My first grandchild was born on February 5th, 2011. Needless to say, as new grandparents, we were thrilled. His name is Max, named after his father's grandfather Max (my dad), who died in 2008 at the age of 89 never to become a great grandparent. But this isn't an article about little Max or my family. It is an article about investing. Long term investing, and long term re-investing of dividends. I've dubbed it: The Grandson Project.
This (hopefully) series of articles, is about setting up Direct Stock Plans (DSPs) and Dividend Re-Investment Plans (DRIPs) for him. The SEC, on their web site: www.sec.gov/answers/drip.htm, provides a decent description of what each is, if by chance, any reader is unfamiliar with either.
The Project blueprint:
- Select 8-10 companies that have a solid history of paying dividends. Dividend growth rate, in excess of inflation, is a plus. But not a requirement.
- Select the above companies from a variety of sectors to diversify the portfolio. However, don't exclude a company for that reason alone.
- Select only companies that charge very low or (preferably) no fees for re-investing dividends and for additional investments.
- Select companies that a child can relate to. Example kids love trains, so one of the companies might be a railroad.
- Establish Uniform Transfer to Minor or Uniform Gift to Minor accounts for the grandson in the selected companies, by purchasing the minimum or greater number of shares required, by those companies plans.
- Make automatic monthly investments in those selected companies in an amount sufficient to purchase at least 1 additional share. Invest more if able to. Monitor stock prices and make adjustments as needed. Note: Some companies have a minimum amount for subsequent investments.
- Re-invest all dividends back into the selected companies.
- After five years, evaluate continuing monthly investments. If a decision is made to discontinue those investments, purchase enough additional shares to have at least 100 shares in each company.
If in investing, diversification is the only free lunch, then compounding must be it's complementary appetizer. We've all heard those stories about some nice old lady that bought a few shares of KO when she was young, and became a millionaire just holding the stock and re-investing the dividends. Well, The Grandson Project is going to attempt to duplicate and improve upon that concept.
There is nothing 'glamorous' about this project. Select companies, purchase stock, add small amounts monthly, re-invest dividends, monitor holdings, make changes if necessary, and watch the portfolio slowly grow.
In the next post I'll show the companies I've picked, how the Grinch Stole Christmas, and discuss some of the in and outs of setting up the custodial accounts.
Disclosure: I am long KO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.