Creating a Financial Legacy for Only $100 a Year - Annual Update

As a grandparent, one of my wishes is to help my granddaughter gain confidence in financial planning and investing at an early age.

When my granddaughter Elsie turned eight, I decided to set up a custodial account and gift $100 on her birthday to invest in the stock market. This annual gift will continue until she reaches adulthood when the custodial account automatically reverts to her control.

Every year as Elsie grows older, I educate her on more and more sophisticated financial concepts. These birthday gifts have now been made over four birthdays.

So, what has she learned so far?

Age Eight

The goal during this first year was to introduce the concept of stock ownership. Elsie was asked to pick two companies she would like to own. Not surprisingly, she picked Disney as her first choice and Apple as her second choice. I purchased $50 of each stock. Also, I printed and framed replica stock certificates for these first purchases.

Age Nine

The goal during the second year was to introduce the notion that stock prices can go up or down over time. Fortunately, Elsie had an investment gain during the first year. Elsie was also excited to realize she was earning dividends from stock ownership. She also picked two new stocks to own – Target and Gap.

Age Ten

For this third year, I graphed the price movement of each of the stocks Elsie owned, introducing the actual dollar and percentage gain or loss of each stock. She had stocks with both gains and losses – so I also included smiley, neutral and sad faces as appropriate on the graphs. I also included a graph of the S&P500 index and its percentage gain during the prior two years. I asked Elsie to invest in a S&P 500 ETF with a portion of her annual gift. Based on its poor performance, she sold Gap and purchased Roblox.

Age Eleven

For this year, I calculated the annual and total gains and losses for each stock and the S&P 500 index. As expected, the S&P 500 showed up in the middle of the pack, demonstrating its ability to average gains and losses across many stocks.

While this index reduces risk from poor performing stocks, it also misses the upside potential from owning very high-performance stocks. Roblox and Apple performed much better than the S&P 500 while Disney and Target performed considerably worse.

Elsie learned that owning great and truly beloved companies (like Disney) does not guarantee great stock performance. Rather, it pays to wait to buy stocks when they are at a fair value.

Elsie chose to invest more in her winners: Roblox and Apple. Finally, I included a graph showing the performance of stocks, bonds, treasury bills and gold over the last 200 years. Stocks won hands down.

So, what is next?

I challenged Elsie to determine what a “fair value” is for a stock. This coming year I will start to introduce stock indicators to help determine the fair value for a stock. This will most likely include introducing profitability, price/earnings ratio, dividend yield, company growth rate, and possible other factors like competition.

Further in the future, we will discuss the importance of financial planning to first define and then achieve key goals over her lifetime.

Each additional bit of information will be introduced when Elsie is able to understand and appreciate each new concept.

At the final step of this process - at age 21 - I will gift to Elsie several books I have read and used over the years to understand financial planning and investment strategy.

Learning about financial planning is not a one-and-done process.

Rather, it is a gradual process of introducing new information and concepts as each young adult matures.

So, consider creating a financial legacy through these annual gifts to each of your grandchildren.

All for just $100 per year. What a spectacular legacy gift!

About the Author

Richard O. Weijo, PhD, received an undergraduate degree from Concordia College in Moorhead, Minnesota, and went on to receive his MBA and PhD degrees from the University of Minnesota. He was an Assistant Professor of Marketing at the University of St. Thomas in Saint Paul, Minnesota. Richard was also a Senior Analyst at the Pacific Northwest National Laboratory, and his most recent corporate position was as a Manager of market research and Director of customer channels at Portland General Electric. Currently, he is a consultant and a writer. He adores his young granddaughter Elsie, whose birth inspired his book, Remember Me: Creating and Leaving an Inspiring and Memorable Legacy.