Thursday, November 25, 2010

How to Get Rich Slowly DRIP by DRIP: Gifts to My Children

My kids are both adults. They live in Texas and I live in Virginia. I talk to them on the phone occasionally but seldom see them.

During the first few years of being half a continent away I still thought I knew them pretty well; enough that I could pick birthday and Christmas gifts for them that they’d like.

But, as the years went by they grew older - less & less like the teenagers I remembered. Buying presents became difficult.

During this same time my interest & knowledge about investing grew. And along the way I discovered DRIP accounts.

After experimenting with my own DRIP for about a year I thought of opening DRIP accounts in the names of my two adult children. The idea was to take money I would normally spend for their Christmas and birthday presents and use it to buy shares of stock. I could also use the DRIP accounts and occasional statements to teach them about compound interest, dollar-cost averaging, and dividends; and, to encourage them to begin investing in their own future.

The first thing I did was to prepare Excel spreadsheets that demonstrated the power of compound interest. The spreadsheets also demonstrated the affect of various monthly investment amounts over a range of years and growth rates.

A key to making the whole thing work was getting their consent and commitment to making no attempt at withdrawing money from the accounts and allowing me to managing them.

In the end, I selected a stock, Hasbro (HAS), and added that stock to my own DRIP account. Then I filled out transfer forms for each of my kids. Next, I visited them in Texas and explained the Excel spreadsheets, DRIP accounts, and my plan to buy stock with their birthday & Christmas money.

Having secured their commitments to not mess with the accounts until after my death, they signed the transfer forms.

I mailed the transfer forms to Computershare, the Hasbro transfer agent. A few weeks later I received confirmation from Computershare that one share of HAS stock had been successfully transferred to each of the kid’s DRIP accounts.

Finally, I set up accounts in the kid’s names on the Computershare web site.

The accounts were now set up. My plan was ready to execute. I took the remainder of my birthday & Christmas budget and spread it out over the following year in $25 dollar increments; dollar-cost averaging into Hasbro stock.

Twice a year, May & December, I send the kids an activity statement showing the investments made and the current account value.

During the second year I added another stock and in the third year I added a third stock. The total annual investments remain the same. I just allocate the investments to different stocks at different times. I don’t have an automatic monthly investment set up. I manually prepare each one and use an Outlook task reminder to schedule investments and to keep me on budget.

The next time I visit them in Texas, I plan to review those Excel spreadsheets with them again - including the actual results from their DRIP accounts. I hope to encourage them to start putting a little of their own money into the DRIP or into their own Roth IRA account.

In the next post I’ll take a close look at administering a DRIP account after the initial set up.

Link to Topics in the Special Report - How to Get Rich Slowly DRIP by DRIP

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