Weekly Thoughts 04 November 2016

This month I started a small debit order for each of our children into a dividend bearing unit trust fund. Just R300 per month, which I’ll increase by 5% a year. I’ll pay into it for the next 15 years or so after which I’ll want them to leave the fund alone, or continue to pay into it themselves, until they are ready to use the quarterly dividend income in their own retirement years. So the fund will hopefully be left alone for the next 40 or 50 years even if the debit order stops. During this time the dividend income will buy more of the fund through reinvesting each quarter. One day the income could very easily help pay some important expense for each of them, like their medical premium, or their monthly food bill, or their monthly frail care bill when they’re 85..… and so on. The value of this sort of fund will be irrelevant because value does not determine the amount of dividend paid, the number of underlying units and shares held does. So they don’t ever need to look at the value or worry about it. Indeed, the flatter the stock markets are over the next 40 years the greater the number of units the fund will have and the more dividend income they’ll receive at that stage.

But the thing was that I wanted to teach my children a bit about how this works. My son gets quite a bit of the idea of how a fund owns some shares on the stock market and so on. He has played the false stock market game at school already, where he saw how much pupils won, or more often than not lost. But I needed to demonstrate a bit more to my daughter. So I looked at the fund make up, the names of the companies owned inside the fund, and then went around the house gathering examples of their products, which I displayed on a table. I took out a Standard Bank and FNB (FirstRand) credit card – two banks owned by the fund, then some Spar yoghurt from the fridge, Nestlé hot chocolate and Nestlé Maggi instant noodles from the grocery cupboard, then from the bathroom I gathered Colgate toothpaste (Colgate-Palmolive) and baby powder (Johnson & Johnson). In the shower I found that the shampoo was a Unilever product and lastly I came upon Clicks washing powder. I went looking for Mr Price clothing in my son’s cupboard but we don’t seem to have any.

She then joined me at the table, ready for my lesson. I began by pointing out the names of the manufactures of each product on their packaging and then connected them to the names of the companies, that this so called unit trust fund buys, by showing her these names on the fund information sheet. We spoke about how we buy these products every month and will continue to do so, meaning the companies will continue to make money. I then explained how they’ll give her some of those profits. She got enough of the demonstration to feel that she had learnt a lot and that she would add her own R500 lump sum to the fund.

Good things accomplished all round.