The gift of money.

It's easy to shop for the child or adult who wants everything. Why, you could buy a pair of Air Jordans, concert tickets, camcorder or a stereo system. Or what about that gold, diamond-studded watch your spouse has been admiring? The list could go on and on. But this holiday season--and all year-round for that matter--try giving gifts that will provide a state of good fortune. Buy an investment.

Whether it's for a wedding, baby shower, anniversary or birthday, investments make ideal gifts. You can give away certificates of deposit (CDs), stocks, bonds or mutual funds, just to name a few. An investment gift is beneficial in that it allows the recipient to save for college, start a business or work toward a down payment on a home. Moreover, "if you expose children to investments at an early age, they'll be more inclined to stick with it when they grow up," says Charles Ross, a certified financial planner with Atlanta-based Financial Media Services. "They'll also gain an understanding of the power of compounded interest."

Take the case of Detroit financial adviser Gail Perry-Mason, with Prudential-Bache Securities Inc., and her husband, Lance, an attorney. With an eye on their 6-year-old son Brandon's future, the Masons invested his first $25 in the Calvert-Ariel Growth Mutual Fund 3 1/2 years ago (which has now closed its doors to new investors). By depositing between $25 and $200 a month, the Masons have watched the account grow to $3,000, as a result of compounding.

In these tough times, it makes sense to start an investment portfolio as early as possible. Raising a family is more expensive today than before. For a middle-income couple living in an urban city, bringing up a child from birth to age 18 will cost roughly $200,000. Another $15,000 a year may be spent for college tuition.

There's no guarantee that a parent's financial burden will end upon graduation. Many experts believe today's children will not be as well-off financially as their parents. Even the parents of baby busters--those age 20 to 29--are now faced with giving their children either cash handouts or having them move back home, sometimes rent-free.

What better way to help your friends and family members finance the high cost of rearing children than by giving them investment gifts that will grow in value over time. Here's what financial advisers interviewed by BLACK ENTERPRISE had to say about specific vehicles you can buy into and for as little as $25.

It's Better To Give And Receive

If you buy an investment in someone else's name, your role essentially will be to set up the account and make the initial deposit. Thus, the recipient is the one who retains ownership and control over how the investment is handled. Anyone who is worried about the person being a spend-thrift, can retain the title to the investment. Be aware that you will be taxed for the investment as long as it's in your name.

Certain investments will give you a little better control over your tax liability. If you purchase a money-market account, savings bond or CDs, for instance, you will be taxed every time interest is paid. With stocks, you're only taxed when you sell your shares and receive a capital gain. Should you decide to give an investment gift to a minor (anyone under age 18), the investment can be in the parents' name or the child's name. But there are tax advantages for the latter. You could set up a custodial account under the Uniform Gifts to Minors Act. Both the parents' name and the child's name would appear on the account--the parents, being the custodian, will be responsible for managing the account for the child. For tax purposes, use the child's social security number. For many parents, a custodial account is preferable to giving a minor outright ownership of money, because without its protection, there would be nothing to prevent the minor from withdrawing the contents at will.

Whatever the youngster's age, the first $500 of annual earned income is tax-free. Children under age 14 are taxed at the child's tax rate on income between $500 and $1,000; any investment income over $1,000 is taxed at the parents' marginal tax rate. For children age 14 and older, any income above $500 is taxed at the child's rate, which usually is more favorable than the parents' rate.

There are a few drawbacks, though. First off, once you give the gift, "it's irretrievable," says Steven Enright, a financial planner with Enright Financial Advisors in River Vale, N.J. Secondly, the custodian cannot use the money for personal benefit. Also, the minor will automatically gain legal control of the account once he or she reaches the age 18 or 21 depending on the state. Since you cannot legally prevent the minor from spending the money--which you may have earmarked for college or a car--you'll just have to trust that your child has inherited your sense of responsibility.

Conducting A Needs Assessment

Just as if you were buying an investment for yourself, look at the specific needs of the recipient--short-term versus intermediate versus long-term goals.

CDs or money-market accounts are generally more appropriate for someone who's looking to collect immediate income and dividends. Though fixed-income investments offer greater security and low risk, there's little appreciation, says Lecount Davis, a certified financial planner with Financial Services Network in Washington, D.C. For someone who will probably hold onto the investment for five years or more, you will want to buy vehicles that offer growth in value, advises Davis. "With a growth-oriented investment, you're concerned more about appreciation, not income. Also, this way the person [recipient] has time to wait for it to mature and the interest to compound.

So, if the recipient is 5-years-old, feasibly the money won't be touched for 13 years. Or if the family wants its child to be able to afford a home by the time he or she is age 30, the returns on a growth investment would be enough for a down payment.

If the person is definitely going to need the money in less than five years, you'll probably do better by getting a one-year CD and simply rolling over upon maturity, adds Davis. "If you're trying to get someone started who doesn't have an investment portfolio, say he or she just graduated from college or recently got married, then go for a growth-oriented vehicle, such as a mutual fund."

Gift-Giving Ideas

The more conservative investment vehicles are usually associated with banks, like passbook savings accounts, CDs and money-market deposit accounts. With current interest rates down (they now generate a measly 5.01%, 5.5% and 5.05%, respectively), many financial advisers are recommending investors put their hard-earned cash into higher yielding vehicles. Here are a few tips to help you select the right investments: * Bank Accounts: If you're convinced a savings account is vital for your child's well-being, before you trot him or her down to the local branch, check if it accepts small deposits. Alternatively, there are specialty banks, such as the Denver-based Young Americans Bank, which offers savings and checking accounts for anyone up to age 22. At Young Americans, the average saver is 9-years-old with an initial deposit of $250. A nice feature is that you can bank by mail. If you want the name of a children's bank in your area, write to the American Bankers Association, Center for Banking Information, 1120 Connecticut Ave. NW, Washington, DC 20006. * Certificates of Deposit (CDs): It's better to buy CDs of two years or less. That way you will be in a position to take advantage of any increase in interest rates. If you don't mind doing a little legwork, you may be able to improve your yield by a percentage point or two by shopping for a CD from a bank outside of your home state. First Federal Savings (302-421-3564) in Delaware, is yielding 5.9% on a six-month CD, and California Thrift and Loan (800-852-0587) has a one-year CD yielding 6.39%. You can find out about national listings by contracting the Bank Rate Monitor (800-327-7717).

While you can get CDs that are insured by the Federal Deposit Insurance Corp. (FDIC), this is not a given, you have to ask. Generally, CDs can be purchased from a bank for as little as $500, but some banks will even accept deposits as low as $100. The downside of CDs is that there's a penalty for early withdrawal. * U.S. Series EE Savings Bonds: If your purpose in giving an investment gift is to help a child save for his or her college education, yet you have little money to spare, then financial adviser Gail Perry-Mason recommends buying U.S. Series EE Savings Bonds. They are risk-free and because they are sold at 50% of the face value, you can purchase them in denominations as low as $25.

Anthony and Kimberly Moore of Charlotte, N.C., are similar to many parents who find investment gifts to be more practical than money. Twice a year, on her birthday and again at Christmas, 33-month-old Taylor Moore receives Series EE Savings Bonds from her grandparents, aunts, uncles and cousins. So far, the value of her portfolio is $1,000, with bonds ranging from $50 to $200. "What's nice about savings bonds is that you have to wait until they mature, so you're not tempted to cash them in before time," says Kimberly, a social worker.

However, Taylor's investment portfolio also includes presidential dolls and $800 worth of shares in the Templeton World Fund, a growth mutual fund that invests in international stocks. With the cost of a year of college expected to reach $100,000 by the year 2008, "we're getting a head start building her education fund," says Anthony, a corporate financial analyst at First Union National Bank.

So far this year, the sales of savings bonds have been brisk, climbing 29% to $4.3 billion. Two reasons help to explain their increasing popularity. Savings Bonds are now one of the few potential federal tax-break investments left for those saving for college, offering a 6.57% yield. Even if interest rates fall further next year, a rate of 6% is guaranteed if you hold the bonds for at least five years.

"Savings bonds may pay market rates, but if you don't stick long enough with them, you're going to lose out on any investment that you've made, because the interest isn't guaranteed until maturity," warns Davis. "So, [don't] plan to buy a bond today and cash it in three years from now to buy a car."

Moreover, if you're buying savings bonds as a gift for all occasions, consider this. Banks in 45 states will no longer type up the bond themselves. Instead, your order will be forwarded to one of the 12 Federal Reserve Banks, so it will take three to four weeks to arrive in the mail. In the interim, you'll have to settle for a not-so-attractive savings bond gift certificate from the bank. * Stocks: Buying individual stocks or odd lots, which generally are less than 100 shares, from a broker involves paying such hefty commissions that many financial experts advise against it. The broker's commission could devour up to 20% of your small investment.

High fees did not, however, deter Gail Wilson, 42, a data processor for an auto firm in Detroit. But that's because she put down a lump sum to buy large shares in such companies as Toys 'R' Us, McDonalds and AT&T for her 9-year-old daughter, Ta-Nay. Says Gail, "I want her future to be solid. She will be able to afford college and become a doctor or a lawyer or start her own business."

While she has only had her portfolio for about year, the experience of owning stocks has been enriching for Ta-Nay, says Gail. She understands that she actually owns a piece of a company and that she can either lose or make money in the market. "Now whenever she sees someone buying a hamburger at Mickey D's, she laughs and says, 'Mommy, I'm getting richer,'" adds Gail. * Money-Market Funds: From double-digit returns a couple of years ago, money-market funds yields have tumbled to an average of 5.4%. There are both taxable and tax-free funds. And although they're not FDIC-insured, they are still considered safe. The principal will not fluctuate in value, only the interest earned will go up or down. A money-market fund is nice gift to give to introduce someone to the market. They generally get a higher rate of return than CDs and bank savings account, and they are very liquid so you can withdraw money at any time.

"Money-market mutual funds should represent a portion of every individual's diversified portfolio," says Martha Whittbrodt, editor of IBC/Donoghue Mutual Fund Report, Holliston, Mass. Because most money-market funds are part of a larger mutual fund family, an owner could transfer into a stock or bond mutual fund at a later date, when the market changes. Several money-market funds also offer super accounts for small savers, with initial investments of $500 or less. From the Oppenheimer Family comes the Daily Cash Accumulation Fund (800-525-7048), yielding 5.34%. * Mutual Funds--The one investment that makes the most sense as a gift, in terms of transaction costs, is a mutual fund, says John Markese, director of the Chicago-based Association of Individual Investors. The benefits of mutual funds are investment diversification, liquidity and professional portfolio management.

You can purchase a mutual fund through a broker, or by mail from fund sponsors. Since brokers will skim off up to 6.5% of the investment in commission for load funds, consider no-load funds. Sold to investors directly, minus sales charges, no-load funds have shown impressive returns, just a percentage point or two lower than load funds. You can open a mutual fund for a relatively moderate cost, initial outlays of less than $1,000 are typically accepted. Once in the fund you can build the account by taking advantage of a strategy known as dollar-cost averaging--investing a set amount at regular intervals, regardless of whether the market is rising or falling.

Also, most mutual fund families will allow you to open an asset builder account, where you start off with a small deposit and sign up to have a set sum withdrawn from your bank account each month. At Boston-based Fidelity Investments, the usual initial investment ranges from $1,000 to $2,500. But the minimum may be lowered for people opening college savings plan accounts.

Which mutual funds make for the perfect gift? Financial Industrial Income (800-525-8085) is up 27.6%, compared with 17.3% for the S&P 500 Stock Index, notes Don Phillips, editor of Mutual Fund Values, a newsletter published by the Chicago-based Morningstar Inc., a service that rates mutual funds. The no-load equity-income fund holds such stocks as Pepsico, Walt Disney and Apple Computer. For each of the past one-, three-, five- and 10-year periods, the $955 million fund has ranked first or second in total returns in its category and with less risk than the average stock fund.

Twentieth Century's family of no-load funds have been burning up the tracks lately. Phillips recommends Twentieth Century Ultra (800-345-2021), but warns that it's for the very aggressive long-term investor. The fund's average annual rate of return is 21.89% for the past five years. Because it's fully invested in stocks at all times, "if a bear market comes along it will take it on the chin," says Phillips. The $870 million fund, which is on its third straight year of superb returns, is hot now because of its concentration in biotechnology and medical services stocks.

Financial planner Stephen Enright likes the Twentieth Century Select Fund (up 16.16%, 12/31/90 to 9/1/91). The $4 billion growth fund is the largest and least volatile in the family. That's because it invests in more seasoned, dividend-paying stocks. This fund, with returns over the past 10 years averaging 18.19%, remains a viable vehicle for investors who relish the security of proven companies.

Another no-load fund with a low minimum--$250--is Pax World (800-767-1729), up 15.81% (12/31/90 to 9/1/91) and with returns averaging 14.1% over the past 10 years. This is a balanced fund that young people may be inclined toward because it's a "socially conscious fund." This means it will invest only in "life supportive" industries and not in tobacco and alcohol companies, defense or military suppliers, or companies that invest in South Africa. Among the fund's holdings are Quaker Oats and Wal-Mart Stores.

If you're saving for a college education or retirement within the next five to 10 years, take a look at this fund, advises James Stack of Investek, a mutual fund rating service in Montana. With assets of $195 million, the Pax World fund has been around 20 years and has gained 36% more than other funds in its category over the past five years, while taking on only two-thirds the risk.

Financial Media Services' Charles Ross recommends the Nicholas Fund (414-272-6133), which seeks capital appreciation and is mostly invested in stocks. It has outperformed the S&P 500 by a 10% so far this year and has established itself as one of the premier no-load, low-expense growth funds.

The industry trade group, Investment Company Institute (202-293-7700), publishes an annual directory listing more than 3,000 mutual funds, including addresses, telephone numbers, assets, minimum investments and sales charge. * Insurance--A popular gift for grandparents to give to their grandchildren is a whole life insurance policy with cash value, according to Dana M. London, a financial planner and independent broker in Baltimore. "It's a nice easy gift to give and it's a lot fancier today than it use to be," says London.

London says she has set up policies with cash value for a family with a newborn who, at age 18, would receive $15,000 each year while attending college, another $15,000 lump-sum payment at 30 and then a final lump sum of $50,000 at 65. The cost, according to London: $5,000 a year over the course of six years. There are, however, smaller policies, say $20,000, for as little as $8 a month.

Still, there is a greater risk involved with getting an insurance policy as an investment gift. If you're not with a strong insurance company, it might not be around when you need the money. The best way to protect yourself is to check with state insurance regulators or the major insurance rating services (See "Are You Prepared For The Unexpected?," May 1991).

The strategy for choosing an investment gift obviously varies. Getting a gift for someone who will be going from diapers to diplomas will be different from a newlywed. Whatever you give, it should help to make the recipient's financial burdens a little more bearable.