If Only – HumbleDollar

Mike Zaccardi  |  January 13, 2020

I TURNED 32 last month. My mother, clearing through clutter as she and my father look to downsize ahead of retirement, found an old savings bond of mine issued shortly after I was born. It’s a series EE bond that cost a modest $25 in December 1987. The finance professor in me reacted with “imagine if that were invested in the S&P 500.” The $25 savings bond had grown to $104, a 4.1% nominal annual return and 1.9% after figuring in inflation. Not bad, I guess. It being a 30-year savings bond means the window during which interest is earned has ended, so it’s in my best interest to cash in the bond.

I teach portfolio management at the University of North Florida and I shared this story with my students. I also shared with them what the investment could have been worth. I bet you’re guessing it would be a tidy sum if it had been invested in an S&P 500 index fund, and you’d be right—$686 to be precise, according to PortfolioVisualizer.com. Why wasn’t I consulted? Well, I was just five days old. Had it been put to work in a more aggressive manner, such as a U.S. small-cap fund, the ending value would be a whopping $763.

Source: If Only – HumbleDollar

Ain’t hindsight grand? Long ago and far away the thing to do for children was buy savings bonds. They were secure and they earned tax-deferred interest. Besides, if you only had $25 to give, investing in anything else was impractical if not impossible. But hey, investing in anything is always a good idea.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s