THE best things come in small packages, and this Christmas you can give a loved one something special in a small envelope. You can give them an investment as a gift. Whether you have $5,000 or $500,000, a prudent investment can blossom over time into a gift a child or spouse will cherish in years to come. But the key to making this a successful gift is to determine what the recipient's needs are and what financial instrument would best suit him or her. For a child it will likely be a long-term investment, possibly with a specific purpose in mind, whereas with a spouse you might want to have a bit of fun or pick an investment that would say something special. The key to choosing an investment for a child is that it should be an investment that will increase over 20 years or more. The more obvious Yuletide investment is a simple security the child - or grandchild - can redeem and spend as he wishes once he grows up. Research has proven that over the long-term, the best return is found in the stockmarket. But since it is difficult to pick which companies or which markets will perform best over a 20-year period, mutual funds or unit trusts may be the wisest form of investment. One idea might be to pick a mutual fund investing in several different countries, such as an Asian-Pacific Fund, European Fund or an emerging market fund. The benefit of these funds is that professional managers can decide each year which country is likely to offer the best return, so your investment is automatically repositioned each year to reduce the risk. For expatriates, another suggestion may be to buy mutual funds from your home country to reduce the risk of an appreciation of your country's currency, which would reduce your returns over the years. A bit riskier - but also a bit more fun - would be the gift of shares in specific companies. Possibly you can give each of your children shares from a different company so they can see which perform the best through the year. Your child may also prefer this type of investment if he can receive the dividend throughout the year and be allowed to spend it on a new toy or another treat. Such a gift could also have educational value because you could use it to explain to your child how an investment works, grows in value and offers a yield. But a word of caution is needed concerning stockmarkets now: Asian markets have risen to dizzying heights and in the short-term they may prove to be fraught with risk. A more pragmatic parent may want to give a son or daughter the gift of an education. There are financial houses that offer special funds which can be used to pay for your child's education, often with tax benefits attached in some countries. Some US universities even offer programmes whereby you can pay for your baby's tuition now at a fixed price and he or she can attend university without worrying about paying for it. Although this provides a hedge against inflation, there are risks involved if your child ends up hating this university or the quality of the school deteriorates in the next two decades. It's a good idea to find out what provisions there are if your child does not end up going to university. If you're buying a gift for your spouse, it is again important to consider his or her needs and wants. It might be that you're at the point in life where money must be saved for retirement. A money market or bond fund may be the best gift, although bond funds could suffer in the coming year as interest rates in US-linked currencies begin to rise. A further suggestion might be to buy yourself a life insurance/retirement fund policy that would benefit your spouse in later years. This could be a gift that is renewed each year when the premiums are due. If all this sounds frightfully unromantic, then there are investments with a little more zip - although they can involve greater risk. Your spouse, girlfriend or boyfriend would no doubt love a work of art, a piece of jewellery or some other collectible that can gain financial as well as sentimental value. As investments, collectables have inherent risks because they have no yield and may simply not rise in value if the artist is unrecognised. The golden rule for investing in a work of art is to buy something you like so that your purchase is worthwhile regardless of the financial return. If the return is important, then it is advisable to beware of artistic trends that have pumped the price up for the present only to have the value evaporate when a new trend catches on next year. Another good piece of advice is to search for an item with intrinsic value, such as something made of a precious metal or valuable material so the value is not just based on the artistic quality. If you don't know what exactly your spouse would like, try giving him or her the promise to buy a piece of art of their choice. Then you can enjoy a weekend or two in January picking through the boutiques of Hollywood Road or Harbour Centre looking for the perfect gift and a solid investment.