Rummaging through an old file I found a U.S Treasury EE Savings Bond.   The $50 bond was a gift to my wife from her mother in 1987.   My wife redeemed the bond on Tuesday and received $103.68.   The average annual return on her bond was 2.4%.  Inflation averaged 2.6% over this same period so my wife lost .2% per year on an inflation adjusted basis.  However, we’re grateful for the gift and the found money.

The Series EE/E bonds can only be purchased online from TreasuryDirect® at a current rate of .10%.  In addition to the EE/E bonds you can also purchase I bonds, H bonds, bills, notes, bonds and tips.  If you want guarantees, then look no further than investments issued by the U.S. Government.

As we race towards the holiday season you may want to give financial gifts to your family members.  A Series EE/E bond sounds like a good gift idea but are there better alternatives?  Here are few ideas:

• Stock Mutual Fund. The stock market has averaged 10.2% since 1987 despite drops in 1987, 1990, 2000, 2001, 2002 and 2008.  A $10,000 investment in the Vanguard S&P 500 Index Fund in 1987 is now worth $168,000.[1]   If my wife’s $50 gift had been invested in this fund, it would be worth $980 today.
• Bond Mutual Fund.  Long-term government bonds averaged 7.9% from 1987.  A $10,000 investment in the Vanguard Total Bond Fund is now worth $59,600.[2]
• Individual Stocks. Buying stocks in companies your family uses could be a great way to grow wealth and learn about the stock market.  A quick trip around your home could identify hundreds of companies from Apple to Zillow.  Of course, picking the right stock will help.  An investment in Apple, Facebook or Netflix has done well, not so with Blockbuster or Toys ‘R Us.
• Gold Coins. Gold coins issued by the United States Mint make great stocking stuffers.   Some of the more popular coins are the American Eagle, Walking Liberty, American Buffalo, and the First Ladies of the United States.   President Nixon ended the gold standard in 1971 when gold was priced at $35 per ounce and it’s currently trading for $1,295 per ounce.
• Cash. Cash is a common gift to give a family member but it’s also the worst especially if you want them to save their money.   Cash can burn a hole in a pocket and most people will probably spend it and not save it.
• Bitcoin. The investment of the year has been Bitcoin.  It’s currently trading for more than $8,000.  To buy Bitcoin you’ll need to open a Bitcoin Wallet using money from your bank account.  The cryptocurrency can be used just like cash for those outlets who accept Bitcoin.

Stocks are the ultimate gift for the long-term.  The historical performance from stocks has rewarded many shareholders.  In addition to the long-term trend of stocks, several companies pay dividends, so you can have your cake and eat it too!

For it is by grace you have been saved, through faith—and this is not from yourselves, it is the gift of God—  not by works, so that no one can boast.  For we are God’s handiwork, created in Christ Jesus to do good works, which God prepared in advance for us to do. ~ Ephesians 2:8-10.

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

November 23, 2017

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog.

 

 

 

 

[1] Morningstar Office Hypothetical Tool.

[2] Ibid.