It's a New Year!!! With a change in the year, many Americans like to start new habits and paths to becoming a better version of themselves. In Part 1 of Avoiding the Christmas Hangover we discussed what the average American spends each year on gifts, and the impact it could have on your finances. In Part 2 we will discuss a few things you can do to change how you look at your spending on gifts every year at this time. We will discuss alternatives that not only make sense financially, but also show your kids how to become an investor instead of ONLY being a consumer.
I'm sure we all have those moments where we look back at our actions and think "I wish I knew then, what I know now", or "I wasted so much money on XYZ, I could have done ABC". Well we all have them, but you can change your behaviors, as well as break the cycle which may have been taught to you as a youngster.
Now this may not work for all gifts your kids may want. Honestly, there are many fad toys, clothes, health products, you name it, that come and go each year. Then there are the iconic companies that either have a strangle hold on a certain sector, or find ways to innovate and stay relevant for years. Companies like Apple with their iPhone, Google and the Android OS for smartphones, or even Coca-Cola who continues to stay in business for decades despite the decline in what they are known for (soda) by diversifying their product line, find ways to stay relevant for years. For companies like these you can see the ebbs and flows not only within their product line, but also within their stock price over the years. Imagine if instead of buying certain gifts year after year, you instead invested money into the company’s products that were “must haves” during that time period. Let’s use an example of one which certainly would have worked throughout my lifetime.
Buying NKE vs Buying Nikes
Jordan Space Jams 1996 ($125) - 2016 ($250).
NKE Stock Price – Dec 23rd 1996 ($7.59) – Dec 23rd 2016 ($51.91)
Nike Air Jordans. The most popular athletic shoe on the face of the planet. It was the most popular 20 years ago, and still is today. Back in 1996 one of the most popular shoes out of the Jordan line, known as the “Space Jam”, was released. The cost of the shoe at that time was $125!!! 20 years later the shoe is rereleased, but DOUBLES in price to $250!!! If you bought pairs of Space Jams in 1996, and somehow were able to keep them clean and undamaged, you may be able to sell them for a 100% gain or much more. However, who are we kidding? Most people who bought shoes 20 years ago were not thinking of buying and holding for 20 years, and more than likely didn’t have the shoes more than a year or two later…especially if you are a kid! At that time I was in Middle School, and each year my foot grew at least half a size larger, if not a full size larger.
Now lets say instead of buying those Air Jordans each year, you put the same amount of money into Nike Stock ($NKE). As mentioned above, the stock was in the $7.50* range, and is now in the low $50* range.
*** Nike’s stock price split in half 3 times in the past 20 years. The stock price in 1996 was actually $60, and would be $415 per share if not for the split. This does not affect the value of your investment, just the number of shares you own, and the price per share of stock! ***
That’s an increase of 583%!!!!!!! That’s an average of nearly 30% gain per year, while the S&P 500 gains about 10% per year as I mention here. Those Jordan’s are not going to get you a 583% percent return, I can assure you! Seeing that you could have bought 2 shares of NKE for $120 at that time, you still have a few dollars to spare or perhaps invest. But from a dollar standpoint if you bought 2 shares at the original $60 price, you would go from $120 to $815 worth of NKE stock. Now that does not include any dividends, which NKE pays quarterly, so your return is actually much higher. It also does not include 20 years of investing $125 in NKE. Your overall gains would be much higher if you continued this process by buying $125 worth of NKE stock each year for the past 20 years.
So if I purchased a pair of Jordan’s each year at $125, that would be $2,500 worth of shoes (excluding taxes, inflation, increases in prices) over time. $2,500 that I cannot now go and sell to get my $2,500 back. If I purchased $125 worth of stock in that same year (20 shares), it would now be worth $728.75 for just ONE years worth of stock. Even if using a modest gain of 10% per year, with a $125 investment each year, this would lead to around $7,000 in your account today (about $78,000 at NKE’s 29.15% rate of return!). That’s the power of compounding!
Motif - $250 of stock or $250 Tablet
So with the above in mind, one of my ideas started off with a Christmas gift request from my Nephew in 2014. He was 9 years old at the time, and just like any other 9 year old in his generation he asked for something special...something useful...something shiny...a good ole iPad!
Now as soon as he stated this, my mind started calculating how much this would cost, how much I was willing to spend, and what I could get him instead! At the bare minimum, an iPad costs about $250 for the mini, and up to $1,100 for the iPad Pro with Cellular and 128gb of storage. And with technology these days, most electronics are obselete, and/or unwanted after 3 - 5 years because technology is advancing so rapidly. Not to mention the chances of this iPad being broken, water damaged, or stolen. So I thought about what else could I do with $250+ that would not only be beneficial to my nephew, but could also teach him something in the long run. Something that could not only last for more than 3-5 years, but would actually have more value in 3-5 years than it does presently. So how about a Motif! $250 just happened to the be the minimum amount you need to invest in a Motif. With a Motif, you can invest in up to 30 different companies, buying partial shares of companies, all while only being charged ONE fee for trading! With most stock trading companies it can cost anywhere from $5 to $10 on average to make one trade, for ONLY one company's stock, and without having the ability to trade partial shares.
This is important if you are starting off with a small amount of money, planning to invest in a total of 30 companies (not a requirement), and plan on contributing funds to it on a regular basis (at least 1-2 times a year). And saving $250 is not as hard as it sounds. In a years time, saving $10 per bi-weekly pay period gets you to $260 at the end of the year. That’s enough to cover The minimum buy, as well as the transaction fee. Save $20 a week, and you can make a trade once every 6 months! And the great thing about using a platform like Motif is that you can just continue to add money to the Motif each year, and change up the stocks included in it at the time you add money. So if 5 years ago you or your child/family member selected a company that is no longer in style (looking at you Blackberry!), or was acquired (awesome! Likely a big gain) during the time it was in your Motif, you can change your investments as your tastes and the world changes around you.
So in addition to asking what else he would like for Christmas if he could not have an iPad, I also asked him "What do you like to do for fun?" "What do you like to eat?" "What are other kids your age interested in?". With his list of answers, I came up with 30 individual stocks that either directly, or indirectly related to his interests of Space, Video Games, Football, spending time with friends and family, places he liked to eat, and of course the iPad! Thus the Motif above was created!
There are many options out there to trade stocks with; some (not many) companies like Motif allow partial shares, and some (most) like Ally Invest where you have to buy full shares of stock. There are even some companies that don’t charge a fee at all to trade! Each platform has it’s perks, and the less you pay, of course the less features there are available…but that’s a story for another post. Just remember that there are some great perks for investors looking to open new accounts, and they change often. Be sure to checkout my Links and Recommendations page for other options and to request referrals to other platforms.
Save for College - 529 Plan
If you’re not big on investing, or not quite ready to dip your toe in the water, a less risky and less lucrative option would be to simply save the money. Saving for College is a great way to make use of the funds that you were willing to spend on gifts each year. School tuition continues to rise, as well as the mountains of debt that many students are dealing with in order to go to college. My mountain is Mt. Everest esque, so my nephew and future children will know everything NOT to do when it’s time for them to go to college. They also won’t have to worry about some of their expenses because they will be taken care of by investments, as well as Savings.
With the 529 Plan in Florida you can contribute up to $418,000 per child/account. You can have multiple accounts for one beneficiary, so if grandma, grandpa, cousin Ted and Auntie Lisa all want to contribute, as a group they may not exceed the $418 K limit for each child/beneficiary These contributions help to lower the tax burden of the contributor, so this is a great benefit as well versus randomly gifting cash to your future student! There are many great ways to save for College, which I will discuss in a future post, but using investments and taking advantage of the 529 plan is a great place to start.
Teach a Lesson while Saving Money
The best way to do this is to include your children and family members in this process. Not only will they learn about investing, and saving money, but this will help shape their minds to not always be a consumer. Include savings towards investments in your budgeting for the year, instead of waiting until the holidays to decide how you are going to give this great gift to your kid. With just $10 or $20 every pay period, your savings can add up quickly!
Learning and Investing are great gifts that keep on giving! The examples given above are just a fraction of what millions of Americans spend each year on Christmas gifts each year, so you can potentially have your cake and eat it too by simply scaling back just a little from whatever your current holiday spending habits are. What methods have you used to alter your gift giving habits, as well as save money for your family? What life lessons have you disguised Be sure to leave comments below and Subscribe to our blog for free. Also, for an easy to follow investing strategy, which takes less than 30 minutes per month to implement, Subscribe to the Share Repurchase Newsletter!
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Akeem The Dream
I enjoy discussing and learning about technology, stocks, sports, and beating my wife at Dominoes! As I learn, I love to share with family and friends so that we can share our knowledge. Thanks for being apart of the journey!