This week saw the completion of the rebuild of my granddaughter’s portfolio. Basically an effort that spanned six weeks and navigated some tricky waters – earnings season, trade news, Fed meeting … Yep, we had them all. So, I figured it was only fitting to share the whys and wherefores of this little expedition since it pertains to the market.
Since coming to live with us, the kid has been given an annual present of a stock holding and as such has accumulated a nice – but not quite fully diversified portfolio. Over the years she has been proud of this and one year participated in a ‘mock’ stock contest at school which was (I believe) sponsored by FinViz taking eighth place in the state. So it was a sad day for her when she was advised that the majority of college aid programs (Grants, Scholarships, etc.) would be discounted by 25% of her net worth. This includes savings, portfolio … There goes the incentive for planning ahead. End result being upon graduation, her nest egg would be 0. My wife and I are not her parents – the legal status is guardian – so at least our net worth is not considered. So the game plan evolved to maximizing the available assistance.
The rules are similar between 529 plans and custodial accounts, except when liquidated. With 529s, there is a penalty and possible tax restatements. With Custodial accounts there is the obligation of the custodian to prove the liquidation benefit was on behalf of the minor. As these accounts were Custodial, I’m now tracking application fees, ACT/SAT testing fees and much more, so if necessary I can respond to an IRS audit.
She’s aware that I chose to replicate her portfolio as a slice of one of my M1 pies. So I laid the groundwork to ensure no dividends were lost in this migration. Fortunately I’d been holding much of my previously paid dividends in cash just waiting for an opportunity to present itself. As the checks arrived, I moved an equivalent sum to M1. What I haven’t shared is my intention to gift it back to her upon graduation from college.
I created a spreadsheet with the sale price and the repurchase price to determine if I made or lost money (outside of fees). I will say that I don’t have the nerve to try to time the market for a living. On the subject of fees, company plans managed by Computershare, Broadridge and Equiniti downright suck on fees when transferring or cashing out. To be fair, that’s an aspect that’s not at the forefront of most DGIs who buy and hold for the long term. The fees ranged from a little over $25 (BR, CMSQY) to $0 (SCHW) with EQN.L in between at $15 and change. With today’s free trading schemes, the incentive for using traditional DRIPs will likely wane as I noted in one of my infrequent comments on Seeking Alpha.
Once started, I was blindsided by some events. WFC named a new CEO, TXN provided weak earnings guidance and KHC had an earnings beat. For the most part, I was able to better her sale price when I did my purchase as illustrated below.
While I didn’t enjoy this exercise, had I realized in 2010 what rules would be in place in2019 I’m not sure I would have done anything differently as the kid gained an appreciation for investing and the power of compounding. Besides, Administrations come and go, rules and policies are ever changing. The key is adjusting to whatever is most beneficial at a point in time.
I will be hoarding most of my dividends once again until tax time as my wife took a part time job this year. For the first time in a couple of years I’ll be able to make an IRA contribution. 2020 portfolio reporting will likely be a little strange – at least from my view of normalcy, as I tend to like consistency rather than one-off events. (I know … first world problems …) My concerns lie more in highlighting dividend growth performance rather than portfolio growth via cash infusions – regardless of whether it’s new cash or self generated by reported dividends. This I’m sure will become clear as we progress into the new year.
As always, thoughts and comments are welcome!