Be The Investor You Wish Your Grandparents Could Have Been

How many of you wish that your grandpa bought $1,000 worth of General Electric stock during the Great Depression that would be generating $400,000+ in dividends today, allowing you to buy homes outright, fund children’s education by writing checks, and most importantly, inherit the “life infrastructure” that would allow you to dare to be great and pursue your dreams without making decisions based on scraping by and getting the bills paid.

Or maybe you wish your grandpa hid a couple hundred shares of AT&T stock certificates in the sock drawer sixty years ago so that you would be collecting over half a million dollars in annual dividends that you could use to jumpstart your own art museum that would allow you to have almost $150,000 coming your way every ninety days so that you could spend your life purchasing artwork around the world and sharing the beauty with others. That entire lifestyle could have been created *if* your grandmother or grandfather had the foresight to set aside some money that they would not interfere with, opting instead to let compounding work its magical touch.

Once you give a cash-generating asset over 20+ years to run, you will begin to see how even folks earnings a middle-class salary can get on their way to becoming Rockefeller lites.

Consider these scenarios:

If you put $10,000 into Procter & Gamble in the summer of 1970, you’d have $1,750,000 today.

If you put $10,000 into Johnson & Johnson in the summer of 1970, you’d have $2,019,000 today.

If you put $10,000 into Coca-Cola in the summer of 1970, you’d have $1,840,000 today.

If you put $10,000 into Exxon Mobil in the summer of 1970, you’d have $3,980,000 today.

If you put $10,000 into Chevron in the summer of 1970, you’d have $2,150,000 today.

(As an aside: in case you wonder why Exxon and Chevron did so well relative to the other stocks on the list, there is one main differential: the reinvestment of dividends. For much of oil’s industry, it paid a high dividend based on its trading price. You know how BP and Shell have dividends around 5% most of the time? Well, that’s how Exxon and Chevron used to be most of the time, before they began executing buyback programs in addition to dividends. Furthermore, oil stocks rarely get overvalued. Most of the time, you are reinvesting into them at a fair market price or a slight overvaluation. Over the course of decades, this effect can become substantial as you see above).

The question then becomes: If you wish that your grandparents did something like this for you, then why don’t you be the one you wish your grandparent could have been? Imagine if you took $12,000, set up a trust with the instruction that $2,000 gets put into Colgate, $2,000 gets put into Coca-Cola, $2,000 gets put into Nestle, $2,000 gets put into Exxon, $2,000 gets put into Procter & Gamble, and $2,000 gets put into Johnson & Johnson. That would be a hell of a present for your grandchild in 40-60 years.

Almost everyone you will encounter in your life does not think like this, especially if they are in their 20s and 30s. But if you dare to be great, instead of doing what everyone else is doing, these are the kinds of decisions you can make that will change the entire trajectory and realm of possibilities for your children and their children.

Some people are scared of long-term investing because they think they the stocks they buy might fail. But remember this: even if you bought $10,000 worth of Coca-Cola stock in 1970 and made four $10,000 investments that went entirely bankrupt, you still would have turned $50,000 into $1.84 million. You only need one successful long-term investment over the decades to make your financial life enormously successful. In the words of my financial hero Charlie Munger, “You only have to get rich once.” Nowhere in the world has it been as easy to lay the foundation for long-term wealth like it is in the United States of America in July 2013. Why not do something, no matter how small, that gives you a fighting chance to participate in the wondrous effects of compounding 8-12% growth over the decades?

 

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10 thoughts on “Be The Investor You Wish Your Grandparents Could Have Been

  1. This is exactly what I intend to do. At 26 though, I just wish I came to this realization eight years ago.

    I am working on setting up my own blog to document and communicate my journey and plan towards financial independence.

    I have discussed a lot of these ideas with my friends, but it will help them to be able to see my actual plan/strategy in action.

    Have a lot of work to do, but the challenge is invigorating.

  2. says:

    I was contemplating writing a similar post on my blog but you beat me to it, and articulated my thoughts exactly. I wish I had started doing this at 25 rather than 30, but I am certainly glad I'm starting at 30 rather than 40. It is amazing what blue chip stocks (bought at a fair valuation) with dividends reinvested can achieve with the right amount of time. Compound interest is a great, great thing when you have it working for you.

    1. Tim McAleenan says:

      "It is amazing what blue chip stocks (bought at a fair valuation) with dividends reinvested can achieve with the right amount of time. Compound interest is a great, great thing when you have it working for you."

      B-I-N-G-O.

  3. Dtkillion says:

    Tim, I agree with you, and have my own DG portfolio with 30 + prospects for 40 year ownership stakes. But, how much was $10,000 in 1970 in today's dollars? I doubt too many of our grandparents or parents had $10,000 to plunk down on a single equity, much less on 5. I also agree diversity is crucial. GE could have seemed a logical place to stake a bet on an ownership stake for future growth and income in 1970 but so could have Kodak or Polaroid or A&P supermarkets.

    1. Waterbuffalo says:

      1. $10,000 in 1970 was a lot of money this is true. Lets just say it is the equivalent of $45,000 today. Well then, if you just invest the $5500 it takes to max out your IRA, then you will have more than that by 2020. Reinvest the dividends and assume growth, and you will have much more. Make 2020 your 1970. 43 years later, you will be the one with a million dollar portfolio to pass on to your grandkids.

      2. GE, Kodak, Polariod, and A&P may have been DGI stocks back then, but not all DGI stocks are created equal. GE worked out, the others not so much. Tech is a finicky animal, and with tech, long term investment is hard to predict. Likewise, with A&P (I remember them from my childhood), consumers can stop going to their stores. That is why it is better to own what is inside of the grocery store or own the building through a REIT than it is to own the store itself. Today, AAPL, INTC, GOOG, WMT and IBM seem like sure bets, but if I had to pick which ones will still exist in 43 years, I wouldn't try to do it. A better bet is the consumer staples and the companies that make the stuff you need every day. KMB, PG, KO, JNJ, MCD, CVX, XOM, O – except for O all of them were there 43 years ago, and they will all be there in 43 years. Spread your excess wealth among these names – even at today's modestly overvalued prices, you wont go wrong.

    2. Tim McAleenan says:

      Water Buffalo got it right. Putting aside $10,000 in 1970 is roughly analogous to setting aside $45,000 today. According to my Analytics, Google estimates that the average household income for someone who reads my site is just north of $80,000 per year (granted, my site is only a couple months old, so the figures will be much more reliable this time next year). To set aside $45,000, we're talking saving about $15,000 per year for three years. Basically, you'd have to save 18.75% of every pre-tax paycheck for thirty-six months to meet the lump-sum assumptions of the post. Everyone's pocketbook is different, and everyone should feel free to adjust the figures accordingly to see if the strategy could work for them.

      Logistically, I would cut those $45,000 in accumulated savings into roughly 9 blocks of $5,000 or so.

  4. Monty says:

    $10,000 would have been very risky for one stock, at basically 2+ corvettes. $50,000 would have purchased you over 10 Corvettes. $50K would have purchased 1450 ounces of gold. That's almost 2 million dollars at todays spot price. Imagine if it were calculated on gold's peak. People don't realize real inflation. My dads house only cost around 5k back then. I'm a huge Warren fan, but anyone that thinks he wasn't extremely wealthy before he began his investing has to be off their rocker. His 20-30k in the bank after graduating college was extremely wealthy. That's equivalent to about 1 million in todays dollars.

    1. Waterbuffalo says:

      "$10,000 would have been very risky for one stock"

      This is as true for one stock in 1970 as $45,000 in one stock is today. However, today, in 2013 we have a HUGE advantage over the investor in 1970. Thanks to online trading, it only costs a few dollars (as opposed to a few hundred dollars) in commission for each trade. That means that you can divide your $45K into 9 companies at $5K each and still pay less in commission than the 1970 investor did for his one trade. If a 1970s investor invested $10K into 9 companies, it might cost him 10% of his entire investment in commissions, reducing his overall nest egg 43 years later by hundreds of thousands of dollars. Nine $8 commissions will cost you less than 1% of your entire $45K investment. And while each $5K investment will probably not amount to a million dollars in 43 years, the combined total of all 9 likely will – If you buy 9 of the most dominate companies on the planet. Tim was nice enough to put a list of them together on this site.

  5. Folks, the point is real simple, and undeniably accurate: Save your money, invest in big div blue chips, and leave your family tree better off then the 99%er's.

    Your grandkids will toast your portrait at dinner and after all is said and done, what could possibly be more gratifying then that? 😉

  6. Waterbuffalo says:

    They will. But the investing is only half of the battle. Because one bad generation could blow through your shares in a lifetime, leaving their heirs with nothing. The other half of the battle is to teach this wisdom to your heirs as well, so that your legacy can survive. And if necessary (although it may be painful) leaving the lion's share of your wealth to only the ones how will use it wisely.

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