New Real-Money Portfolio: Mike Nadel’s Grand-Twins College Fund

After I bought 197/10,000ths of a share of one stock and 358/10,000ths of a share of another, I couldn’t help but chuckle.

“That’s adorable,” I said to myself. “But then again, so are Logan and Jack!”

Jack (foreground in above photo) and Logan are my 10-month-old grand-twins, the progeny of my son Ben and his wife Sammi.

“LoJack” eventually will be the beneficiaries of those “huge” stock purchases I mentioned – as well as oodles of other buys over the next 18 or so years.

On June 12, I launched the Grand-Twins College Fund by initiating small positions in six companies: Alphabet (GOOGL), Amazon (AMZN), Constellation Brands (STZ), Johnson & Johnson (JNJ), Lockheed Martin (LMT), and UnitedHealth Group (UNH).

I made the buys using the new “Schwab Slices” product, which allows fractional purchases of as little as $5. There are no fees or commissions, and dividends can be reinvested (or not) back into companies that pay them.

My purchase order was for $50 of each company, but for some reason the amount actually ended up being between $49.92 and $49.99 for each transaction.

Only S&P 500 companies are available to purchase through Slices, and only market orders are allowed. So if I want to buy smaller companies or foreign businesses, and/or if I want to make limit orders, I have to use Schwab’s regular, commission-free platform.

Before I get more into the 6 companies I selected, a few things about the portfolio itself:

  • Although I mostly have used the Dividend Growth Investing strategy with my own portfolio — as well as with the Income Builder Portfolio, which I oversee for Daily Trade Alert — I will be going with more of a “growth & income” style here.
  • With the GTCF being a long-term project for young people, I simply do not want to deprive it of non-dividend-paying or very-low-yielding companies. This portfolio still will own plenty of “DGI favorites” before all is said and done, including Johnson & Johnson and Lockheed Martin right off the bat.
  • I plan to invest $100 per month. Also, as family and friends find out this portfolio exists, maybe others will contribute to it. If that happens, it will be invested above and beyond my $100/month.
  • Each stock transaction will be at least $25. That’s small enough. I don’t want a bunch of $5 positions.
  • This portfolio resides within my own Roth IRA for a variety of reasons. First, that lets me maintain control, both as I build it and as I distribute money. In addition, Roth IRAs grow 100% tax-free, and withdrawals also will not be subject to taxes.
  • If I use a 529 college savings plan, it could affect the level of financial aid the boys would receive because grandparents’ accounts do not get the same favorable treatment parents’ 529s do. If I use the Uniform Gift to Minors Act, the boys would get control of the GTCF when they turn 18. I don’t want to say I don’t trust LoJackbut I could just see them using that dough to have a little too much fun!

  • One negative of using my Roth: My $1,200 annual allocation to the GTCF means I’m investing $1,200 less for my own retirement. However, my wife and I still can sock away $12,800 annually for ourselves. So I view this as a very small sacrifice to take advantage of the many benefits of doing this in a Roth IRA.
  • If I eventually stop earning enough money to fund a Roth – which certainly could be the case a decade or more from now – I would start using a taxable account. For that matter, I might use a taxable account well before then if I want to invest in foreign companies subject to withholding taxes.
  • I plan to reinvest all dividends, at least for the first few years of this project.
  • If Ben and Sammi have more children, or if my daughter Katie has kids, I will make the necessary adjustments to the GTCF.
  • Although I call this a college fund, I reserve the right to distribute the money for other uses. For example, if one of the twins gets a full athletic scholarship, he still would get his share; or if one bypasses college and eventually starts his own business, he’d get his share.

The Investments

Obviously, I hope the companies I select for the Grand-Twins College Fund perform well over time, and I will provide periodic updates about the portfolio’s progress. However, this isn’t about “keeping score, with me trying to beat some arbitrarily selected benchmark.

I want this to be about the process. Many young families lack significant resources to save for college, so I hope to demonstrate how, over time, a nice chunk of change can be created through small, regular investments.

Without further ado, here are the “quality metrics” for the portfolio’s first half-dozen components, followed by a brief capsule on each company.

ALPHABET

Few, if any, companies touch our daily lives more than Alphabet does. I mean, just between Google search, YouTube, Android and the Chrome browser, how many people are using Alphabet products every single day? Give me a second to google that, and I’ll let you know!

AMAZON

The most disruptive company in the history of retail, Amazon has branched out into internet services, cloud storage and entertainment, among other areas. And just when you think AMZN can’t possibly keep climbing after hitting $2,600/share for the first time, Needham analyst Laura Martin recently mused that Amazon could be well on its way to $5,000. 

JOHNSON & JOHNSON

Every portfolio should include some J&J. Period. It was one of our early buys for the Income Builder Portfolio, and we have added twice to our position since. (Most recently HERE.)

UNITEDHEALTH GROUP

Buying the nation’s largest health-insurance company as a long-term investment is a bet that U.S. elected officials will never figure out how to offer a universal health-care plan that eliminates private insurers. From where I sit, I think that’s a pretty safe bet. UNH is a money-making, dividend-growing machine.

CONSTELLATION BRANDS

This company owns 6 of the top 11 beer brands in America (including Corona), sells the No. 1 imported vodka in the U.S. (Svedka), and is a leading wine supplier. And if that isn’t enough “sin” for you, Constellation also owns a major chunk of Canadian cannibis company Canopy Growth (CGC). The beer industry has struggled the past couple of years, but Constellation could have a smokin’ future.

LOCKHEED MARTIN

Weapons of mass destruction never go out of fashion, and Lockheed is the crème de la crème of pure-play defense companies. Whichever party wins the White House and/or Congress in November, those in charge still will relish having the ability to blow the world to smithereens thousands of times over.

Here is some more pertinent data about the GTCF’s first 6 positions:

None of these companies is what I would call a bargain, though Morningstar doesn’t think any are very overvalued. At about 15 times forward earnings, Lockheed looks most “buy-able” of this group.

While valuation matters to me when I’m putting thousands of dollars into stocks personally or when I’m managing the Income Builder Portfolio, it means a whole lot less when I’m making periodic $50 purchases in a project like this.

I will be buying little pieces of these businesses many, many times over the next several years. Sometimes they might be “expensive,” and sometimes they might be “cheap.” Either way, these positions will grow and grow.

Wrapping Things Up

Sharp-eyed readers might have noticed that although I said I would invest $100 per month in the Grand-Twins College Fund, I actually went in with about $300 on June 12. What gives?

Well, I want to have $1,200 invested by the time Logan and Jack turn 1 in August, so I’m making up for lost time. Over the next month and a half, I plan to have three more of these $300 “spending sprees.”

I will be selecting 6 different companies for the next installment, so come on back and check it out. Maybe these two rascals finally will be cleaned up by then!

And come back even sooner for my next Income Builder Portfolio stock selection, scheduled to be revealed on Tuesday, June 23.

This article is not recommending the purchase of any equities. Investors always should conduct their own due diligence.

— Mike Nadel

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