Tag Archives: investment

Paying A Kid’s Allowance With Dividends From Stocks

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First, I made a mistake!  I now wish I would have put the money I’ve been saving for my kids into a stocks that yield a dividend instead of a UMGA account for them once they turn 21! 

Then continue to invest money into a dividend stock ($125 a month) or dividend paying mutual fund, while using the dividend to pay for my kid’s allowances!  See the crude table I created below:
Dividend Pay % 4.00%






Weekly
Age
 Contribution Dividend Total Savings
Allowance
1 1500 $30.00 $1,560.00
$1.15
2 1500 $92.40 $3,122.40
$1.20
3 1500 $154.90 $4,747.30
$2.40
4 1500 $219.89 $6,437.19
$3.65
5 1500 $287.49 $8,194.68
$4.95
6 1500 $357.79 $10,022.46
$6.30
7 1500 $430.90 $11,923.36
$7.71
8 1500 $506.93 $13,900.30
$9.17
9 1500 $586.01 $15,956.31
$10.69
10 1500 $668.25 $18,094.56
$12.27

The advantages of such a system would be as follows:

  • It could be used as a stealth emergency fund(s).  So if I were to lose my job, we would still be able to eat…
  • I would still have control over the money instead of my kids once they become the age 21 (or 18 depending on the state), like they do with their UGMA accounts.
  • Someday, when my kids are  looking to buy a house, I could give the money to them for help with the down payment.
  • Or I could use the money to help pay for college costs.
  • I could even be cruel and decided to keep the money for myself.  Look out Hawaii, here I come!!!

The points above are excellent reasons why just buying stock with dividend in my own name is better than their names!

After some reasonable success with my Lunch Experiment, I’ve been wanting to create new stock dividend fund anyway!

The key to such a “Kid’s Allowance” stock dividend fund would be to start saving for the fund very early.  Perhaps even before the child is born!  And of course to continue to keep putting money into the investment each year!

What say you?  If you were newly married, would you consider creating such a fund now?  Perhaps buying a great monthly dividend stock like Realty One “O”…

-MR

Lunch Budget Experiment #2 – Buying the Stock

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In my previous post about my “Lunch Experiment“, I mentioned that I was looking at buying a type of dividend producing stock called a REIT (Real Estate Investemnt Trust).

Stock Hunting Adventure Ends

My Stock Hunting Adventure Ends

Well, this past Friday, I decided to jump in the market while it was low from the Dubai World credit crisis fallout.

Even though the market might move lower on Monday, I’m pretty confident that it isn’t going anywhere near the recent recessionary low that we experienced in March 2009.  “Sell high, buy low”, if possible (actually I prefer dollar-cost-averaging for my real investments).

So what did I buy?

First, let me say that I can afford to lose this money.  The stock was bought with money that I would have wasted on buying “out of the office” meals at work.  This is the reason that I call this an experiment, and the money involved truly is non-necessary money.

On to what I bought.  Drumroll… I bought AHN (Anworth Mortgage Asset Corporation)!  This REIT company does the following:

“…invests primarily in United States agency mortgage-backed securities issued or guaranteed by United States government sponsored entities, such as Fannie Mae or Freddie Mac, or an agency of the United States government, such as Ginnie Mae, including mortgage pass-through certificates, collateralized mortgage obligations, and other real estate securities, on a leveraged basis…” – from finance.yahoo.com

Why did I buy it?

I bought this stock for the 15.5% dividend yield.

How much did I buy?

I bought $2,000 dollars worth.  I decided to take an extra $1,000 from my regular brokerage account (that was sitting in cash) and put it extra towards the experiment.  So now I owe my regular account $1,000.

How much money will I get from the quarterly dividend?

If you consider taxes as part of the decision this is trickier than it sounds.  Not taking into account taxes (for example, if I put bought ANH  in a Roth IRA), I would receive ($2,000 x .155) = $310 dollar annually ($25 a month and about $6 a week).  Currently, I’m holding this in my regular stock account, but in January 2010 this is going into my Roth.  For more information about REITS, see this wiki article (especially the taxing info.)

Why did I put in extra money?

The extra $1,000 that I added will enable me to take 1 additional lunch as soon as the dividend is paid out, instead of waiting 25 24 additional weeks.  this will enable me to start enjoying the lunch out with friends in a few months, instead of waiting 1/2 a year (not to mention the current high dividend).  Though honestly, I could have waited…

Potential Pitfalls

The company may cut or reduce it’s dividend.  Yes, I’m taking more risk than is customary for me.   I’m willing to roll with the punches though.

Tell me what you think of my latest move?  What kind of strategy would you pursue?   Is my timing bad?

-MR

Related Posts:

Lunch Budget Experiment Update #3

Lunch Budget Experiment Update

Paying An Adult Allowance