Invest Well. Live Well: The most powerful investment tool

I have often said that you could have all the money in the world, but if you have no time it is useless. Alternatively, having a lot of time and no money is also problematic. More than a decade ago, for my nephew Kaden’s first birthday, I bought him one common share of the Walt Disney Company. Being his godfather and uncle, I wanted to do something special that he could keep forever and imprint the value of investing — hopefully.

According to Thompson Reuters, Disney shares were trading at US$32.79 on Dec. 9, 2007, and at the time of writing, Disney last traded around US$130.51, for a total return of 298 per cent or compound average more than 12 per cent.

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Eric Davis and nephew
Eric with nephew Kaden and his Walt Disney Company common share in October 2019.

In addition, dividends grew from US35 cents to US$1.76, which is another 14 per cent annual compound return. My rationale for choosing Disney was that it was relevant to Kaden and I was confident it would continue to grow its businesses worldwide, which include parks, resorts, products, Pixar, ESPN, ABC, Marvel, Lucasfilm, etc.

It is important to mention that this period (2007 to 2019) was anything but smooth. Annually, Disney's stock price consistently drops between 10 and 20 per cent throughout the year, but seldom stays down long. As a testament that I have not cherry-picked an entry point, Disney hit a low of US$16.77 in February 2009, nearly a 50 per cent drawdown from my original purchase price — but we didn't sell.

The point I’d like to make is that the most powerful investment tool is time. Albert Einstein said, “The most powerful force in the universe is compound interest.” Even if you think about the ultra-wealthy, they are typically well into their 60s unless they invented a new-age technology that went viral. While we are unlikely to be ultra-wealthy, we can help the younger generations make the most of their opportunities.

A long time ago, I had the opportunity to meet David Chilton, author of The Wealthy Barber. One of his philosophies was to save 10 per cent of your pre-tax income. According to Statistics Canada, the average Canadian makes $55,806 a year; however, this is greatly affected by age, education and other factors.

If we tried to follow The Wealthy Barber and save nearly 10 per cent of one’s pre-tax income, what could this amount to over time? Given the low interest rate environment, I used a 6.5 per cent compound return for the table below. This assumes no withdrawals from the portfolio.

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I have been fortunate that I began saving at an early age and built from there. In fact, my parents had to open my first mutual fund account because I was not of legal age. While results are important, I feel the most valuable thing is to create the habit of saving at an early age. This can help establish a good foundation for one’s future, demonstrates the benefit of delayed gratification and provide flexibility and options when life takes its turns.

As always, please seek out professional guidance to help you along your journey.

In closing, I share with you a quote from Walt Disney himself: "Our greatest natural resource is the minds of our children."

Until next time...Invest Well. Live Well.

(written by Eric Davis)

This document was prepared by Eric Davis, vice-president, portfolio manager and investment advisor, and Keith Davis, investment advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.-Member of the Canadian Investor Protection Fund. All insurance products and services are offered by life licensed advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email Keith.davis@td.com.

 

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