a gift that keeps giving for many years.



TUTORIAL: Exchange-Traded Funds: Introduction



Purchasing shares of stock is the perfect gift, but the practice has since been modernized. Now, exchange-traded funds (ETFs) are the hottest investment vehicle of the 21st century, and may be the equity purchase of choice for this holiday season. If you're looking for the perfect gift, consider these ETFs.

Index ETFs
When the wrapping paper is peeled away, you're going to have some explaining to do. ETFs can be complicated and difficult to understand by young people or those with very little knowledge of the investment markets. For that reason, stick with ETFs that are easy to understand. An index ETF that tracks the performance of one of the common indexes like the S&P 500 or the Dow Jones Industrial Average is a great choice. Also, look at ticker symbols like SPY, DIA and QQQ. (For related reading, see ETFs Vs Index Funds: Quantifying The Differences.)

Bond Funds
You have probably heard that bonds are safer than stocks and, although that's the subject of debate, the consistent dividend (called a coupon in bond terms) makes a bond a fine choice for long-term investors. There is a large amount of bond ETFs spanning all sectors of the bond world. Consider bond ETFs like LQD, TIP and HYT. Not all bond funds are technically ETFs, but they trade in the equities markets just like traditional ETFs.

Sector ETFs
If you want to be a little more personal, consider an ETF in the industry where the person works. If they work in healthcare, try PHP or XPH. If the gift is for a child, what do they want to be when they grow up? If they want to be a pilot, consider FAA or FLYX. If they work in retail, XRT or RTH are worth your research time.

Metal ETFs
If the person you're buying for has an eye for jewelry, consider a precious metals ETF. For a pure play on gold, GLD is the ETF of choice. For an ETF that tracks the performance of a wider range of precious metals like silver and palladium, DBP is worth a look.

Some investors believe that an ETF that follows a commodity isn't a good choice for long-term investing because of the way the ETF may track the performance of that commodity, but this isn't an issue when a small amount of shares are purchased. (For related reading, see Using ETFs To Build A Cost-Effective Portfolio.)

The Bottom Line
Purchasing stocks as gifts is still a fine way to make your gift last through the years, but considering an exchange-traded fund that offers more diversification and safety makes sense in difficult economic times.

In order to gift a stock or ETF purchase, you will have to transfer the purchased shares to the person receiving the gift. Your broker can help you with that.

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