Episode 1
Please...Don't Give Your Kids Savings Bonds (Without Considering Opportunity Cost!)
What growth are you potentially giving up, so the opportunity cost, with these savings bonds you are so familiar with?
Securities offered through TFS Securities, Inc., and Advisory Services through TFS Advisory Services, an SEC Registered Investment Advisor Member FINRA/SIPC. TFS Securities, Inc., is located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.
Transcript
Welcome to the EnjoyMore30s Family Finance
Voiceover Audio:podcast. The only podcast dedicated to making life more
Voiceover Audio:enjoyable for young families by hitting on the financial topics
Voiceover Audio:that tend to weigh on us, stress us out, and distract our focus
Voiceover Audio:from simply enjoying life.
Joseph Okaly:Hello and welcome to the fifth series of the
Joseph Okaly:EnjoyMore30s Family Finance podcast. This time around, we're
Joseph Okaly:going to cover what is more important than anything else and
Joseph Okaly:your entire lives, my entire life, which is our kids. So as
Joseph Okaly:always, if you like what you're hearing, please make sure to
Joseph Okaly:subscribe, follow us on Apple podcasts, wherever you listen.
Joseph Okaly:Clicking that star, leaving a review, it really helps us reach
Joseph Okaly:the quite literally millions of other young families out there
Joseph Okaly:just like you.
Joseph Okaly:Now our other series so far, we've focused on you, your
Joseph Okaly:parents, and pretty much just other general areas that we
Joseph Okaly:could help work on to improve your situation. This time
Joseph Okaly:around, though, it's all about the kids, which is really,
Joseph Okaly:really cool. Now, I never thought at all that I would love
Joseph Okaly:being a father as much as I do. Holding a child was utterly
Joseph Okaly:terrifying before I had children of my own. I remember my oldest
Joseph Okaly:cousin when she had her first child, it was kind of that first
Joseph Okaly:child of the next generation in the family. And I was just
Joseph Okaly:terrified that I would hold her and do something wrong and hurt
Joseph Okaly:her and pretty much have every other member of my family
Joseph Okaly:looking at me as I did in disgust. So when you have this
Joseph Okaly:living thing, though, that is literally part of you. So when
Joseph Okaly:you have that child and you see them grow, you connect with
Joseph Okaly:them, you see them learn new things, it's just the most
Joseph Okaly:wonderfully amazing thing as everybody out there probably
Joseph Okaly:knows because you have kids already, but I'm still just
Joseph Okaly:completely amazed that it's possible and that I could love
Joseph Okaly:them both as much as I do.
Joseph Okaly:This series is dedicated to your kids. We're going to cover those
Joseph Okaly:financial items for you to help them of course, but we're also
Joseph Okaly:going to cover the things for them to help themselves. So I
Joseph Okaly:want you to first just picture your kids and they're nice and
Joseph Okaly:tiny now, but picture them all grown up. You see them kind of
Joseph Okaly:standing in front of you and in your mind now I hope. Now when
Joseph Okaly:you picture your kids becoming all grown up, I'm guessing you
Joseph Okaly:picture them with a smile on their face, right? They're
Joseph Okaly:happy, they're they're stable. They aren't standing in their
Joseph Okaly:bedroom still at home, right? Not living paycheck to paycheck,
Joseph Okaly:not having credit card that they can pay, you know, pretty much
Joseph Okaly:not relying on you anymore to still cover their bills, right?
Joseph Okaly:You picture them happily standing there on their own two
Joseph Okaly:feet, completely able to support themselves. So for today, let's
Joseph Okaly:start at where we should always start at the beginning. And the
Joseph Okaly:first thing that every child seems to receive, whether it's
Joseph Okaly:from you as their parents, certainly from grandparents, I
Joseph Okaly:know my grandparents gave me a million of them and that's
Joseph Okaly:savings bonds. Those bonds from the government that sound
Joseph Okaly:really, really great, because you only have to pay $25 for a
Joseph Okaly:$50 bond that you eventually get all $50 for. I mean, pay half
Joseph Okaly:get the whole amount. That sounds fantastic, right?
Joseph Okaly:However, they can all too often actually be a huge wasted
Joseph Okaly:opportunity for your children. Today, you're going to learn
Joseph Okaly:exactly what that opportunity is, and how to give your
Joseph Okaly:children a chance to have significantly more money down
Joseph Okaly:the road for that same exact $25. Now, opportunity is the key
Joseph Okaly:word here for all of this and more specifically, opportunity
Joseph Okaly:cost. Opportunity Cost is what you give up by taking one
Joseph Okaly:opportunity over another better opportunity. If a farmer decides
Joseph Okaly:to plant wheat but corn turns out to be a more lucrative crop
Joseph Okaly:that year than they lost potentially more money that they
Joseph Okaly:could have made if they planted corn. Did you make money off the
Joseph Okaly:wheat? Sure. Yes, absolutely you did. But not possibly as much as
Joseph Okaly:you could have. You left money on the table with your decision.
Joseph Okaly:So another example would be somebody asked you out to prom
Joseph Okaly:and then somebody else after that after you already said yes
Joseph Okaly:says 'Hey, would you go out to prom?' You liked them better but
Joseph Okaly:you already said yes to the first one. That's the cost say
Joseph Okaly:yes to that first opportunity. So if you bought a $25 savings
Joseph Okaly:bond for your kid in May of 2000, so roughly 20 years ago.
Joseph Okaly:Twenty years later, in May of 2020, it would have been worth
Joseph Okaly:roughly $53. That's paying you back the $25 plus the interest.
Joseph Okaly:Now it sounds really really good at first glance, right? I made
Joseph Okaly:more money than I put in just like when we went through the
Joseph Okaly:wheat example with the farmer. You did make some money.
Joseph Okaly:Absolutely. Now let's say instead of that though, you used
Joseph Okaly:a diversified investment, so a spread out investment, for that
Joseph Okaly:same exact $25. If you've received an average rate of 7%,
Joseph Okaly:over that same 20 year period, which in our opinion would be a
Joseph Okaly:reasonable expectation, if you were spread out correctly
Joseph Okaly:diversified correctly in that investment, then instead you
Joseph Okaly:would have received $96. That's 82% more money. So you see, it's
Joseph Okaly:not about 'did you make money?' You made money in either case,
Joseph Okaly:it's 'did you make the most out of your money, the most out of
Joseph Okaly:your opportunity?' One savings bond, not really a big deal,
Joseph Okaly:right? But let's say you had a few thousands in savings bonds,
Joseph Okaly:like I did. My grandparents give those gave those things to me
Joseph Okaly:every single year sometimes multiple times a year. Now
Joseph Okaly:instead of let's say $25, it's $2,500 of initial money. Now
Joseph Okaly:instead of $53 versus $96, at the end of the 20 years, it's
Joseph Okaly:$5,300 versus $9,600. That's a $4,300 difference. So how do you
Joseph Okaly:do this exactly? We're saying all this money then, which
Joseph Okaly:includes what you already have, and what you are going to use to
Joseph Okaly:buy savings bonds in the future should all now go into what I
Joseph Okaly:noted as a diversified investment, or in other words, a
Joseph Okaly:spread out investment. The one caveat here is if your children
Joseph Okaly:or your child is planning on using some of these savings
Joseph Okaly:bonds in the next year or two. So short term, at this point,
Joseph Okaly:you kind of already missed the opportunity, it's likely better
Joseph Okaly:to just leave it as is. Short term money should never be
Joseph Okaly:invested. Now I've talked about this in the past, the easiest
Joseph Okaly:way to do this is to ask your advisor, or if you don't have an
Joseph Okaly:advisor, to use an appropriate allocation fund that matches the
Joseph Okaly:time horizon of when your child is actually going to use it. So
Joseph Okaly:any of those major investment firms you see on TV, they pretty
Joseph Okaly:much all have allocation funds now. So if your child is very
Joseph Okaly:young, an aggressive allocation fund could likely be
Joseph Okaly:appropriate. If your child is five years away, let's say from
Joseph Okaly:using it, maybe a moderate allocation fund might be more
Joseph Okaly:appropriate. Then all you have to do is just remember to not
Joseph Okaly:touch it until it's needed. It's being professionally managed
Joseph Okaly:professionally spread out for you already so when there are
Joseph Okaly:ups and downs in the market well, which will absolutely
Joseph Okaly:happen, leave it be and you have a very good chance of having
Joseph Okaly:much more than you started with, and more especially than if you
Joseph Okaly:just use the savings bond. So next time grandma Jane gives you
Joseph Okaly:a savings bond for Sonny say thank you very much and put it
Joseph Okaly:into a place where it could work for you better.
Joseph Okaly:So what is the goal of today's episode? The goal of today's
Joseph Okaly:episode is for you to not want to use savings funds anymore
Joseph Okaly:when they're not appropriate. The goal is for you to have that
Joseph Okaly:money to be put into a place that your child will get the
Joseph Okaly:most benefit from it. So thanks for tuning in today and join us
Joseph Okaly:for next week's episode called Education Savings, It Is Not All
Joseph Okaly:529 Plans, where we're going to cover all your options for
Joseph Okaly:savings for your children and the goals you're trying to
Joseph Okaly:accomplish.
Joseph Okaly:Overall, if you are able to implement all this stuff that we
Joseph Okaly:talked about today, that is fantastic. Less to worry about
Joseph Okaly:now you can focus more on enjoying life. If you are
Joseph Okaly:wanting help with these things though or you have some
Joseph Okaly:questions you need help in clarifying. Of course reach out
Joseph Okaly:to us never a problem. Check out the Ask Joe section on the
Joseph Okaly:show's website www.EnjoyMore30s that's EnjoyMore30s.com. Till
Joseph Okaly:next week thanks for joining me today and I look forward to
Joseph Okaly:connecting with you again soon.
Voiceover Audio:The conversations on this show are
Voiceover Audio:Joe's opinions and provided for general information purposes
Voiceover Audio:only. They do not constitute accounting, legal, tax or other
Voiceover Audio:professional advice for your specific situation. You should
Voiceover Audio:always seek appropriate advice from a financial advisor,
Voiceover Audio:accountant, lawyer or other professional before acting upon
Voiceover Audio:any content or information found here first. Joe is affiliated
Voiceover Audio:with New Horizons Wealth Management LLC, a branch office
Voiceover Audio:of TFS Securities, Inc., and TFS Advisory Services an SEC
Voiceover Audio:registered Investment Advisor member FINRA/SIPC.