Retirement Today: Grandkids Folio

Grandkids Folio. It was fascinating to read Henrys response to the ‘Ask Henry’ question about setting up a folio for a grandchild. We’ve ‘been there and done that’ and can totally support Henry’s advice. We set up a folio for our grandchildren quite some time ago. We looked at structures where they would be joint owners of the shares as they were too young to be registered in their own right. That looked cumbersome with four separate accounts and there was the possibility of an extra grandchild to be accommodated which would complicate arrangements. The trust alternative wasn’t justified financially. We concluded that a single folio in our own names would be the best solution. We have talked about identifying the folio and its intended distribution in our wills but have not got around to doing that yet. The fund is named ‘Grandkids Folio’ and our family know it’s there and what it’s for. The idea was that as the grandchildren grew up they could start to take an interest in the stocks and the way the stock market works. That hasn’t really happened as we hoped. They know the stocks are there but they haven’t got involved. The eldest one, now seventeen, like to see the stocks go up. Perhaps he was contemplating a car or some other purchase, but, as the money is not available to them to use and their parents provide well for them, there is not a lot to interest them right now. Maybe it’s our fault for not involving them more. We must make more effort. When we started the folio we looked at a few stocks and discussed them with our sons as our grandchildren were too young at the time. Their response was that our grandchildren’s future would be impacted by environmental issues and that the folio should reflect that.  We substituted the geothermal energy developer Geodynamics for BHP and dropped Woodside. Geothermal energy works in New Zealand and the US so why not Australia? We did include a small speculative oil stock recommended very strongly by the newsletter we subscribed to at the time (Not Marcus Today). It was a potential 10 bagger in a few years or so it was promoted. Fortunately, we also bought Westpac, NAB and Bendigo Bank. Golden nest egg in handsGeodynamics did well for a while with promising results from its 4 kilometer deep bores and a nicely rising share price. It was an exciting stock. Had Geodynamics succeeded South Australia and potentially Australia as a whole would have abundant base load renewable energy for years to come. It was an exciting story but it didn’t last. Geodynamics consumed large amounts of government and shareholder funds but didn’t succeed in achieving commercial scale electricity generation. Unfortunate for Australia and even more unfortunate for the long suffering shareholders, Geodynamics finally delisted and our grandchildren’s investment was gone in a puff of steam. Our adventurous oil explorer fared no better.  Always a lot of promise just around the corner but it too finally evaporated in a deal with its financing companies which saw shareholder’s equity reduced to the point where the cost of selling would have exceeded the value. Stop loss settings would have been a good idea but we were not using that technique at the time. It wasn’t all disaster. The banks did very well turning out their strong dividends and giving steady growth. The dividends we could reinvest and the growth just kept on growing. Had we put the original capital sum entirely in the Banks the grandkids would have a much bigger nest egg waiting for them right now. The real problem with the more speculative stocks was that we bought a story, albeit an exciting one. There was a lot of promise but no product, no income and no dividend. We added to the problem by not monitoring the folio carefully enough. The banks you can set and forget even including their recent poor years but speculative stocks need to be monitored almost daily; to be sold when they start to look dodgy. A good story is not enough. We have learned from the experience and have proved the value of Henry’s advice. Our Grandkids Folio is continuing and hopefully has a good many more years to run.  It’s now strongly based on the banks but we do have a small amount invested in carefully watched adventurous stocks as an attempt to get a bit more sparkle. A good bet would have been to invest in health stocks as we have for our retirement folios but that looked a bit boring at the time. The grandchildren are growing up fast which just reminds us how time is flying by. The eldest is now in his final year at school and hoping to go to university. Soon he will have a real need for cash. What do we do about his share of the fund? We have always considered that the fund would be the grandkids inheritance when we are gone but is there a better time? Could we enjoy seeing him and later his younger brother and our two granddaughters enjoying the benefits of the money we have set aside? It’s a tempting thought but it’s still a little way off.  Could we encourage them to make it the basis of their own long term investment folio? The Grandkids Fund isn’t big enough to change their lives but it could provide just enough to make a difference in whatever they decide to do in future. Harold Harold of Retirement Today  If you would like to email Harold please click here.    Retirement Today segment in Marcus Today

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