“Stop the Insanity”

Working MotherFitness and diet guru Susan Powter was a mid-1990’s self-help sensation, recognized for her “Stop the Insanity” mantra. With her high-energy style and personal story of losing over l30 pounds as a single mother, she had a major impact on the diet and fitness industry. She was truly motivational and told her audiences, “If you continue with the same behavior, expect the same results – and frustration.”

“Stop the Insanity” applies to a lot more issues than just losing weight.

With the holiday season rapidly approaching, another classic “insanity” issue arises. Many parents and grandparents repeat their annual vow to change; but they never do!

I’ve never heard family elders complain about children having too few toys. Most complain about them having too many. During the holiday ritual the young ones are lavished with gifts, way too many toys, and the annual vow to stop the insanity next year.

The little ones start with a huge plastic tub full of toys and graduate to a toy or play room – a warehouse full of toys strewn all over the place. Calculate the aggregate cost of the toy inventory and you will be astounded. I hear a lot of complaints that, no matter what they have, they are never satisfied.

In the dark of night mom will sneak in, fetch many of the old or broken toys and retire them – and they are never missed. While we should be thankful for the affluence, having so much at a young age is counter productive, helping to foster the “I want it now” mentality.

If I had a do-over

As a great grandfather, having travelled that road, I would offer some suggestions:

  • Stick with your core beliefs from day one. If you don’t believe in giving them a bunch of junk, don’t do it!
  • Concurrently, we cannot stop others from doing so. Attempting to persuade the rest of the family to see it our way will cause a lot of resentment.
  • All toys are not equal. As a child my erector set and Lincoln Logs were a lot more educational than a toy car. If the choice is an educational book or another hot wheel with flames painted on the side, the book wins every time.
  • It’s emotionally difficult watching grandchildren opening their gifts, receiving clothes and maybe a couple toys from us. They were much more exited with the piles of toys from their other grandparents. You are not in competition; don’t get caught in the trap.
  • Contribute to their college fund. Each year their parents would tell them that we also made a contribution to their college savings plan. In middle school they started to “get it”. Each time they received a monetary gift mom and dad required a portion went to the college fund. When it comes time for college the children and parents are forever grateful.

College Savings plans

There are several different college savings plans. Two of the most popular are the 529 plan and Coverdell plan.

Most plans offer great tax advantages, and are sponsored by firms wishing to manage your money. While there are still risks involved, the tax advantage of accumulating money and compounding it for 18 years is something every parent and grandparent should seriously consider.

There are two components in a college plan; saving and investing. You want money available when they graduate from high school. College saving and retirement saving are similar. You have a saving accumulation phase, investing along the way, until you reach your time line where you begin to withdraw funds. Then you preserve capital.

Major risks to college savings

Market timing risk

You can’t time the market or wait for the market to come back. Unlike retirement savings, you have a compressed time frame; luck becomes a bigger factor. Pity the poor student who has a nice balance invested in the stock market and graduated from high school in 2008. Their college fund may have dropped by 40%. While the market came back over the next 7 years, the student cannot afford to wait, they need the money now.

Don’t be fooled by a stockbroker who says put your money into an S&P 500 fund. They will show you the historical averages, and the proof the market always comes back. Much of the high or low return depends on how the market performed while junior was getting their primary education.

Diversify, diversify and diversify some more, not only in stocks but other investment instruments. Diversification is not holding several stock mutual funds – don’t get fooled!

Annually audit and adjust your investments toward conservative as the student moves through school. Don’t get caught trying to play catch up. Once they get to high school age, continue saving and the mantra titled, “Preservation of Capital!”

Inflation risk

You will have little inflation protection in your fund’s portfolio. Year over year inflation for the period 1978-1981 averaged 10.9%, negatively affecting many graduates. If the fund invested in 6% Certificate of Deposits, the overall buying power, after interest, would still have dropped by approximately 25%. If college costs rose at the same rate of inflation, the money set aside for a four year degree only covered three years.

I’ve never seen a professionally managed college fund, or sample allocation brochure, offer any real type of inflation protection. Part of the reason is many inflation protection investments are considered “risky” and fund managers do not want to get sued. Others, like real estate are long term and not always liquid; the ability to cash out when you need it might be a problem.

Inflation protection must not be looked upon as “investments” in the traditional sense. They are bought for insurance, not for appreciation – unless inflation enters the picture.

With the government creating over $4 trillion out of thin air over the last few years, high inflation is not a matter of if, but when – despite the current low inflation numbers. The educational nest egg must be protected.

What if I told you that you could buy a fire insurance policy and any time you choose, you could get most of your entire premium back? If you have a fire you will get back a lot more. You would tell me I am crazy and it sounds too good to be true, right?

I’ve never seen a broker managed college fund offer adequate inflation protection; therefore we must buy our “inflation insurance” outside of the fund. What liquid assets will provide true inflation protection? Jo and I concluded it is both gold and silver.

In 2011 the silver price peaked just under $50/ounce. Currently it is around $14.25. We decided to gift the grandchildren 1 oz. silver coins. We would gladly accept price appreciation when they redeem them, however that is not our purpose. We were buying insurance to protect the value of their college fund due to high inflation.

Each year we spend the same dollar amount; the number of coins varies depending on market price. Over time the costs will average out.

Why did we choose silver? – For two reasons. In 1933, when faced with a fiscal crisis, President Roosevelt confiscated gold. While the probability of that happening again is debatable, why risk it?

We like the fact silver coins are worth much less per ounce. When high inflation arrives a 1 oz. gold coin could easily bring in $5,000 or more. What if they only needed $2,000? Having a spare $3,000 in cash makes it much too easy to spend; better they cash in only what they need.

If inflation remains low, precious metals may not appreciate. However it’s one form of insurance that offers you a return of all or some part of your premium. The coins will never be worthless.

Gifting coins takes on a life of it’s own. Our parents had some silver coins and they passed them on to our generation. We still have them and have added many more and plan to do the same.

My biggest regret is that Jo and I did not start doing this earlier. We invested our older grandchildren’s college money in fixed income bonds. Over an 18-year period inflation ate up way too much buying power. Had we put 5-10% into silver we could have hedged our bet and helped pay for another semester.

On the Lighter Side

Congratulations to the Northwestern Wildcats on their 10-win football season. They have been college football doormats for so many years; it’s great to see them do well. I used to joke that they held an NCAA football record that will never be broken – they were selected as homecoming opponents more than any team in history. Hopefully they will be selected for a major bowl game and play well.

We are still in the process of getting settled in to our new AZ home. I wanted to organize the garage and hang some ladders. I looked at the garage “systems” with the horizontal shelves and boy they are expensive. Just for fun, I went to Amazon and queried “Ladder hangar” and this under $5.00 gadget popped up.

The ladders are hanging neatly and very inexpensively. If you have a handyman guy in your life, this is a gift he will thank you for.

You can also help us out by ordering through this link – Click Here

And finally

In keeping with this week’s theme, I chuckled to myself while reading my monthly “American Legion” magazine.

Some parents have taken to buying their children batteries for Christmas – with a sign saying – “Toys not included”.