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Please...Don't Give Your Kids Savings Bonds (Without Considering Opportunity Cost!)
Episode 115th September 2021 • Enjoy More 30s: Family Finance • Joseph P. Okaly
00:00:00 00:09:07

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What growth are you potentially giving up, so the opportunity cost, with these savings bonds you are so familiar with?

Securities offered through TFS Securities, Inc., and Advisory Services through TFS Advisory Services, an SEC Registered Investment Advisor Member FINRA/SIPC. TFS Securities, Inc., is located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.

Transcripts

Voiceover Audio:

Welcome to the EnjoyMore30s Family Finance

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podcast. The only podcast dedicated to making life more

Voiceover Audio:

enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

Joseph Okaly:

Hello and welcome to the fifth series of the

Joseph Okaly:

EnjoyMore30s Family Finance podcast. This time around, we're

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going to cover what is more important than anything else and

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your entire lives, my entire life, which is our kids. So as

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always, if you like what you're hearing, please make sure to

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subscribe, follow us on Apple podcasts, wherever you listen.

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Clicking that star, leaving a review, it really helps us reach

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the quite literally millions of other young families out there

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just like you.

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Now our other series so far, we've focused on you, your

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parents, and pretty much just other general areas that we

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could help work on to improve your situation. This time

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around, though, it's all about the kids, which is really,

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really cool. Now, I never thought at all that I would love

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being a father as much as I do. Holding a child was utterly

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terrifying before I had children of my own. I remember my oldest

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cousin when she had her first child, it was kind of that first

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child of the next generation in the family. And I was just

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terrified that I would hold her and do something wrong and hurt

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her and pretty much have every other member of my family

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looking at me as I did in disgust. So when you have this

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living thing, though, that is literally part of you. So when

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you have that child and you see them grow, you connect with

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them, you see them learn new things, it's just the most

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wonderfully amazing thing as everybody out there probably

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knows because you have kids already, but I'm still just

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completely amazed that it's possible and that I could love

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them both as much as I do.

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This series is dedicated to your kids. We're going to cover those

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financial items for you to help them of course, but we're also

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going to cover the things for them to help themselves. So I

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want you to first just picture your kids and they're nice and

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tiny now, but picture them all grown up. You see them kind of

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standing in front of you and in your mind now I hope. Now when

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you picture your kids becoming all grown up, I'm guessing you

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picture them with a smile on their face, right? They're

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happy, they're they're stable. They aren't standing in their

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bedroom still at home, right? Not living paycheck to paycheck,

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not having credit card that they can pay, you know, pretty much

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not relying on you anymore to still cover their bills, right?

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You picture them happily standing there on their own two

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feet, completely able to support themselves. So for today, let's

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start at where we should always start at the beginning. And the

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first thing that every child seems to receive, whether it's

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from you as their parents, certainly from grandparents, I

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know my grandparents gave me a million of them and that's

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savings bonds. Those bonds from the government that sound

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really, really great, because you only have to pay $25 for a

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$50 bond that you eventually get all $50 for. I mean, pay half

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get the whole amount. That sounds fantastic, right?

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However, they can all too often actually be a huge wasted

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opportunity for your children. Today, you're going to learn

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exactly what that opportunity is, and how to give your

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children a chance to have significantly more money down

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the road for that same exact $25. Now, opportunity is the key

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word here for all of this and more specifically, opportunity

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cost. Opportunity Cost is what you give up by taking one

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opportunity over another better opportunity. If a farmer decides

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to plant wheat but corn turns out to be a more lucrative crop

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that year than they lost potentially more money that they

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could have made if they planted corn. Did you make money off the

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wheat? Sure. Yes, absolutely you did. But not possibly as much as

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you could have. You left money on the table with your decision.

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So another example would be somebody asked you out to prom

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and then somebody else after that after you already said yes

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says 'Hey, would you go out to prom?' You liked them better but

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you already said yes to the first one. That's the cost say

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yes to that first opportunity. So if you bought a $25 savings

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bond for your kid in May of 2000, so roughly 20 years ago.

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Twenty years later, in May of 2020, it would have been worth

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roughly $53. That's paying you back the $25 plus the interest.

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Now it sounds really really good at first glance, right? I made

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more money than I put in just like when we went through the

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wheat example with the farmer. You did make some money.

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Absolutely. Now let's say instead of that though, you used

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a diversified investment, so a spread out investment, for that

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same exact $25. If you've received an average rate of 7%,

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over that same 20 year period, which in our opinion would be a

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reasonable expectation, if you were spread out correctly

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diversified correctly in that investment, then instead you

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would have received $96. That's 82% more money. So you see, it's

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not about 'did you make money?' You made money in either case,

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it's 'did you make the most out of your money, the most out of

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your opportunity?' One savings bond, not really a big deal,

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right? But let's say you had a few thousands in savings bonds,

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like I did. My grandparents give those gave those things to me

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every single year sometimes multiple times a year. Now

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instead of let's say $25, it's $2,500 of initial money. Now

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instead of $53 versus $96, at the end of the 20 years, it's

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$5,300 versus $9,600. That's a $4,300 difference. So how do you

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do this exactly? We're saying all this money then, which

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includes what you already have, and what you are going to use to

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buy savings bonds in the future should all now go into what I

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noted as a diversified investment, or in other words, a

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spread out investment. The one caveat here is if your children

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or your child is planning on using some of these savings

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bonds in the next year or two. So short term, at this point,

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you kind of already missed the opportunity, it's likely better

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to just leave it as is. Short term money should never be

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invested. Now I've talked about this in the past, the easiest

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way to do this is to ask your advisor, or if you don't have an

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advisor, to use an appropriate allocation fund that matches the

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time horizon of when your child is actually going to use it. So

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any of those major investment firms you see on TV, they pretty

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much all have allocation funds now. So if your child is very

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young, an aggressive allocation fund could likely be

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appropriate. If your child is five years away, let's say from

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using it, maybe a moderate allocation fund might be more

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appropriate. Then all you have to do is just remember to not

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touch it until it's needed. It's being professionally managed

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professionally spread out for you already so when there are

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ups and downs in the market well, which will absolutely

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happen, leave it be and you have a very good chance of having

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much more than you started with, and more especially than if you

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just use the savings bond. So next time grandma Jane gives you

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a savings bond for Sonny say thank you very much and put it

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into a place where it could work for you better.

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So what is the goal of today's episode? The goal of today's

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episode is for you to not want to use savings funds anymore

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when they're not appropriate. The goal is for you to have that

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money to be put into a place that your child will get the

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most benefit from it. So thanks for tuning in today and join us

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for next week's episode called Education Savings, It Is Not All

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529 Plans, where we're going to cover all your options for

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savings for your children and the goals you're trying to

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accomplish.

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Overall, if you are able to implement all this stuff that we

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talked about today, that is fantastic. Less to worry about

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now you can focus more on enjoying life. If you are

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wanting help with these things though or you have some

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questions you need help in clarifying. Of course reach out

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to us never a problem. Check out the Ask Joe section on the

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show's website www.EnjoyMore30s that's EnjoyMore30s.com. Till

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next week thanks for joining me today and I look forward to

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connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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registered Investment Advisor member FINRA/SIPC.

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