My daughter bought a house, but that is not the story. The story started when she was born, and I opened a Uniform Transfers to Minors Act account (UTMA) to help her pay for college. A contribution to a UTMA is an irrevocable gift, and most advisors don’t like to use it because the child may turn out to be a bad seed, but I had faith that Hannah would age well, and she did.
After she was born, I created a spreadsheet with about fifty colleges, including Harvard, Yale, Occidental, USC, UCLA, San Diego, Texas, Texas A&M, and Baylor. I updated the list often as she grew older, eliminating some colleges while adding others. Each year, the average cost increased by 5% to 10%, and paying for college would be expensive, and my goal looked daunting. I eventually widdled the list down to one school: Baylor, where she obtained her undergraduate and graduate degrees.
The Lost Decade
My daughter was born in 1998, and two years later, the market peaked and entered the lost decade, where the S&P 500 lost 24% from 2000 to 2010. During the Tech Wreck, 2000 to 2003, it fell 43% and dropped another 56% in the Great Recession from 2007 to 2009. It was the worst time to invest since the Great Depression, and from her birth to her first semester of college, the S&P 500 returned a measly 3.41% per year, less than its 97-year average annual return of 10%.
Regardless of the poor market conditions, I continued to buy stocks, acquiring ten shares here, 20 shares there, and so on, and I rarely made a significant contribution to Hannah’s account. Her great-grandparents and grandparents occasionally gave her financial gifts, which I used to purchase more companies.
I funded her account with 100 shares of Philip Morris, which generated a return of 265%. Some of the other stocks I bought were Alphabet, up 710%; Microsoft, up 511%; Apple, up 336%; Cisco, up 111%; and Pepsi, up 103%. However, Amazon provided rocket fuel for her account, which I purchased in 2001 after it crashed by 90%, for a split-adjusted cost of 82 cents. Her average gain was 6,665% and had I invested everything into Amazon, she’d be retired today.
Returns and Predictions
Paying for college is a simple financial goal because you know the inputs – the cost and timing, usually eighteen years. I fixated on accumulating enough money to pay the room, board, and tuition, and I ignored market forecasters, economists, money managers, TV personalities, and influencers. I was a net buyer of stocks regardless of the market or economic conditions, and I only sold them to pay for college. Nor did I panic during corrections. In fact, I used the selloffs to buy quality stocks at discounted prices. If I did panic, I would not have achieved my original goal.
I don’t know my returns for her college account nor care because I achieved my goal of paying for college.
By the grace of God, her account continued to rise, far exceeding my expectations. After Hannah graduated from Baylor, she had enough funds to pay for graduate school. Her account kept growing, and after she obtained her master’s degree, enough money was left to buy a house.
Focus on your goals, and don’t let market conditions or financial experts distract you on your journey. Returns matter, of course, but it is better to be a consistent investor so you can use your funds to pay for college, buy a second home, travel the world, or retire. Again, I don’t know what her returns were – 5%, 6%, 10%, I’m not sure, but it doesn’t matter because we paid for six years of college, and she now owns a home.
Start children off on the way they should go, and even when they are old, they will not turn from it. ~ Proverbs 22:6
February 27, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.
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