When our daughter was born nearly two years ago words cannot describe the feeling of joy I felt. It was one of the most magnificent moments in my entire life. After taking it all in I noticed another amazing thing, my wife and I were instantly able to relate to millions of other parents around the world!
As a parent it goes without saying that we want to give our children the absolute best! So much so that in some cases it can be detrimental to their development. In my case I use to make a mad dash into my daughter’s room every time she started to cry. My wife would reference all these books and websites she read saying she needs to learn to sooth herself at night. I would scoff and tell her that our daughter needed to be held and rocked to sleep. Unfortunately this type of “nourishment” couldn’t be sustained as it turns out my body needs more than 4.5 hours of sleep a night. Eventually we had to let her “Cry It Out” and it just might have been one of the worst nights I’ve ever experienced.
My daughter was born in June and although Christmas was 6 months away it arrived a lot quicker than we imagined. Before the holiday arrived my parents approached us and told us that they wanted to start a savings fund for our daughter. It wouldn’t be anything crazy like a trust fund but something that they thought would be the perfect gift. They would contribute to the fund on birthdays and holidays instead of showering her with tons of material gifts. I was taken back, this was one of the few serious conversations I had about money with my parents. Unfortunately money was taboo in my household when I was a child.
I applauded my parents gesture whole heartedly but asked them to humor me while I made another suggestion. I explained to them that their idea was very well intended and appreciated but contained one big flaw. I told them that the unfortunate truth is the value of the U.S. dollar has declined significantly over time and because of that the money they would deposit in this proposed savings account would erode over time. Basically, the dollar amount in the account would stay the same but the purchasing power would diminish.
To give them a point of reference I asked them how much a pack of gum was when they were kids in which they responded some ridiculous value, I believe it was something like a nickel, where as now a pack of gum will run you $1.19, I could start to see light bulbs going off in their heads. The second thing I did was show them a U.S. Inflation calculator. I can’t remember what the numbers were at the time that I showed them an example. But if I were to show them another example today I would show them if an item cost $1,000 in 1998 (15 years ago) that today in 2013 that same item would cost, $1,408. That’s approximately a 40% increase in price which is ultimately a 40% decrease in the purchasing power a dollar.
I have to admit, it’s a great feeling to see your point understood and driven home =)
By this point in the conversation my parents were on the edge of their seats and wanted to know what the better alternative was. I was happy to oblige. In short I gave my parents a quick 10 minute speech on what a stock really was, why you should invest in them, and the mechanics of dividend investing.
The circle was now complete. My parents, wife and I now agreed that instead of simply depositing money into a savings account for my daughter we would open up a brokerage account instead. Every holiday, birthday, report card, etc when my parents want to give her money they can deposit money and I will use that money to purchase Dividend Kings that are trading at a discount to their true value.
Let’s take a look at how the strategy of buying stocks as a gift would have turned out 15 years ago:
Since 1998 the price of Coca Cola (KO) has gone from $26 to $37.50 (44% increase) and paid $16.77 in dividends. Not bad! =)
Since 1998 the price of McDonalds (MCD) has gone from $20 to $96 (380% increase!) and paid $16.49 in dividends. How’s that for maintaining your purchasing power?!
Since 1998 the price of Johnson & Johnson (JNJ) has gone from $25 to $74 (196% increase) and paid $20 in dividends. Look at that wealth generation!
This money may be used to purchase our daughter her first car, attend college, or even put a substantial down payment on her first home. We honestly don’t know what it will be used for but this is a gift that keeps on giving!
Do your children constantly get showered with things from their grandparents? Do your parents or in laws have an account set up for your children?
Brick By Brick Investing and other bloggers are participating in a giveaway of $100 to one lucky winner! The contest runs through February 15th. If you win the $100 consider purchasing a couple shares of my Dividend Kings or splurge on your significant other for Valentines Day! Check out the Rafflecopter widget below for details on how to enter. Good luck!
Here’s to our Wealth!