Paying for private school

Tips and tricks for sending your child to private school

Category: Investing

A tale of two colleges

A hard working young family member recently went off to college. Before doing so there was a choice to make. Should they go to the fancy college and stack up $300,000 in student loans. Or go another, excellent school – but with a less known name – and get a decent education  free and clear of debt?

They chose the lower cost school thus proving they were qualified for either place.

How wise were they?

Assuming a $300,000 loan and using this helpful loan estimator calculator and the lower end of current rates (5%) for student loans after graduation the monthly re-payment would $1980 a month.  For 20 years. Yikes. Hope  students at the fancy school really like the job they get as they will need to work at it for a really long time. That payment schedule is the original $300,000 paid back plus and additional $175,000.

So they saved a lot of future hassle by avoiding the massive loan to fill their head with fancy thoughts. So very wise!

But wait, there is more!

As a thought exercise lets pretend that upon graduation that same amount is contributed to a retirement account instead of repaying a loan. How would they be doing after 20 years?

According to this investment return calculator  the same $300,000 plus $175,000 is dumped in an account over 20 years. That is $475,000 in contributions. And that yields $328,000 in interest over the two post school decades. So by avoiding the large loan and investing the difference this student would end up with $803,492.

Want to be a millionaire? It’s easy.  Pretend like you took out a huge student loan and go to a lower cost college instead. Invest the different and then decide if you still want to keep working or retire at a fairly early age.

The actual decision

It is easy to imagine stacks of cash with some high paying job from the prestigious university. Well, if it works out. What is easy to forget about really large student loans is that they are loans and must be paid back. * And that money means other options (a car, a house, medical expenses investment) are already spoken for right out of the gate. And you might change your mind next year. Or ten year from now.

So the decision is not “should I take out a $300,000” loan. The decision is actually “Is this school’s tuition worth $803,492 and much of my future income”?

 

* The idea of planning on loan forgivness or defaulting on it, means a contract signed with no intention to pay it back. Maybe that appears clever. Another more way to look at it as proof that one either does not make and keep promises, lies or took extra risk  (or all three). Doesn’t seem worth trading one’s options and good will for bunch of lectures you can get at other places.

How to properly value Bitcoin

Bitcoin has really gone up quite a bit this year and I have been hearing confused news anchors simultaneously declare  that ” it’s over valued” and  “buy it now”.

So who is right?

This post is intended to provide a framework for you to value Bitcoin using rationale thought rather than market price action (also known as guessing).

What is Money?

First it is helpful to understand  money.

At its essence, money is anything that can serve as a store of value, unit of account and medium of exchange.[1]

And the six characteristics of money are durability, portability, acceptability, limited supply, divisibility and uniformity.[2]

Bitcoin, fits this description perfectly. Indeed, it is a better fit than almost anything before it except for universal acceptability.

What should Bitcoin be worth?

With that framework in money in mind we can now determine possible valuations of Bitcoin by comparing it to other stores of values and then doing the simple math. Your job is to determine if Bitcoin will become a more or less common store of value over time. I have no idea but with this framework you can at least calculate the value based on your assumptions.

As of this writing (I did this analysis in the spring of last year but the concepts still apply) a Bitcoin exchanges for $1058.48  U.S. dollars.[1]And there will be, at most, 21 million Bitcoins in existence. Currently there are 1.5 Trillion in U.S. reserve notes in circulation[2]

 

Scenario Projected Bitcoin value
Today, speculative investment $1058 (current)
Bitcoin replaced by other digital currency $0
Shadow currency eventually reaching 1% of U.S. currency in value $714.28
Replaces all U.S Currency $71,400

 

From here you can extrapolate out. If Bitcoin replaces the worlds currency it will be larger than $71,000. And if it gets replaced or supplanted by a government issued crypto currency then this might go to zero. And, gold the original reserve currency totals about $1.8T so it’s replacement value would be similar.

None of this includes speculation or over-buying of the Bitcoin which may add a multi-factor increase to any of these numbers. A buyers versus sellers model could help you with that part if you want to get fancy.

It’s all very exciting for technology geeks like me (although block chain is the real marvel of Bitcoin) to observe but I suspect you can make a lot more money – and make it right away which you need to help with tuitions – with a quality dividend stock.

A much better investment than both of these options, of course, would be in education for you or a family member. Take a class instead.

[1] Coindesk. “Bitcoin Price Index – Real-time Bitcoin Price Charts.”

[2]Current FAQs Informing the public about the Federal Reserve.” FRB: How much U.S. currency is in circulation?

 

 

[1]Back to Basics: What Is Money?” – Finance & Development, September 2012

[2] Amin, R. K. Economics for engineers; a text book for engineering students. Anand (W.R.) India: Charotar Book Stall, 1963.

Stock Pick of the Month: Newell Brands

If you have been following the tips on this and other blogs you will become a producer instead of a consumer. And you will find joy in the simple life. And eventually, ever so slowly, even with a gigantic tuition you will have some money to put aside. For me that goes into dividend stocks that are high quality that align with my values.

This months stock pick

This month it is  Newell Brands maker of tupperware and sharpie markers.

This is a chance to hold a boring household products company at a discount. They own paper mate, sharpie, crock pot –rubber made – many of the items in our house that have worked out fine.

On sale for a limited time- for 30% off

The company missed some quarter  estimates and the stock prices has been in a down draft ever since. They dropped 30% in a single day this month. We cook with their pots, use Crockpot, have a Coleman stove and a draw full of sharpies and Elmers glue! Even those Contigo drink containers are theirs. Ten years from this will be a blip for patient dividend investors.

Crockpot

Super (or should I say Supper) Awesome Crockpot. Image source:  Newell Company

Invest now for 10% earnings yield

The purchase thesis is pretty simple – it’s a chance to own part of a household products company at an earnings yield of just under 10% (and that is at the depressed forecast that caused the stock sale in the first place). This won’t shoot up but will deliver us 10% every year – and a yield of .23 cents a quarter will, at these prices send home 3% of that and leave plenty for further investment and acquisition.

Margin of Safety

Even if the companies earnings drop in half from here the yield, at this morning prices will still be 5% – way more than one can get at the bank. Plus you will be part owner of company that sells stuff used by salt of the earth do-it-yourself people like you and I.

 

 

About Newell Brands

Newell Brands (NWL) is a leading global consumer goods company with a strong portfolio of well-known brands, including Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Jostens®, Marmot®, Rawlings®, Oster®, Sunbeam®, FoodSaver®, Mr. Coffee®, Rubbermaid Commercial Products®, Graco®, Baby Jogger®, NUK®, Calphalon®, Rubbermaid®, Contigo®, First Alert®, Waddington and Yankee Candle®. For hundreds of millions of consumers, Newell Brands makes life better every day, where they live, learn, work and play.

To learn more,  Newell Brands are available on the company’s website, www.newellbrands.com.

 

Investment pick of the month- Smuckers!

If you have been following the tips on this and other blogs you will become a producer instead of a consumer. And you will find joy in the simple life. And eventually, ever so slowly, even with a gigantic tuition you will have some money to put aside. For me that goes into dividend stocks that are high quality, repeat business companies that align with my values.

This month it is J. M. Smucker. At it’s current price of $105 this is a good source of savings and income.

Peanut butter

I have been watching SJM for a while now – it has a lot I like- automatic pilot repeat purchase items with good return on equity (10%) and a long history *and* is majority family owned so they won’t risk the company on making some bold acquisition. They have been slowly picking up brands over the decades.

 

Thursday the stock dropped a nice 10% after a missed quarter and I noticed it today at the 52 week low. The earnings yield is 7% – I prefer 10% but for such an excellent company with good finances and safety I am willing to pay more. Not perfect but 25 years from now it will be as reasonable return.

A 7% yield on a 11 billion company where people use their products daily – out of habit to eat and enjoy. Wonderful!