Christmas is a time for celebrating and enjoying. Typically, Christmas is associated with Santa Clause and gifts from Santa. This is a time of fun and joy, especially for children. You probably bring lots of gifts for your children and take them for vacations and outings during Christmas. While you should continue doing that, we have a suggestion for you to add a Santa’s special financial gift to the list.
We are suggesting that you create a new Christmas tradition of giving a financial gift to your children every year. By the time, they are 30, this gift might be providing them a significant return gift monthly. If things turnout well it could be forming a substantial part of their monthly income.
Imagine your children are about 10 years of age today. We suggest that you create an equity portfolio for them as a Christmas gift and add to it additional amounts every year. Assuming that you start with a INR 1 lakh rupee gift this year. Buy an equity portfolio of about 20-25 stocks. Every year, add a further INR 1 lakh to it as the new gift for that year.
Given the typical expected equity market returns of 15%, this Christmas Portfolio, should be worth above INR 1 crores by the time the children are 30. At that time, this Christmas Portfolio should be capable of providing a monthly “gift”, in the form of a monthly income of approximately INR 1 lakh per month.
If instead you started with INR 10 lakhs for the first year and added, INR 1 lakh every year, that would result in a corpus above INR 2.5 crores by the time the children are 30 years of age. That should be sufficient to provide a monthly “gift” of INR 2.5 lakhs per month.
The point is not to worry too much about the precise amount which you can invest. Those of you who can do more, can gift more. Those of you who can invest less, can start with whatever amount you can gift. What is important is to do what you can and do it consistently every year. If you can increase the gift every year, it is even better.
What are the precise things to do this? No, don’t go ahead an open a demat account in the child’s name. You should open an account in you and your spouse’s name and add the children as nominees. This helps you in rebalancing the stock portfolio regularly. Also the dividends coming from this portfolio can be either reinvested or given as additional financial gifts for the children or utilized for their needs.
While buying stocks remember the Scientific Alpha process: Stable businesses, Strong balance sheets (low debt or no debt companies),Value creating track record and at a Discount to Intrinsic Value.
Buy a basket of 20 to 25 such stocks in equal amounts. Hold them for the full year. Once a year add the new financial gift to it and then create a basket of 20-25 new stocks for the full amount, including the old stocks and the new amount added to it. Keep doing this every year until the children need the money.
Enjoy the dividends and watch your financial tree grow! Merry Christmas
Dr. Vikas V Gupta
CEO & Chief Investment Strategist
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.