Gift of Knowledge

Craig Stephens

MY UNCLE GAVE ME one share of Chevron for my 20th birthday. It was 1995, and he was the stock transfer agent for the company, overseeing its dividend reinvestment plan (DRIP). The share was a modest $48 gift, but the accompanying advice became the foundation of my investing career for the 27 years since.

As a young kid, I would comb through the business section of the Pittsburgh Post-Gazette, monitoring the performance of my dad’s two mutual funds. Understanding the basics of stocks and mutual funds came easy. But when I reached adulthood, acquiring both stocks and funds was confusing and prohibitively expensive. The internet was just starting to take off in 1995. Financial services were still plagued by high investment minimums and exorbitant fees.

DRIPs were an exception. Also known as direct stock purchase plans, DRIPs enable employees and investors to buy stocks directly, rather than going through a brokerage firm. Programs vary by company, but most have low investment thresholds and minimal or zero transaction fees.

When the stock certificate with my uncle’s signature arrived in the mail, his accompanying advice was to invest new money every month and reinvest the dividends. Keep that up, he said, and eventually I’d earn enough in dividends to buy whole shares. Someday, the dividends would be significant enough to supplement my primary income.

I was studying finance in college in 1995, while also making $6.25 an hour as a photographer’s assistant, developing film and printing pictures for the faculty newspaper. The $62.50 I earned every week wasn’t much. But after the usual beer and burrito expenses, I’d have $25 or $50 leftover each month to mail to the Chevron DRIP.

This investing habit continued through graduation and into my professional years. The contribution amounts grew when I started earning a salary, as did Chevron’s stock price and its quarterly dividend. My Chevron stock started earning enough dividends to purchase whole shares, just like Uncle Jim said it would.

I added more DRIPs to diversify, including Coca-Cola and Verizon. Soon, DRIPs started accepting electronic contributions and providing online access. Meanwhile, my first employer offered a 401(k) plan, allowing me to jumpstart my retirement savings with tax-deferred investing in stock mutual funds, which gave me badly needed diversification.

At the same time, discount brokers began emerging online, making it easier and less costly than dealing with a human stockbroker. Exchange-traded funds (ETFs) became widespread, offering an alternative to mutual funds—one with no required minimum investment.

Today, the popularity of DRIPs has fallen significantly because of commission-free online brokers. Within minutes, young investors can download an app, open an account, connect their bank accounts and invest their first $1 into an ETF that has more than 4,000 holdings.

We’ve come a long way. But while the mechanics of investing are straightforward compared to 30 years ago, young investors face a paradox of choice. Too many options can lead to bad investment decisions.

Many of us are parents, aunts and uncles now, and we may feel it’s incumbent upon us to share our investing wisdom with younger generations. Though many won’t listen, let alone read an article on HumbleDollar, we can still offer our advice in hopes they’ll acknowledge it or grace us with a belated “thank you” two decades from now.

That single $48 Chevron share from my uncle is now worth about $360 and has paid me $161 in dividends over the years. More valuable was his advice, which launched a lifelong passion for investing and which ultimately led me to leave an unfulfilling career to become a fulltime financial writer.

His advice to start early, invest often, dollar-cost average and maintain a long-term outlook remains relevant today. Still, I’d suggest the following additional guidance as we bestow our unsolicited wisdom upon younger generations.

Diversify. The first stock I owned still thrives today. But my uncle could have worked for Kodak. The good news: Modern investment products—notably ETFs—provide instant, low-cost diversification.

On top of that, technology and loosened laws have opened up opportunities for retail investors to own diversified alternative investments once reserved for wealthy and institutional investors, such as commercial real estate, farmland, private credit and even fine artwork. Such investments aren’t a must-have and they should only account for a small percentage of a portfolio. Still, they’re a sign of how much the investment world has changed since 1995.

Eliminate fees. Even though the Chevron DRIP was the best available option at the time, it still nickeled and dimed me with recurring transaction fees. Today, young investors can virtually eliminate fees by buying a low-cost index fund such as the Vanguard Total Stock Market ETF (symbol: VTI) through a commission-free online broker.

Reduce taxes. My Chevron DRIP is a taxable account. The government has taken a slice of nearly every dollar I’ve earned in dividends. Today, Roth IRAs are almost as easy to open as taxable accounts, and a great choice for young investors with a low earned income who would get scant tax benefit from a traditional IRA’s initial tax-deduction.

Invest in yourself. Trying to identify the next high-risk, high-reward investment has wounded investors for centuries. Options, cryptocurrencies, forex, meme stocks and other shiny objects may seem to promise rapid riches, but more often they have the opposite effect.

Instead of speculating on assets that fluctuate at the whims of the markets, I’d favor investing speculative dollars in ventures where the individual has more control over the outcome. Start a business, acquire undervalued rental properties or master a highly sought-after expertise. The potential rewards are, I believe, far greater.

Craig Stephens writes about personal finance and investing at Retire Before Dad and Access IPOs. Follow him on Facebook and on Twitter @RetireBeforeDad. Craig’s previous article was Not Dad’s Retirement.

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