How We Used Shares of Coca-Cola to Teach My Youngest Sister About Investing (and Why the Cycle of Consumption and Financial Stress Starts as a Teenager for Most Americans)
When I was a senior in high school, I bought my youngest sister, who was first grader at the time, a single share of Coca-Cola common stock for her 6th birthday. I had it framed with an engraving of the first part of Deuteronomy 8:18 placed under it, “You shall remember the Lord your God, for it is he who gives you power to get wealth”.
I registered the ownership as a uniform gift to minors, naming our father as the trustee. He and my mom decided to have $50 each month taken out of their personal checking account to purchase additional shares of stock for my sister through the Coca-Cola direct stock purchase plan / dividend reinvestment plan (DRIP). This tiny amount resulted in $600 per year getting transferred to the Coca-Cola DRIP. Instructions were given to the plan sponsor to reinvest all dividends to buy additional shares of Coke stock. (Why Coca-Cola, especially when I told you how our grandpa could have made millions by investing in Pepsi due to his cola habit? When she was six, my sister preferred Coke to Pepsi and we let her choose between the two businesses.)
In the decade that has passed, we have experienced the dot-com collapse, the September 11th terrorist attacks, subsequent recession and further stock market collapse, the rise and fall of the housing bubble, two wars waged halfway around the world, expanding federal deficits, staggering trade imbalances and near double-digit unemployment.
Today, the Account Has Beat Inflation By 3.5% Compounded … Even Though Shares of Coca-Cola Stock Are Still The Same Price (Really)
Despite all of these problems, and the fact that Coke still trades at roughly the same price it did when the first share was purchased, the account has grown at roughly 6% compounded. How is that possible? Through the power of reinvested dividends and the influence of dollar cost averaging where falling stock markets allow your regular contributions to buy more absolute shares, lowering your cost basis over time.