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Don’t you find a stock market portfolio a smart college graduation gift idea for your son or daughter?
Many years ago, my wife and I opened an In-Trust-For (ITF) stock market portfolio for our son. At the moment, his portfolio is under our name. Once he reaches the legal age of 18, we will transfer the ownership to his name.
There’s an option for the account to be converted into a joint account. But the idea is to have this as our college graduation gift for our son so our decision is to turn this ITF account into an individual account under our son’s name when he reaches 18 years old.
Can You Open an ITF Account for Your Nephew or Niece?
When opening an ITF account, you have to be the biological parent of the child. When I posted this on Facebook, someone asked me, “Can I also open an ITF account for my niece?” The answer is a “yes” with some conditions. You have to present legal adoption or court-issued documents testifying that you are the legal guardian of the child.
What Happens When You, the Primary Account Owner, Die?
Is the child the default beneficiary? No. This is not an insurance plan.
Do you have a savings account in your favorite bank? If you do, let me ask you, “Do you remember indicating a beneficiary name on your savings account when you filled out the form?” Of course, you did not! There was no option in the form to indicate that. Opening an ITF stockbroker’s account is no different from opening a savings account. When you die, just like your bank account, it will form part of your estate.
You Died. Then What?
Since that account will form part of your estate, that account must undergo extra-judicial proceedings. I am not a lawyer so I cannot touch base on that in great detail. Please consult a lawyer.
It’s a normal thing to be proactive in thinking and considering the not-so-good things that may happen in the future, but let’s not dwell on that. I would like to focus on the concept of opening an ITF account, as a college graduation gift, for your son or daughter. Here’s the common dilemma of many, “Sir, how can I make that happen? I only live a hand-to-mouth kind of life.”
The Idea Is Great. But How Can You Make It Happen?
Save up for P5,000.00 as your initial fund to open an online stockbroker’s account. I conducted a survey about the most preferred broker in the Philippines. Check out that article.
Then, set aside at least P2,000.00 of your net income on a monthly basis for 23 years.
The initial reaction could be, “Sir, P2,000.00 per month is quite heavy for me already.”
Let me ask you, “Do you smoke cigarettes every day? Do you regularly drink alcohol?”
If you’re a chain-smoker and you smoke a blue-seal cigar, how much would you save per month if you stopped smoking? If you have regular classes in bars, how much would you save if you stopped drinking alcohol?”
There’s a Way if There’s a Will
A few months ago, I went to the beach with my family. I had the chance to chat with our tour guide. He smokes a lot. He drinks a lot. I calculated how much he is spending each month on those two vices. He is spending no less than P3,000.00 per month on cigar and beer.
He has an idea about what the stock market is. So I asked him if he has ever thought of investing in the stock market. He said he has no budget for that. Slowly and politely, I showed him that he already has the budget for investing. It’s just that he is spending it on something else.
If you think P2,000.00 per month is like hitting the moon, ask yourself first, “Am I spending on things I can live without? What are those things?” Pause for a while and ponder on this. Write them down. Then ask yourself, “Which is better: satisfying myself with my vices or preparing my child’s future?”
What Does My Child Get if I Invest P2,000.00 Per Month?
I presented three tables above. Take advantage of the power of compounding interest. The sooner you start investing in the stock market for your child, the better.
If you will start investing P2,000.00 per month on the birth month of your child for 23 years, you will have invested a total of a capital of P557,000.00. Why 23 years? I considered the Department of Education’s K-12 Program. I also assumed that your child will take a 4-year course in college. I also assumed that he won’t fail in any subject and repeat.
With a proper guidance on stock investing, an 8% annual growth rate is already a very conservative one for me. The cumulative average growth percentage of the stocks that I recommend for long-term position investing is 51.50% (from the lowest price we got since September 2014 up to the stocks’ closing price as of July 22, 2016). These are the stocks that are listed in the Investment Guide table. This is only accessible by my clients in the Stock Signals Philippines.
In a perfect world of having a steady 8% annual growth rate for 23 years, your capital could grow up to P1.6M by 190.71%.
Is That 8% Annual Growth Guaranteed?
Please, pretty please, I want you to forget the words “guaranteed earnings”, “assured earnings”, “sure-ball earnings” or anything similar as far as investing is concerned. Depending on the price movement of the stocks you’re invested into, it is possible to have a below-zero or an above-8-percent annual growth rate.
If nothing is guaranteed in the stock market, does it make sense to invest in the stock market? Yes, of course! That’s why we have this what we call Risk Management in the Stock Signals Philippines. We set a limit to the risk that we can only handle. We know when to get out. We know when to hold. We know when to sell. We know WHY we do WHAT we do and HOW we do it.
But What Can P1.6M Do 23 Years From Now?
I know why some ask that question. It’s because of the inflation rate. Inflation is about the increasing of prices and the falling of money’s buying power. If P1.6M can buy a brand new car this 2016, maybe it can only buy a brand new bike by the year 2038. Maybe I’m exaggerating, but I hope you got what I mean.
That question is an all-time favorite objection of many pessimists. Instead of thinking what can P1.6M do 23 years from now, why not think what you can do to increase your P2,000.00 monthly top-up so that the estimated total equity value of your money will grow bigger than P1.6M? Now that’s a good question, isn’t it?
Make Stock Investing a Family Culture
My cover image on my personal Facebook account says, “Investing in the stock market is building a financial family culture that prepares the future in the present time.”
I encourage you to start doing this in your family, with your family, and for your family. When you hand your child’s online stockbroker’s account on his graduation day, you’re not just passing a chest of wealth but a family culture worth continuing.
Do you have friends who are parents or a parents-to-be? Help them by sharing this article with them.