Guest Post: Love Your Children Well by Investing in the Future

Hello, all! Today we have a guest post from Chris Pascale…

Love Your Children Well by Investing in the Future

By: Christopher Pascale

Taking care of your children involves taking care of yourself. If they have a roof over their heads and food in their bellies, you need to think about what else really matters. For example, they need to be clothed, but they do not need to be on fashion’s cutting edge. They need an education, and this can include music and martial arts, but if your budget is going to be busted by private lessons, then the church choir and school wrestling team will do the trick.

This article will discuss how you can love your children well via 3 investments:

  1. Your retirement
  2. Their education
  3. Their retirement

You need money for yourself when you’re older, and it should be among the very first things you buy after you pay your rent and buy groceries. They need the advantages that come with an education, as well as an early start toward their savings and retirement.

Your Retirement

I mentioned in an earlier piece called “Is 15 Too Young?” that I did not put anything away toward retirement until I was 25, and it was only $25/month. 12+ years later I still have that account, and it receives $150/month. This money comes out on the 1st, and sometimes brings my available funds to nearly zero after I pay the mortgage and other first-of-the-month expenses.

But it’s completely necessary, because my kids need me to have money when I’m older, because if I have nothing, I could become a burden upon them.

In addition to this independently established account, I also have a TSP through the federal government that receives 5% of my income, which is matched, and a 403(b) plan through Suffolk County Community College, where I have $400 taken from each paycheck when I teach.

The total cash retirement savings may be $1,000,000 when I’m eligible to take it out at 59 ½, but it could be much less because I missed some good boom times, and I also plan to stop working for the federal government at 48, which means no funds will be added to the account.

In addition to this, my wife and I will have multiple pensions from our (1) military service, (2) careers in government, and (3) teaching.

Lastly, we have a home that will be paid off.

This is not a very special plan for retirement, and that’s the beauty of it. You can save away for retirement, possibly obtain some kind of pension, even in as little as 5 years in many cases, as noted in this study on school district pensions, and if you buy a home you can afford before the age of 40, should be able to pay it off.

If you know this, it’s because you’ve become educated. Now, we need to discuss your children’s education.

Your Children’s Education

Some will tell you that your kids will only have the best chance at life if they go to the finest boarding schools and then the best Ivy League university.

WebMD fails to mention this not because it is run by a group of doctors looking to leapfrog their kids ahead of yours; it’s because the best chance at life is not merely measured by how rich your friends are, but by the quality of your relationships, and how you navigate them, often modeled by parents.

There are many cases in the US where it really doesn’t matter where you go to school. I say this as someone who has paid a great deal of money for music lessons, tutoring, wrestling camps, and more. I also say it as someone who made the conscious decision to move my children out of Louisiana, in part, because the public schools are so far behind. Had I have stayed, I’d be mortgage-free while living on only my passive income, but all 4 of my daughters would have completed 2nd grade with never doing math beyond 9+9. That’s a real example. 9+9 was as high as my daughter went in math problems as a 2nd grader in Louisiana.

The question is, if education is an investment of tons of time, and a good deal of money, what is the return?

This BLS chart shows the following:

Level of Education Percentile of Income Weekly Income
Less Than High School 10th $330
Less Than High School 50th $515
Less Than High School 90th $999
High School 10th $395
High School 50th $718
High School 90th $1,489
Some College 10th $427
Some College 50th $799
Some College 90th $1,637
4-year Degree 10th $580
4-year Degree 50th $1,189
4-year Degree 90th $2,609

If your child enters the workforce as a low-earning high school dropout, he’ll make about 83% ($330 vs. $395) of his graduating peers, and as a high-earning dropout, his income would be about 67% ($999 vs. $1,489).

Just by staying in a free high school, your student has a chance to earn over $3,300 more per year as a low earner, and $25,000 more as a high earner.

This completely free education, on average, helps our children make hundreds of thousands more during their lifetime.

But this isn’t what we think of when it comes to investing in our children’s education. We usually think of college.

My oldest is going to community college next Fall. She’ll be a general studies major with the goal of transferring after 2 years. Those first two years will only cost $12,000, and when she gets her bachelor’s degree there will be no indication that she ever went to a community college; just that she is a 4-year graduate.

While in school now, she is already exploring workplace opportunities by taking vocational courses in physical therapy and graphic design. She’s also considering audiology as a potential career. Her passion is creative writing, and maybe she will be a rich and famous novelist one day, but her other passion is moving into her own home. She wants to be an independent adult, and that means getting a good-paying job, for which graphic design, physical therapy and audiology are great choices; creative writing is not.

What about school choice? For example, if my daughter gets accepted into Yale to study French, but also a middle ranking polytech to study engineering, I’m going to wonder why she can’t just go to France on a work visa. If her answer is that she wants to be a US diplomat, then Yale and French are great choices.

But! Can I, or she, pay for the schooling? Yale costs about $50,000 a year. My income isn’t high enough, nor are my assets large enough to cover it when I have three other kids to think about, as well as my own retirement. Remember, it’s not a blessing to her if I forfeit my own financial well-being so that she can hang out at some Skull & Bones parties before becoming a member of the US State Department. Even if this leads to her marrying into a wealthy family – the kind that Chris Rock calls wealthy – and they can put me on an allowance, that’s also terrible, as I’d be an embarrassment to her.

Adding to Chris Rock’s wisdom, we need to build our own wealth that can be passed down while helping our children do the same.

Your Children’s Retirement

Your kids need to earn money and put some away. First, it’s good for them. Second, don’t you wish you’d have put money away earlier?

Prior to investing long-term they should have savings. Don’t get so wrapped up in how great their lives can be in the future that you forget to secure the present. All 4 of my girls have passbook savings accounts. When they get money for their birthdays, they make a deposit. When we read an educational book together they deposit a check I write them, and if they happen to be holding a lot of cash, I’ll encourage them to deposit some of it.

This savings has been crucial. One example was when there was a lice outbreak at their school! I was able to stay lice-free by keeping my hair short, but no matter how hard my wife tried, they had to go to The Lice Fairy, and at $200 per head, it broke our budget. AND THEN IT HAPPENED AGAIN! For trip #2, I withdrew a combined $1,000 from each of their accounts, and my wife went in with them again. This example is proof that savings will save them today, but we must also set them up for the future with long-term investing.

Two of my four daughters are now investing in Roth IRA accounts, and the other two have some money in the stock market. One bought shares in the Rocky Mountain Chocolate Factory (RMCF), as analyzed here, and the other bought Hershey’s (HSY). The older girls like having real money put away for later, and the younger ones like the idea of owning a piece of something they like.

How to Get Started

This is going to seem too simple. First, if your children have money – really, any amount of money – go to a credit union or bank and open a passbook savings account. Then, once they earn any money from a job, and it will be reported to the IRS, open a Roth IRA, or a mutual fund.

With the Roth, set it up with automatic deposits, even if only for $25 per month. The key is that the money goes into the account, and stays there.

When they make deposits into their passbook, show them the interest and explain that this is their money making money. And then explain that some people have so much money that they don’t even have to work; their money just makes it all.

When their retirement statement comes in the mail, let them see it. My oldest surprised me when she saw that hers had $800. She said it made her feel like she was going to have a lot of money when she was older. It gave her peace of mind, which, apparently, can be bought, and in this case for as little as $800.

Christopher Pascale is an author, accountant and adjunct professor from Long Island. He is the former CFO of Portfolios with Purpose, and is a current member of the IRS’ Office of the Chief Counsel.

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

 

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Guest Post: Don’t Buy Candy. Buy The Company!

Good morning!

Today we have a guest post from Chris Pascale. Chris has written in the past about his oldest daughter opening up a Roth IRA at age 15. In this post, he shares the story of his youngest daughter bought a stock at 8!

It’s never too early to introduce your kids to the stock market. Teaching them about money when they are young will influence how their financial behaviors as adults. When you see someone who is a good saver and investor, there is a strong chance that that person will tell you his or her parents instilled money wisdom all along.

Don’t Buy Candy. Buy the Company!

by Christopher Pascale

My youngest daughter loves candy. She happens to be very good with money, but candy is the thing she likes best.

One day she wanted to take $30 to the candy store and spend it all, reasoning that it’s her money, so why shouldn’t she get to buy candy with all of it? Aside from the fact that I don’t want all of that candy in my house, she might need that money, like in the times she’s bailed us out (as noted in this GrumpusMaximus article).

Rather than just say no, I said, “why buy candy when you can buy the whole store?” This piqued her interest, and led her to figure she could purchase the local Sweet Street shoppe and then get free candy every time she went in.

Obviously, some more explaining was in order, because Sweet Street isn’t for sale, and she doesn’t have enough capital if it was, nor the ability to do the work. So we looked into the stock market.

The plan was to find a company with long-term potential and dividend income.

Getting Started Is So Hard

We know great ideas are everywhere, but to pull the trigger is to climb a mental mountain. It was not until months later that we finally got her trading account set up.

My original intent was to just have all 4 of my girls use Vanguard for index funds. I got as far as printing off the forms, but we never filled them out.

Finally, this month, after another college semester where I successfully bullied more than one student into not being poor when they are old, I got on Google and searched for candy companies. Up came the following results:

  • Hershey’s (NYSE: HSY)
  • Tootsie Roll (NYSE: TR)
  • Nestle (OTCMKTS: NSRGY)
  • Mondelez (NASDAQ: MDLZ)
  • Rocky Mountain Chocolate Factory (NASDAQ: RMCF)

What Candy Co. Has the Best Stock?

Having never heard of the Rocky Mountain Chocolate Factory, the R&D division of the Pascale household needed to find out more, leading us to order the Rose Crystal Gourmet Caramel Apple.

At $23.00 after shipping, I was excited about the potential for profits. We’d have visited a store, but there are none (yet) on Long Island, so if anyone wants to franchise, see here.

I’ll dive more into this company in a bit. We need to discuss company size, breadth of products, dividend opportunities, and more.

What we don’t need to solely focus on is share price. SHARE PRICE ALONE IS NOT A REASON TO BUY SOMETHING.

Share price is why dummies (I’m one of them) will buy penny stocks, because it feels so cool to get 10,000 of something, or a million, which makes sense when thinking that it could go to $1.00.

Not helping matters any is that The Gap used to be a penny stock, but what did The Gap also have? Great leadership and growing revenues.

I say this because you might shy away from Hershey’s at $90.00, which will pay reliable dividends every quarter, but dive into SolarWindow Technologies (OTCMKTS: WNDW), which hasn’t gotten around to selling a single solar panel! That’s right. While Hershey’s is terrific with consistent sales of $7-8 Billion, SolarWindow hasn’t gotten around to selling a dollar’s worth of anything.

So, while you can buy dozens of shares of SolarWindow for every 1 share of Hershey’s, keep in mind that with one you are investing in a company that is actually doing business, and with the other, it’s a mystery how it even made it onto the Wealthy Joe Investing site.

Hershey’s (NYSE: HSY)

The history of this company is a rich one that involves building a high-tech town where workers had electricity well before many others. On top of that, delicious, affordable products were brought into the lives of so many people who could not otherwise afford what may have been a luxury.

Should my daughter buy Hershey’s stock?

Price on 5/15/2019: $127.06

Dividend: 2.27%

Market Cap: $26.53 Billion

2018 Revenues: $7.79 Billion

2018 Net Profit: $1.18 Billion

Can Hershey’s grow? I think so, because it can infiltrate other nations, as Coke has in Southeast Asia and Africa.

But it can also grow as Nestle and Mondelez have, by diversifying its product line. After all, if Hershey’s came out with a bottled water, I’d drink it, especially if coupons suddenly landed in my mailbox.

RESULT: Strong Recommendation to Buy

Tootsie Roll (NYSE: TR)

What surprised me is that Tootsie Roll has a very slim product line, explaining why it’s smaller than the other giants mentioned here, but it could also explain why they are doing very well, too. After all, focus is important in business, and while Pepsi has done well to get into a variety of extremely unhealthy options to complement their terrible beverages, Coke is no less a big player while not spreading itself so thin.

Should my daughter buy Tootsie Roll stock?

Price on 5/15/2019: $38.85

Dividend: 0.93%

Market Cap: $2.4 Billion

2018 Revenues: $518.9 Million

2018 Net Profit: $56.9 Million

Can Tootsie Roll grow? Tootsie Roll can easily find its way into the same markets as Coke and Hershey’s, and can do so for so much less. The reason is because to get into some of these markets, companies have to provide infrastructure in order to have a factory. After all, what’s the point in having the ability to put your product in every store if there’s no way for tractor trailers to get from one place to another? By simply following the bigger giants, Tootsie Roll can draft off the leaders, if it so wishes.

Lastly, Tootsie Roll has an ideal product line because everything is so affordable. However, it offers the lowest dividend of the very big companies on this list, and also has the lowest profit margin for 2018.

RESULT: Recommendation Not to Buy Right Now

Nestle (OTCMKTS: NSRGY)

The Nestle product lines take their customers from cradle to grave with Gerber baby food, Pellegrino sparkling water, and so much more. For pets, they own the Purina brand. You can spend the whole day with nothing but Nestle foods and not miss out.

But should my daughter buy Nestle stock?

Price on 5/15/2019: $96.62

Dividend: 2.1%

Market Cap: $292.52 Billion

2018 Revenues: $ 91.75 Billion

2018 Net Profit: $10.14  Billion

Nestle’s growth isn’t what I’m thinking about so much as the idea that it can stick around. While Tootsie Roll is a one-trick pony that you shouldn’t be eating very often, Nestle takes one-trick ponies (maybe) and has your dog eat them every morning while you make yourself a Nespresso and your baby eats his applesauce.

For those investors who are worried about the morality of the companies they buy into, any company this size has controversy, and you can find out some of Nestle’s woes here.

RESULT: Strong Recommendation to Buy

Mondelez (NASDAQ: MDLZ)

Mondelez is a lot like Nestle. It’s a huge conglomerate, but from the United States instead of Europe. The brand family includes Hall’s (cough drops), Oreo, and Triscuit. It’s all complex carbs and rich, simple sugars. No water, wine or anything else.

Should my daughter buy Mondelez?

Price on 5/15/2019: $51.62

Dividend: 2.01%

Market Cap: $74.36 Billion

2018 Revenues: $25.94 Billion

2018 Net Profit: $3.38 Billion

Can Mondelez grow? I think so, especially with a product like Tate’s Bake Shop cookies, which has a label proclaiming to be from Southampton, NY, leading someone like me to think that I’m supporting a local-boy-done-good when the reality is that that boy did good back in 2018 when he sold his business for half a billion to Mondelez.

Like Nestle, Mondelez is not without controversy, but what I like about Mondelez, aside from it being a US company, is that it’s looking to grow, and all within its own specialty. In 2016, for example, it tried to buy Hershey’s.

What I don’t like is that the company isn’t as big as it used to be, which you can see in this revenue chart. As such, though, now could be a great time to get in. After all, sentiment is down with revenues, or at least should be, and rising sales should bolster profits for investors.

RESULT: Recommendation to Buy

Rocky Mountain Chocolate Factory (NASDAQ: RMCF)

As already mentioned, this company is a franchise operation, and at $23.00 to get a product delivered, there’s money to be made so long as people have money to spend. And this is where it gets iffy. In a bad economy, people need what Nestle sells, people can splurge on what Mondelez offers, and everyone can buy Hershey’s products. These items are for disposable income and special occasions, only. But let’s look at the numbers.

Should my daughter buy Rocky Mountain Chocolate Factory?

Price on 5/15/2019: $9.50

Dividend: 5.05%

Market Cap: $56,520,000

2018 Revenues: $7.79 Billion

2018 Net Profit: $1.18 Billion

In some ways this is the riskiest investment of the bunch, however, dividends have been paid out like clockwork since 2003, even following the dot-com crash and The Great Recession.

Also, because there are only 4 locations in New York, that means they could easily 10x in the next ten years. Lastly, in 2013, Kellogg’s released a cereal with them that has proven to be successful.

Our Final Decision

When our $23.00 apple arrived, I cut it up into 6 slices. My oldest daughter summed it up perfectly when she said, “I don’t really like apples or caramel, but this is the best thing I’ve ever tasted.”

And with our newfound, deep knowledge of the product line, my 8-year-old now owns 20 shares of the Rocky Mountain Chocolate Factory, and so do I.

Christopher Pascale is an author, accountant and adjunct professor from Long Island. He is the former CFO of Portfolios with Purpose, and is a current member of the IRS’ Office of the Chief Counsel.

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page. 

(Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)