2 Last Minute Financial Gifts that Keep on Giving

There are 4 days left until Christmas. You’ve been meaning to shop for your niece but keep ending up buying scarves and gadgets for yourself. Not to worry, there’s still time. You can order the Shimmer and Shine Magical Light-Up Genie Play Set by December 22nd on Amazon Prime and have it shipped to your door by Christmas Eve. However, if your niece, nephew, son, daughter, or grandchild is anything like my children, the joy of a new toy will wear off quick. By mid-January, Shimmer’s palace will look more like a foreclosed apartment and Shine’s teacup will be buried with last year’s Lego set.

This year, why not do something that will last a little longer? Give them a gift they will not care about one single bit. You’ll probably lose your “World’s Greatest Uncle or Aunt” title. However, when they are off to college, starting a family, or looking to buy a home — you will be adored. What is this magical gift?

An iPhone X.

Or not. If you are looking to give a gift that will pay dividends a decade from now, try dividend stocks. If you are looking to provide that special child in your life with the opportunity to become empowered, have a stronger of sense of self, meet lifelong friends, and increase their earnings potential, help pay for their college.

Sure, both ideas aren’t as sexy as a new toy or $1,000 cell phone but they won’t end up in a donation bin either. And best of all, there’s still time to stuff their stockings by December 25.

Purchase brand name dividend stocks

While the price tag of the latest iPhone is $999, the true cost of owning the latest hot gadget from Apple is much more. A data plan will set you back about $70 per month. Then there’s app purchases, music subscriptions, and broken screens. In 2 years, it will be time to fork over another $1,000 to upgrade. Let’s say you buy your 12-year-old a new phone and pay for their service until they are 18 (why couldn’t you be my Mom or Dad). During that time, you paid $1,000 per phone, $70 per month on carrier charges and app purchases, and upgraded twice. Your true cost over 6 years is a whopping $8,040 or $1,840 per year.

Now in typical financial junkie form, let’s look at what happens if you buy them Apple shares or better yet, a basket of brand name stocks with that money every year. Using a conservative rate of return of 6%, investing rather than spending will net your loved one nearly $14,000 over six years. Your child will be better off by $22,000 since you’ll be saving over $8,000 in phone payments — enough for the first-year of tuition at UC San Diego with money to spare for flights back home (or for you to go to the beach).

Of course, not everyone is ready to fork over nearly $2,000 a year as a gift for someone else. You can still invest in brands kids love and at much lower price tags. And you can do this by Christmas. By opening a custodian account online for your soon-to-be-rich child, you can be ready to invest in minutes. Many brokers, such as Ally Invest or TD Ameritrade don’t have account minimums. With trading fees as low as $4.95, you don’t need thousands to invest. You can invest as little as $4.95. Of course, that would mean you enjoy throwing money away. A rule of thumb I like to use is not to exceed more than 2% of your trading commissions for any investment. Ally Invest charges a trading commission of $4.95 while TD Ameritrade starts at $6.95. With fees that low, you can get an investment account started for as little as $250.

For $250, instead of a new pair of Jordan’s, you can buy 4 shares of Nike stock. Is your kid a Star Wars fan? Disney, the owner of the franchise, is a great brand that will be around when all of us aren’t. Alternatively, Hasbro, is an incredibly well-run business that licenses Disney characters such as Darth Vader. For $270, you can buy 3 shares of Hasbro and receive a generous 2.5% dividend yield.

The dividend is the gift that keeps on giving. Many online brokers allow you to enroll in a Dividend Reinvestment Program, or DRIP. With DRIP, instead of receiving a payout as cash, dividends are used to automatically purchase more stock. This is a great, hands-off approach to compounding wealth over time.

Many beloved brand names that sell products and services kids love pay dividends and make great long-term investments. Below is a list of how some popular names have performed over the last decade along with their dividend yields.

Company 10-year stock return Dividend yield (TTM)
Activision Blizzard (ATVI) 438% 0.5%
Apple (AAPL) 114% 1.4%
Hasbro (HAS) 253% 2.5%
Nike (NKE) 290% 1.2%
Six Flags Entertainment (SIX) 347% 3.9%
Starbucks (SBUX) 244% 1.8%
Walt Disney (DIS) 240% 1.5%
Source: YCharts and Yahoo! Finance

Not only does buying stock in these brands make money, but it is a great strategy to get young children interested in business and investing.

So, go on. Open an account for your niece, nephew, or child today. Just select the UTMA/UGMA account option which gives an adult custody of the account until the child turns at least 18 and up to 25 in California. You can continue to contribute to their account on special occastions such as birthdays, graduation, Bar Mitzvah, and their Quinceanara. You may not win brownie points today. However, ten years from now, you’ll by far be their favorite relative.

Contribute to a 529 plan

Higher education is priceless. It’s an opportunity for the awkward to become legends. Life-long friendships are created. You may even learn to do laundry. It’s priceless — for an average four-year public, in-state cost of $40,000 of course. Expenses can go up significantly from if a child enrolls in a UC or private university.

Given the rapid increase in college tuition, it’s no surprise that many students are leaving college with insurmountable debt levels. Today, there is $1.5 trillion in student debt outstanding. The average monthly student debt payment for those between 20 and 30 years old is $351. When I was going to college, it wasn’t impossible to pay your own way through college. However, students today have a much tougher road than their parents. Even with a full-time job, it’s tough to escape the student loan trap.

However, you can help fix this national catastrophe by doing one small thing — buy your son a Nintendo Switch.

…or you can contribute to their college savings.

A 529 plan is a tax-advantaged savings plan that is designed to help family members put aside money for college. Nearly every state offers a 529 plan and some states offer tax incentives to invest in their own state’s plan. California does not offer a tax deduction but you are able to invest in any state’s plan. In addition to growing tax-free, 529 plans are low-maintenance, give the owner control of the money, offers automatic investment options, and are easy to set-up.

Despite all the benefits of a 529 plan, researching the one that’s right for your child can be quite a task. An ideal plan should have low fees investment options, strong long-term performance, easy-to-select investment options, and a strong team behind the plans. Fortunately, Morningstar has done some of this research for you. From 2011-2017, these funds have consistently ranked as top-tiered 529 plans:

  • Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • CollegeAmerica Plan, Virginia (Advisor-sold)
  • Utah Educational Savings Plan (UESP)

You can’t really go wrong with any of these but my personal favorite is the Utah Educational Savings Plan. It’s where I have both of my children’s college savings invested. Like many plans, the Utah plan allows investors to set it and forget it as investors have four age-based options that get more conservative as the child gets closer to college. UESP also has a solid blend of strong investment performance and low-cost investment options. As an advisor, I favor the Utah plan over others as I can also customize investments for each client. Of course, individual investors can do this on their own too.

The application process to open a 529 plan is simple. You can open an account online in minutes, giving you plenty of time to have it funded by Christmas morning. Your child may not appreciate your generosity today. However, a decade from now, they’ll be singing your praises as they perform their first keg stand.

The holidays are a great time of year for getting together with family and friends. Christmas morning is a memory that will stick with children for the rest of their lives. However, the Grinch would agree with me that memories fade. This year, give the gift that keeps on giving — quality dividend stocks and a contribution to their college savings.

To learn more about custodial accounts, 529 plans, and saving for your child’s future, schedule a complimentary meeting by clicking the icon below. 

A Changing Landscape for Young Families

For today’s younger couples, taking a drive along the winding road of finances is a lot different than it used to be. There are so many choices—each one steering the young couple closer or further away from the dreams of a lifetime. Hanging in the balance are two individuals hoping that their decisions will be in their overall best interest.

To better understand some of the challenges facing young families, meet Raj and Priya Chopra. They’re both in their late twenties and were married three years ago. Priya is a registered nurse and Raj is a marketing representative for a medium-sized technology company. Up until this point, they’ve enjoyed a lifestyle supported by two incomes. Without children, they’ve been able to be somewhat carefree about their spending.

Now, however, they are contemplating buying a home and having children. This has certainly raised questions about the financial implications of enlarging their family, as well as their financial future. Although the Chopras’ jobs seem relatively secure, they have friends who work for companies that have experienced significant downsizing and who are less certain about their future employment situation. Moreover, some of their friends have lost jobs and are going through difficult transitions.

Discussions with family and friends have led them to the conclusion that uncertainty may be the defining characteristic of their generation. Emerging families like the Chopra’s are facing a new reality, one with much more uncertainty about the future than that faced by previous generations. Some of this uncertainty is tied to rapid technological changes and some is the result of the realization that they personally may be responsible for providing for themselves much of what was previously provided by others (e.g., pensions by employers; social programs by the government).

There are many issues facing Raj and Priya, and they’ll need to ask themselves some difficult questions such as: Will corporate downsizing eventually catch up to them? If Priya intends to return to work full-time after having a baby, how would they cope if one of them should lose their job? What about the world of work in general? Will they go through several career transitions over the course of their working lives due to an economy that might be changing constantly? Is there a way to protect themselves financially? How difficult will it be for them to save for a child’s education? What about saving for more than one child? They both participate in 401(k) plans at work, but will they be able to save enough for a comfortable retirement? What about Social Security? Will the system change significantly? Will they be protected should they become sick or disabled?

What can a young couple like Raj and Priya do? A good first step is to discuss the various alternative solutions to these difficult questions. By doing so, Raj and Priya will be able to arrive at a realistic assessment of what they should and should not do financially, what they can and cannot afford, and what sacrifices they might need to make to assure financial security for both today and tomorrow. They know that their spending choices will have to be made carefully, and that preparing for a bright financial future will require setting goals now.

As the Chopra’s continue down the road of finances and look to expand their family, they can be a bit more optimistic about their future. The financial decisions they make today will make them less likely to be caught off guard by sudden economic or personal “bump in the road” tomorrow.

Is your 401k optimized to help you meet your retirement goals? Want to learn how to save thousands in taxes by making tax efficient invstments? Is your family covered if something were to happen to you or your spouse? Need help making these decisions? Talk to an advisor with your best interest in mind. 

2 Things Other Advisors Will Disagree With Me On

“What’s your philosophy?”

This question has frequently popped up in my first year as a Financial Advisor. It’s a good and fair question, albeit a loaded one. When I hear that question, I believe most people are referring to investing. If so, the answer is not sexy or surprising – it’s long-term, buy and hold. However, good financial advising is about more than just investing. Real financial advisors look at a client’s entire picture. They take debt, college planning, real estate, insurance, and estate planning into account. However, even here, the answers across planners are pretty standard:

  • Save more than you spend
  • Pay higher interest debt first
  • Invest in a 529 plan
  • Term life insurance is usually better than whole life
  • Have a will and a living trust

Nothing shocking. Execution is often more difficult than the theory but it’s pretty straightforward. Now, you may be asking, “what makes you so special?”

For one — I’m tall, brown, and handsome. Hopefully, that’s enough to gain your confidence but if not, I do have a couple financial philosophies that differ from most advisors.


Enjoy your latte and avocado toast

There’s a recent article in Money Magazine titled, Millionaire to Millennials: Stop Buying Avocado Toast If You Want to Buy a Home.

I mean…really? In that article, an Australian property mogul insinuated that folks shouldn’t eat out so much or buy a $4 cup of coffee if they want to afford a house. Well, doing some quick back of the envelope math, sacrificing a latte a day would mean that you would have enough to afford a down payment in San Francisco by May of 2195. That’s 65,000 lattes.

The Money Magazine article reminded me of a story I once heard from Morgan Housel, a Loeb Award finalist for financial journalism. It’s about a guy taking a smoke break with his non-smoking colleague.

“How long have you been smoking for?” the colleague asks.

“Thirty years,” says the smoker.

“Thirty years!” marvels the co-worker. “That costs so much money. At a pack a day, you’re spending $1,900 a year. Had you instead invested that money at an 8% return for the last 30 years, you’d have $250,000 in the bank today. That’s enough to buy a Ferrari.”

The smoker looked puzzled. “Do you smoke?” he asked his co-worker.


“So where is your Ferrari?

If you don’t smoke you can substitute coffee for cigarettes and work through similar math. It’s the type of math many advisors use when speaking to colleagues about saving every last buck and letting the magic of compounding interest do its work. However, it doesn’t take into account the simple joys in life. Sure, not buying a pack of cigarettes or a Starbucks a day will save you money. But it may not save you from strangling your boss. Within reason, vices can be good for people; there’s an upside to happiness.

The goal of financial advising should not be to put a stop to happiness but to help you find ways to achieve the life you want. That probably involves a few vices or experiences that just feel good.


The market can be beat

Studies have shown that over a 10 year period, more than 85% of fund managers failed to perform better than the S&P 500. These statistics have led many advisors and those in academia to conclude that the market cannot be beaten.

I don’t buy into what academia attempts to preach. Imagine if a medical student was told that no matter how hard they try; they will just be a mediocre doctor. Investing and portfolio management is probably the only subject matter where professors will tell their students that it’s impossible to be better than average.

All the statistics tell me is that mutual fund managers cannot beat the market. I believe individual investors can.

Mutual funds have a tougher battle than individual investors. Fund companies have to hire portfolio managers, research analysts, compliance folks, sales teams, and accountants. These people cost money and they are paid through the contributions from investors, therefore hindering investment returns.

There is also unbelievable pressure for those funds to outperform the market on an annual or even quarterly basis. Therefore, stocks are being bought and sold frequently, not giving a sound investment idea time to perform. Fund managers also face pressure from their bosses to go with the herd. A couple years ago, every manager was all-in on Apple stock. However, when signs of slowing growth started to emerge at Apple, the stock declined nearly 30% from its highs. Many of the funds that were overweight in Apple struggled. However, those managers weren’t going to lose their jobs because, “hey, it’s not my fault — everyone was invested in Apple.” Had the stock gone up 30% and a manager was not invested in the popular company, they may be on the hot seat. Of course, Apple recovered but the point is that it’s tough for fund managers to go against the grain. As an individual investor, you do not face that same pressure.

You as an individual investor can avoid Wall Street’s outrageous fees and short-term pressures. Your edge is that you have the advantage of time. Your investments don’t have to be better than the competition every year or quarter. You can own great companies and give them time to run.

Now, don’t get me wrong. I’m not saying that beating the market is what you should be trying to do. As an individual investor, you should try to do well enough to achieve certain goals such as retirement or paying for your children’s college education. This can often be done by just investing in a diversified mix of low-cost index funds. This alone will likely lead to better returns than 85% of mutual funds. However, investing in high-quality individual stocks alongside those index funds can be a great way to enhance returns.

Is your 401k optimized to help you meet your retirement goals? Are you paying too much in fees for under-performing funds in your retirement plan? A 14-year Vanguard study showed a good financial advisor can add up to a 3% value to its client — a difference of $500,000 for someone maximizing their 401k over 20 years. Click below to schedule an appointment for a FREE 401k evaluation. 

You Know Nothing Jon Snow

At the start of Election day, statistician, editor-in-chief of ESPN’s FiveThirtyEight, and data guru Nate Silver had the probability of Hillary Clinton winning the presidency at 71.4%.

We all know how that ended.

As it became apparent Donald Trump was going to be the 45th president of the United States, the Dow Futures, a somewhat reliable indicator of how the stock market will open up the next morning, was down about 800 points. The market ended up increasing about 250 points the next day. It’s up another 250 at the time of this writing.

The year was full of surprises.

Bookies had the chances of Great Britain staying in Europe at 94%. The Golden State Warriors won the most regular season games in NBA history and were up 3-1 in a best of 7 series against the Cleveland Cavaliers. They lost. The Cubs won the World Series.

Like many others, I was fooled on November 8th. Two days later, as I reflect on how and why Trump won the election, there is one line that keeps popping up in my head — “You know nothing Jon Snow.”

I am not alone. Neither do you. And neither do the so-called “experts.”

In The Game of Thrones, a wildling girl named Ygritte had to school a virgin, bastard child and warrior about how little he knows about the real world. This holds true in the financial markets. However, you wouldn’t know it by turning on CNBC or reading Yahoo Finance. Just as with the election, pundits appear to know exactly what is going to happen.

As a Clinton loss became more obvious and the markets declined, the narrative centered around Trump’s temperament, his ability to work with other countries, and opposition against free trade.

“Sell everything and move to Canada” was the headline.

The next day, the storyline shifted. Bank stocks were up over 5% as investors expected the financial markets to be less regulated. Pharmaceutical stocks also followed as threats of regulated drug prices dissipated. Caterpillar (NYSE: CAT) stock jumped over 7% in anticipation of an infrastructure spending binge during a Trump regime. Lockheed Martin (NYSE: LMT) was up nearly 6% as experts are forecasting a larger defense budget.

In half a day, the same experts telling you to head North became bullish on banks, pharmaceutical, infrastructure, and defense stocks. And if you listen to the analysts and read the articles, the reasoning is sound. They sound smart. However, investors should heed Ygritte’s words. The world is a complex place and investors should not assume that the markets will play out as planned.

History agrees.

When Barack Obama was elected president in 2008, many Wall Street pundits believed solar and alternative energy stocks would thrive while the overall markets would suffer. It sounded smart at the time. Obama was seen as being a strong proponent of climate change while also being anti-big business. Then this happened:

Source: Ycharts

The orange line shows the performance of the S&P 500 since election day of 2008 while the blue line is the VanEck Solar Energy ETF.

Again, “You know nothing Jon Snow.”

I can think of many more predictions in the financial markets that went awry. Although it seems obvious in hindsight, very few people predicted the dot-com crash or housing crisis.  Furthermore, who would have guessed that interest rates would be at levels near zero with minimal inflation for the past eight years? Many predicted the dollar would crash, our massive debt levels would cripple the economy, and Greece would lead to the downfall of the Euro.

None of these events occurred.

So what should investors do during these volatile times?

I can understand the desire to just sit this one out but don’t. My generation has lived through two of the most devastating financial crashes in U.S. history. However, we recovered from both. We also recovered from two world wars, 50% tax rates, an oil crisis, 14% inflation, six recessions, a depression, the 60’s, Black Monday, the Gulf War, and 9/11 and its aftermath. Not only did we recover, we prospered.

If you are in your 30’s or 40’s, you likely have another 30 years or so of earning and saving in front of you. Nobody knows what the next four to eight years are going to be like. Many will pretend to know that they do but they don’t. Nobel Peace Prize winners haven’t figured out how to predict the future. You won’t either.

You don’t have control over the Fed or interest rates. You can’t change your soon-to-be leader. The votes have already been counted. However, you can control your goals and values. If you have these two things in place, you are ahead of the game. If not, spending a few hours with your loved ones, discussing your goals and values, can help create an important and healthy discipline when dealing with money. You can then control your spending and savings to help you achieve those goals that are centered around your values. To me, this is far more important than what happens in the stock market over the next day, weeks, months, or years.

As far as all the other noise goes…we know nothing.


Enjoy Your Coffee and Cigarettes

Morgan Housel, a Loeb Award finalist for financial journalism once wrote a story that stuck with me. It’s a story about a guy taking a smoke break with his non-smoking colleague.

“How long have you been smoking for?” the colleague asks.

“Thirty years,” says the smoker.

“Thirty years!” marvels the co-worker. “That costs so much money. At a pack a day, you’re spending $1,900 a year. Had you instead invested that money at an 8% return for the last 30 years, you’d have $250,000 in the bank today. That’s enough to buy a Ferrari.”

The smoker looked puzzled. “Do you smoke?” he asked his co-worker.


“So where is your Ferrari?

If you don’t smoke you can substitute coffee for cigarettes and work through similar math. It’s the type of math many financial advisors use when speaking to colleagues about saving every last buck and letting the magic of compounding interest do its work. However, it doesn’t take into account the simple joys in life.

Sure, not buying a pack of cigarettes or a Starbucks a day will save you money. But it may not save you from strangling your boss. Within reason, vices can be good for people; there’s an upside to happiness.

If you want to quit smoking, do it to prevent lung cancer and emphysema. However, there are easier ways to save $1,900 a year. My job as an advisor is to help you find them. The goal of financial advising should not be to put a stop to happiness, but to help you find ways to achieve the life you want. That probably involves a few vices that just feel good.

Hate budgeting? You are not alone. I can help you:

  • Create a money management strategy to achieve your goals
  • Explore debt management strategies
  • Design a savings plan that fits your budget

Get started today by clicking the link below for a FREE consultation.