Imagine it’s January 1980 all over again. Perhaps you were born that year and as your parents whisked you home from the hospital (probably without a child car seat or even seatbelts) they stopped in to see their stockbroker, handed over some money they’d saved for you and asked him to buy $1,000 (about $3,000 in today’s money) worth of shares in Johnson & Johnson (J&J) and to reinvest the dividends. They then took you home, forgot about the $1,000, and got stuck into their busy new life as parents, consuming along the way considerable amounts of Johnson & Johnson products such as baby powder, baby shampoo and skin lotion.
It’s now January 2011. You have a new child of your own born just last week, and on your 31st birthday your parents give you a card. Inside is a statement showing that you own shares in J&J that your parents bought for you and that you didn’t even know about. The statement runs to many, many pages showing dividend payments and share purchases with these dividends for every quarter for 31 years. The statement records an initial $1,000 investment, which bought 14 shares, and way down at the bottom it shows the current value: 1,295 shares worth $78,556.43 and earning you dividend income this year of $2,799.36. Your parents’ half-hour stop in at the stockbroker on the way home from the hospital has provided a return of 7,755.64% on their money and they didn’t have to lift a finger. It is a very happy birthday indeed.
Now you might think this example to be fanciful or far-fetched. Indeed I have taken the liberty of not accounting for income tax (I will get to that later). However what is most remarkable about this story is how easily it could be your story.
The figures above for Johnson & Johnson from Jan 1980–Jan 2011 are in fact the real historical numbers. Nothing more, and nothing less. And it’s not just Johnson & Johnson, though they are well worth considering for your portfolio; I could have used a number of other companies in the US, Canada, the UK, Europe or elsewhere. The point is that starting early and with the right type of investment choices is the key to success.