For a new parent, looking at what college is projected to cost 18 years from now is daunting.
Wait … “daunting” is too laid-back a word. Let’s go with terrifying. Or ridiculous. Or “no freakin’ way!”
There are a bazillion college-cost calculators online; according to this one, a 4-year education at an out-of-state public university beginning in 2038 will cost about $400,000 for tuition, fees, room and board.
If new parents focus on all of those zeroes, they might be tempted to throw up their hands (or maybe even throw up their lunches) and lament, “Why even bother saving? We’ll never get close to that!”
That can be doubly true for parents of twins — such as my son Ben and his wife Sammi, whose boys Jack and Logan soon will be 11 months old.
Fortunately, those estimates represent “sticker” prices, and most students receive financial aid — often a ton of it — to lessen the blow.
For example, although Yale University advertised a $55,000 sticker price for tuition and fees this past academic year, the average cost to Yale students after receiving need-based grants was about $17,000.
That’s still a big chunk of change, but it’s not as outlandish, intimidating or impossible-seeming.
I recently introduced my real-money Grand-Twins College Fund here on Daily Trade Alert. In addition to outlining the concept behind it, I also discussed the first six stocks I bought.
And here’s something important: Although the project is designed to help with college costs for “LoJack” down the line, I am writing for a broader swath of readers here.
The GTCF is what I call a “Growth & Income” portfolio, and I like to think that folks who are investing for any number of reasons can pick up an idea or three.
In doubling the size of the portfolio, the half-dozen stocks I bought between June 26-29 were Costco Wholesale (COST), DraftKings (DKNG), Mastercard (MA), PepsiCo (PEP), Sempra Energy (SRE) and Zoetis (ZTS).
The total cost of the new positions was $316.60. I used Schwab Stock Slices to buy about $50 each worth of everything but DraftKings. DKNG is not part of the S&P 500 Index, and therefore was not eligible for Slices, so I had to buy 2 full shares at $33.33 apiece.
With these purchases, the Grand-Twins College Fund now has an even dozen companies.
Back on June 12, I launched the portfolio with Alphabet (GOOGL), Amazon (AMZN), Constellation Brands (STZ), Johnson & Johnson (JNJ), Lockheed Martin (LMT), and UnitedHealth Group (UNH).
I have $583.63 remaining for two more sets of purchases, one in mid-July, the other toward the end of the month.
Serious (But Fun) Business
This is not a lark just for my amusement. I want to build a portfolio of quality companies that will grow over time to provide meaningful funds for Logan and Jack.
Having said that, I do want to have some fun with it.
When the twins get old enough, I hope to engage them often in investing discussions, so I want to own some companies that they will know and/or find interesting.
Additionally, I am building this portfolio through small investments — $25 or $50 at a time — and I believe it’s OK to be bold, maybe even take an occasional flyer on something speculative.
DraftKings, which just became a publicly traded company this spring, certainly fits that description.
It’s a sports-betting site that made its splash as a way to place daily wagers on fantasy football (and other fantasy sports), and it has grown as more states legalize gambling on sporting events. It also has an online casino operation.
The COVID-19 pandemic has hurt DKNG for obvious reasons: No pro and college sports, few opportunities to gamble.
Nevertheless, the company has done some innovating to take advantage of the few opportunities out there.
The major North American sports leagues will return eventually — Major League Baseball and the National Basketball Association hope to get going in a few weeks — and sooner is better for DraftKings.
I know that this might seem less like investing and more like, well, gambling … but the same can be said about lots of stocks.
The Rest of the Newcomers
Here are the “quality metrics” for my latest additions to the Grand-Twins College Fund, followed by brief capsules on the other five companies:
Customers pay annual membership fees just for the right to shop at Costco, which means the company ka-chings billions of dollars before it sells a single item. With a 91% renewal rate, it’s the best business model in the retail industry. Besides, where else can you go in for a gallon of milk … and come out with a two-pack of kayaks, a lifetime supply of pistachios and a $329,999.99 diamond ring?
Here is another company with a stellar business model. Half of a global credit-card duopoly (along with rival Visa), Mastercard gets a cut of every digital transaction it facilitates. But it is not a bank, so it doesn’t have to deal with lending or trying to collect money. Heck, Mastercard is not even in the financial sector; it’s an innovative tech company.
Soda consumption is on the decline. Thankfully, Pepsi scores with goodies such as salty snacks, energy drinks, fruit juices, sparkling water and oatmeal. The company also has raised its dividend for 48 consecutive years and yields more than 3% — for investors, that’s sweeter than Mountain Dew.
I wanted a utility in this portfolio to give a little boost to the income side of “growth & income,” and Sempra is an interesting one. It has raised its dividend for 17 straight years, has a 3.5% yield and has a strong balance sheet. And I like that Sempra recently became more streamlined and efficient by selling off its Peru and Chile interests so it could focus on its core California and Texas markets.
Given how much humans love their pets, I am intrigued by the long-term prospects of this global leader in animal health. Zoetis makes products not only for dogs and cats, but also for cows, pigs, horses, etc. I love this take from Morningstar: “When customers are using drugs on potentially millions of dollars’ worth of livestock, or a pet that they love like a family member, they are willing to pay a premium to buy from a firm they trust.”
Here is some more pertinent data about these six GTCF positions:
Despite the high forward P/E ratios of most of these companies, Morningstar considers only Zoetis to be more than fairly valued. I’d rate Sempra as the most “buy-able” of this group, valuation-wise.
To me, valuation matters more when I’m making large investments. For a project like this, when I’m buying little pieces of businesses over time, I pay less attention to it.
I still like to present the data, though, to help those who are looking for candidates to research.
DraftKings joins Amazon and Alphabet as GTCF holdings that pay no dividends. Another five have very low yields: Costco, Mastercard, Zoetis, Constellation and UnitedHealth.
The other four — Pepsi, Sempra, Johnson & Johnson and Lockheed Martin — are more along the lines of “traditional Dividend Growth Investing” stocks, yielding between 2.6% and 3.5%.
According to Simply Safe Dividends, the portfolio’s overall yield is 1.44%. That would be unacceptable to many DGI practitioners, but this project intentionally has more of a growth component.
So far, the portfolio is dominated by consumer and healthcare companies.
That’s a little deceptive, however, because Amazon and Alphabet often are considered tech stocks — even though they officially are listed in the consumer discretionary and communications sectors, respectively.
Wrapping Things Up
I like how this portfolio is shaping up, with a lot of variety, interesting industries, plenty of popular stocks, but also some lesser-known names.
The research led me to take a larger position in DraftKings for my personal portfolio — I executed my order at the exact same $33.33 price at which I bought the GTCF position. I also used Slices to open positions in Amazon and Alphabet.
Other companies I personally have in common with the Grand-Twins College Fund are Johnson & Johnson, Lockheed Martin, Pepsi and Mastercard.
Additionally, I manage the Income Builder Portfolio for Daily Trade Alert, and that real-money endeavor has stakes in JNJ, LMT, STZ, UNH, PEP and MA among its 33 holdings.
So LoJack and I already have a lot in common (besides our aerodynamic domes).
I plan to write about my Grand-Twins College Fund again in about a month. In the meantime, be sure to check out my IBP articles, with the next one scheduled for July 7 publication.
As always, investors are strongly urged to conduct their own due diligence. None of the information in this article is intended as recommendations to buy any stocks.
— Mike NadelDividends and Income - Free Newsletter [message from DTA]
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