Christmastime is here, which means happiness and cheer as well as fun for all during what the songs say is our favorite time of year. Still, amid all the joy, making decisions about money during this season of giving and receiving can be particularly fraught.
According to a poll conducted by the parenting website What to Expect, parents spend an average of $173 per child each holiday season. That varies according to factors such as the age and number of children as well as the income levels of their parents.
At the same time, a NerdWallet survey conducted by The Harris Poll reveals that 48% of parents with children under 18 feel pressure to spend more money than they’re comfortable spending on holiday gifts.
One way to sidestep this seasonal pressure is to think about spending money to make money – or how to invest your holiday cash, whether you have it to give or you're fortunate enough to receive it.
No longer is giving cash for Christmas considered tacky, inconsiderate or even insensitive. "Money is an appropriate gift," says Elaine Swann, etiquette expert and founder of The Swann School of Protocol.
That brings us to the main benefit of giving cash: The person who receives it can decide for themselves what to do with the funds. And, of course, if you receive cash you get to decide what to do with the money.
Whether giving to a young person, for example, or perhaps receiving as a first-time investor, you can get in touch with your inner Warren Buffett and focus on appreciation in all its forms this season.
Here are five ways to invest your holiday cash.
High-yield savings accounts and certificates of deposit
An excellent way to park your holiday cash and generate income is through a high-yield savings account (HYSA) or a certificate of deposit (CD). These vehicles provide more conservative options for your holiday cash.
When you deposit funds in an HYSA or a CD sponsored by a federally insured institution, you have the comfort of knowing your first $250,000 is guaranteed against the failure of that institution.
There are significant differences between an HYSA and a CD. An HYSA generally allows you to withdraw your money at any time without fees. CDs generally don’t allow you to withdraw your money at any time without a penalty.
HYSAs provide greater flexibility with your funds, while CDs lock in your money for a fixed period. With an HYSA, you sacrifice a higher interest rate for greater flexibility. The reverse is true for a CD: You sacrifice flexibility for a higher interest rate.
Fractional shares
Brokerage firms began introducing fractional shares in the late 1990s and early 2000s. It's one of the key milestones in the democratization of investing. A fractional share is what it sounds like: a portion of an equity share of a company's publicly traded stock that is less than one whole share. The advent of no-fee brokerage accounts and no-fee stock trading means you can start investing in fractional shares with as little as $5.
In other words, equity investing is accessible to average people, not just the wealthy. Gifting fractional shares is a great way to get a young person's or any new investor's "time in the market" started. And fractional shares allow investors with small portfolios to diversify by sector and industry and to make targeted individual stock investments at the same time.
Your $5 can get you into artificial intelligence semiconductor stock Nvidia (NVDA), even though it trades near $150 per share, as well as automotive aftermarket retailer O’Reilly Automotive (ORLY), which trades for more than $1,200 per share, and you can benefit from both stocks' long-term success.
Fractional share platforms to consider when you think about how to invest your holiday cash include Robinhood, Charles Schwab and SoFi.
Exchange-traded funds
Exchange-traded funds diversify for you, and they do it efficiently. Consider, for example, that Vanguard's minimum investment for a fractional share of one of its ETFs is $1.
You can also invest your holiday cash in a fully diversified portfolio of the best ETFs that cover different sectors and regions as well as market caps. That's the point of a popular fund-of-funds ETF, the iShares Core Growth Allocation ETF (AOR).
AOR invests in seven iShares ETFs with a traditional equity-to-fixed income ratio of 60/40. It tracks the performance of the S&P Target Risk Growth Index, which seeks to generate moderate capital appreciation and current income while focusing on capital preservation.
Launched in November 2008, AOR has generated an average annual total return of 7.80% through November 2024.
Cryptocurrency
Cryptocurrency is an aggressive option for your holiday cash. Over the trailing 12 months, the price of the world's first cryptocurrency, bitcoin, has increased dramatically.
In early December, following its best November since 2020, bitcoin hit an all-time high of $103,900. It's up more than 145% so far in 2024, a rally driven by expanding participation after the Securities and Exchange Commission (SEC) approved the first spot bitcoin ETFs in January 2024.
Multiple providers have launched bitcoin ETFs to satisfy significant investor demand. While extremely volatile, longtime financial planner Ric Edelman believes there is a place in most portfolios for a small sleeve committed to the cryptocurrency.
"With the new Trump administration, I feel very comfortable with people investing not just 1% of a portfolio, but up to 5% of the portfolio," Edelman told MarketWatch in late November. "For some particularly aggressive investors, who have the financial means to tolerate significant losses, their allocation can even go beyond 5% if they choose to."
Equity crowdfunding
Equity crowdfunding isn't as hot a financial media topic as it was during the early days of the COVID-19 pandemic, but it remains a viable option for putting a small amount of cash to work. This growing market has been regulated by the SEC since 2015.
According to Business Research Insights, what was a $1.4 billion market in 2023 is expected to grow to $4.5 billion by 2032, a compound annual growth rate of nearly 14%. Multiple platforms in the U.S. allow you to invest in private businesses, real estate and other investable assets – including startup and early stage companies.
The largest of the regulated U.S. equity crowdfunding platforms is New York-based Republic, which has raised $2.6 billion on its platform since 2014, funding more than 2,500 businesses in over 150 countries.
The minimum investment can be as low as $50 depending on terms of specific offerings. The Republic website includes extensive information about how to participate in equity crowdfunding.
