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A Very Special Letter I Hope You Will Write to Your Child or Grandchild


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Late last year I wrote a column outlining a plan by which a parent or grandparent could conceivably turn a single $3,000 gift to a newborn into an eventual $50 million.

This plan requires lots of faith and patience over many decades. Below is a draft of a letter that I would write if I had made such a gift to a granddaughter named Megan.

I’ve written this to be given to her when she’s 21 years old. By then, my initial $3,000 gift would have grown into an investment worth perhaps $32,000. (Readers who want more details about this lifetime plan will find them at this page on my web site).

Dear Megan,

As you know very well by now, nothing is dearer to my heart than my hopes for your long-term future and happiness.

Whenever we try to live a good life, not everything is within our control. But much of our long-term success derives from our choices, our habits and our attitudes. As I have watched you grow to be a young adult, I’ve observed that you have much of what it takes.

You have a good heart. You are generous. You appreciate people with worthy qualities. Your values are sound, and you have shown that you can make good decisions and choices.

As you and I have discussed in the past, I want to give you a boost in one important area: money.

I have never forgotten something my grandfather (your great-great grandfather) told me about money. He said whenever you come into some money, make sure you spend some of it, make sure you save some of it, and make sure you give some of it.

This simple bit of advice has always worked for me. I hope it does for you too.

When you were born, your grandmother and I decided to make you an extraordinary financial gift. I say extraordinary, because very few young people have ever received something like this.

Starting with a single gift of $3,000, we launched a plan that we hoped — and still hope — will eventually generate $50 million for you and your heirs. The word “eventually” is crucially important, because it will take a very long time for the seed that we planted 21 years ago to fully bloom.

If this gift works as planned, it will come into bloom when you are 65 years old. (I know that sounds impossibly far in the future, but I can tell you from experience that it really does happen.)

Until now, I have been the one responsible for managing this gift to you, and I’m happy to continue doing so if you would like. But at some point it will be up to you to carry out the rest of this plan.

I want to tell you briefly how you can do that. The money should remain invested entirely in an asset class known as small-cap value stocks. These are stocks of relatively small companies that are selling for “bargain” prices on Wall Street. (I am enclosing some materials that give you more details about this.)

Let all the investment income build up in the account through automatic reinvestments. Continue to use the type of account that will let this investment grow with the least tax liability. The best way I know to do that is in a Roth IRA; under current tax law, you should never have to pay tax on the earnings.

All this should require very little time and attention from you, and I hope you will just leave the account alone and let it grow.

When you are 65, continue to invest this account exclusively in small-cap value stocks. Once a year, calculate 5% of the value of your account and withdraw that amount for whatever use you want to make of the money. This is your payoff.

If you follow that plan, it’s highly likely that over time your account value will continue to grow. That will gradually increase the annual amount you can take out. These withdrawals will vary from year to year, so you shouldn’t count on them for your essential expenses.

Lest you think I am hopelessly out of touch with reality, I should warn you there are things that could go wrong with this plan. Fortunately, most of the potential dangers are under your control.

For one example, you at some point will want to spend this money, or your friends will want you to spend the money. If you do that, then my long-term plan for you cannot work.

For another example, salespeople and financial “advisors” of all descriptions will urge you to change what you are doing (giving them an opportunity to profit from your money, of course). They may tell you that your grandfather didn’t understand what he was doing or that this plan is out of touch with current reality. I want to assure you that I know exactly what I’m proposing, and I understand the potential problems.

If you pay too much attention to the ups and downs of this account, you may become discouraged because your holdings will be unpopular and often will do worse in some periods than other investments. You will come across all manner of “better ideas” that will tempt you.

Megan, you will be the one who makes the major choices in your life. You are the one who will decide whether to succumb to these dangers or to stick with your grandfather’s plan. I must leave this to your good sense and your good judgment.

I hope you will be generous yourself when you can, and maybe you will someday do something like this for a child or grandchild of your own. That’s a wonderful way to generate a family legacy.

Whatever becomes of this plan and the money we have left for you, I hope it will always remind you of the love and respect that we have for you.

Richard Buck contributed to this column.