Invest Like A Grandmother

My Grandmother, or “Nonnie” as we called her, was born the same year the Wright Brothers first achieved flight.  She passed in 1994 at the ripe age of 91, and having experienced the 1900’s almost in their entirety, she saw a lot.  Starting with the birth of flight, and finishing with the world wide web.

She lived a pretty tough life.  She got divorced in the 30’s when that sort of thing was taboo.   Then she had to raise her child, my Mom, through the Great Depression, World War II, and beyond.  On her own.

On top of it, she was a Rosie The Riveter for a short period in World War II.  She worked at the Martin Aircraft Plant in Baltimore helping assemble B-26 Marauder Bombers for the war effort.

Total badass.

My family were pretty average.  We were blue-collar, and lower middle class.  We got by, but mostly paycheck to paycheck.

Back in the 70’s when I unceremoniously entered the world, investing in stocks was not something “regular folk” did.  It was the realm of the wealthy, or at least the connected.  Sure, anyone was allowed to and able to buy stocks just like today.  But with no internet, no financial news channel on TV, and minimal information, it was just not something that the average person knew much about.

So my grandmother, like the rest of my family, kept any extra money in a savings account at the local bank.  That’s what you did back then.  Interest rates actually paid 4 or 5% sometimes so it was a better choice than it is today by far.

Any kind of investment outside of getting interest from the local bank was seen as something special.  Worthy of a gift.

 

A Belated Gift

Fast forward to spring of 2017 and I’m finally moving my Mother out of the house in Baltimore City that I grew up in.  The area was never great to begin with, but over the last 20 years it had degraded into a full fledged ghetto.  It was just not safe.  It was long past time to go.

While we were cleaning out almost 50 years of memories, my Mom came across a box with US Treasury Bonds.  They were from my Nonnie, and for me.

What an unexpected gift!  Nonnie had been gone for 23 years and when she died all she had to leave me at the time in 1994 was $1000 which I was more than grateful for.  She didn’t have anything else.

But it turns out that she had been buying me Treasury Bonds two or three times a year throughout my early childhood.  And they got stashed away.

 

US Treasury Bond Envelope

One Of The Bond Envelopes That I Kept

 

I can’t tell you how ecstatic I was to have this gift from my long-deceased Grandmother!  I immediately did an inventory of the bonds and went right to the Treasury Direct website.

After plugging them all in, I realized this delayed gift from my Nonnie was $2815!  Sweet!!

Needless to say I was delighted.  How many people find out they have almost 3 grand waiting in gifts from a grandparent who died over 20 years ago?

 

Hatching & Counting My Chickens

I had 22 total bonds that my Nonnie purchased for a total of $425.  They were all Series E.  And as mentioned the value with interest wound up being $2815, so that’s a total of $2390 in interest.

However, Treasury Bonds stop accumulating interest after 30 years, and all of my gifted bonds were older than that.  So at this point they were the same as cash.  And depending on when they stopped earning interest they were now worth less than they were at that date since inflation has been eroding them.

Not my Nonnie’s fault.  And not my Mom’s fault either really.  Neither of them knew this factoid, that these bonds stopped earning interest after 30 years.  It’s just knowledge that wasn’t easily available back then.

How did the bonds perform?  One bond was purchased in June 1978, for $18.75.  After 30 years it stopped earning interest and was valued at $106.94.

So the annual rate of return was 5.98%, close enough that we can just say 6%.  Hmmmm, an annual six percent return for 30 years isn’t bad, you might be saying!

Indeed, not bad at all.  But that was 1978 – 2008.  Things are different now.  Big time.  Current US Treasury Series EE Bonds earn .1% annually.  And Series I Bonds are way better at 2.58%, but that’s still not a great return.

Turns out the bonds my Nonnie bought me lived through some years with very high yields.  Here’s a chart of treasury yields from 1960 – 2017.

 

 

Wow, what happened there in the early 1980’s!  Yeah, that peak is 15.32% in September of 1981.

15.32%!!!

In short, the Fed tried to kill the rampant inflation of the late 70’s by jacking up interest rates.  It worked, but they also launched the economy into a recession.  You can read a more detailed analysis here.

 

Playing It Safe

Here’s the thing about US Treasury Bonds.  They are 100% risk-free, guaranteed.  Backed by the “full faith and credit” of the United States Government.  They’ve been called “Armageddon Security”.  If there ever comes a time when Uncle Sam isn’t paying out on Treasury Bonds, don’t turn on the news.  You’ll likely be hearing about bad things.

But they’re the poster child of a conservative investment, an assured hedge against any loss of principal.  “Risk free” only means you won’t lose your principal or the interest you’ve accrued to date like you can with stocks.  But you carry the risk of inflation and of course changes in the interest rate. 

For many years, Treasury Bonds paid pretty decently as you can see in the chart above, hovering in the 7 – 8% range even into the mid 1990’s.  But inflation was also way higher then.

To be honest, unless you’re close to traditional retirement age or you have some clairvoyant knowledge of a coming 25 year bear market that we don’t know about, US Treasury Bonds are just not a great investment right now.

If you do want something super conservative in your portfolio it might be better to invest in the Vanguard Total Bond Market Index Fund to satisfy the bond portion of your diversification strategy.  The risk of that fund is a little higher (in the relative world of bond risk), but the returns are likely to be as well.

If you do choose to put US Treasury Bonds in your portfolio, you don’t have to buy individual bonds like in the days of yore.  You can buy The Vanguard Long-Term Government Bond Index fund, which of course has super low fees like most Vanguard products.

 

They Didn’t Know What They Didn’t Know

To play devil’s advocate, had my Nonnie put that $18.75 in an S&P stock fund in 1978 (Vanguard’s S&P Index Fund did exist then), by June 2008 it would have been worth about $261.  An annualized return of 9.13%.  With dividends reinvested it would have grown to $463.

That would have been great, but again, it was an unknown thing to my family.  I mean, we ate hot dogs twice a week for dinner.  We didn’t know what stocks were.

I look at it this way, my Nonnie’s generous gifts earned around a 6% return, and they were mostly risk free.  She pulled that off while not knowing anything about investing.  Was it luck?

Nahhh…. she was just a badass.

 

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31 Responses

  1. BusyMom says:

    Loved the story. We also have done government bonds from India we bought a while back. The documents are in a safe deposit box in India. I have no idea when I can get the cash, no plans to travel back any soon.

    I also need to make a document listing all the investments. If I die, my husband won’t even remember part of it. Instead of an attic, it will be lost in online accounts…

    • Accidental FIRE says:

      Thanks, glad you liked it! That’s a conundrum you have there, it’s obviously not worth the cost of the trip back to find out how much you have in those bonds. And the list of investments is something I need to get to as well, with account #’s and password etc. That’s a big deal.

  2. Team CF says:

    Cool story, packed with some interesting information! How do you do that 😉

    • Accidental FIRE says:

      Ha, glad you liked it cheesy. I’ll give my Grandmom the credit, she lived an interesting life so it was easy from there!

  3. Ms Zi You says:

    Go Nonnie, I loved the fact that despite her not having lots of money, she managed to stash away and save money for you, That’s badass. On top of making airplanes, surviving the war and being a single parent.

    It’s scary how many women’s stories could be easily forgotten, we need to make sure we document them to keep them alive!

    • Accidental FIRE says:

      Yes! Women did SO MUCH for the WWII effort, I think it’s been understated in the history books. Not the least of which is running the fatherless families.

      Thanks for reading!

  4. In those years, putting money in anything other than a savings account was being a savvy investor. Giving a gift like this is also very kind, wise and forward-thinking. You are a chip off the old block, and I think Nonnie would be proud.

    • Accidental FIRE says:

      Thanks Susan, I’d like to think she would be proud of me. Although if she saw how bad I am at making lasagna she might be disappointed. She was Italian through and through, and I haven’t done a great job of carrying the recipe’s forward 😉

  5. Joseph says:

    Just remember –

    EE bonds pay a fixed rate of interest of 0.1%, but that’s irrelevant.

    The Treasury guarantees your original purchase will double in value after 20 years.

    That means EE bonds pay an effective rate of interest of 3.5% if held for 20 years.

    • Accidental FIRE says:

      Joe – THANKS so much for this. I did quite a bit of reading and research on treasuries to write this post but honestly don’t know how I forgot to mention that! I read it for sure as I just checked one of my sources and it was in there, but somehow it never made it into the post.

      This is why readers are so cool, they pick things up when the hapless blogger forgets it… Thanks for pointing that out!

  6. DocG says:

    Certainly a badass. She must have passed some of that down!

  7. The internet has definitely blessed me with knowledge of the market. I mean h***, all of my (and almost everybody else’s) transactions are on-line now. Simple transfer and buy, and that’s it! If I was born when my parents were, I would have NO IDEA about the financial markets, like I do now. Being able to access this knowledge at the click of a button has given my generation a SIGNIFICANT advantage in gaining wealth. I actually almost get upset that those my age don’t use the internet and all the knowledge it provides for their own financial benefit.

    As Dave Ramsey says – “If you don’t end up retiring a millionaire in America, IT’S YOUR FAULT!”

    • Accidental FIRE says:

      Exactly Sean, we are soooo fortunate to live in the times that we do. The world we live in today is an amazing place, even with the bad that’s still present. All the information in the history of mankind is in our palms. It’s important to step back and remind ourselves how friggin cool that is!

  8. This is a great story. I grew up thinking my grandpa was pretty good with money (he was a superior court judge). Unfortunately, he bought into many of the up and coming trends of the time and didn’t leave much of a legacy in terms of money. What he didn’t leave behind in finances was certainly made up by his “bad ass-ness” as a person. The most generous man I have ever met (maybe another reason he didn’t have a lot in the end). Survived World War II as a medic. Survived bomb threats and death threats as a judge. My son and I are both named after him. We still talk about him most days even though he has been gone for more than three years now.

    Also didn’t know that treasury bond stop gaining interest after 30 years. Nonnie taught me that one, too!

    • Accidental FIRE says:

      Wow, a WW2 medic…. he must’ve had some incredible stories. Amazing even that he survived, they didn’t fare to well themselves even though they were supposed to be off limits. Kudos to him. And then to become a judge, that’s awesome. I still think Brokaw is right, that generation cannot be topped.

      Thanks Doc!

  9. New reader here, I loved this article! My parents reached out to me last year to let me know that I had a number of savings bonds from my Great Grandmother in a safety deposit box they were closing out. She purchased one for my birthday and one for Christmas each year for the first 6 years of my life. It was a great legacy and a very thoughtful gift. Thankfully, my great grandmother is still alive and I was able to reach out to her and tell her what they were worth today and thank her for all she does for me. I don’t need to use them yet, but I appreciate the legacy of thoughtfulness and forward thinking.

    • Accidental FIRE says:

      Wow, we have similar stories, that’s so cool! Maybe she knew my Nonnie in the secret Grandmother society 😉

      It is an awesome gift, and it’s so cool you’re able to thank her while she’s still here. Thanks for the thoughtful comment and welcome – I hope you enjoy my blog!

  10. LC says:

    My grandmother passed away a few years ago and my parents found some bonds we had no idea existed while cleaning out her belongings. We were…pleasantly surprised, to say the least, at how much they were worth, since interest rates most recently have been so low. They were long past the 30 year maturity. Maybe it was due to growing up during the Great Depression, but they lived simply and saved everything they could on a fireman’s salary.

    What a sweet sentiment on the envelope! What a wonderful reminder, years later, of your Nonnie, who loves you 🙂

  11. Mrs Groovy says:

    The poster child of a conservative investment — great line. And what a great story. Nonnie was indeed a badass!

    Did you have to physically turn the bonds in? If so, did you get sentimental at all? My dad gave me a silver dollar and a two dollar bill when I was a little girl. Granted, I don’t think they’ll ever be worth much but I’d have a hard time parting with them.

    • Accidental FIRE says:

      Yes on both questions! I did have to go to the bank and the girl behind the counter (who looked about 21 yrs old) was a bit confounded. She had never done bond cash-outs and had to get help! It took a while but with the manager’s help they got it done.

      And yes I can be a sentimental sap, so I did get sentimental. That’s why I took pictures of some of the envelopes when my Nonnie wrote things. It’ an easy way to hold onto the memories.

      I also had a bunch of 2-dollar bills but cashed those out a few years back. Guess what they were worth – exactly 2 dollars each 🙂

      Thanks for the comment!

  12. Joe says:

    That’s a great buy at the time. If the interest rate ever get that high again, I’ll be sure to load up. 30 years at 6% guaranteed is awesome. You don’t have to worry about ups and downs.
    Your grandma sounds like one tough cookie. Being a single parent in those days must have been extremely difficult.

    • Accidental FIRE says:

      Same for me Joe. Even at 5% I’d be buying them since they are so low-risk. She was tough, when my brother and I would fight and act up she could set us straight faster than my parents could 🙂

  13. Awe what a sweet story and how nice to have a little found money from somebody special!

  14. What an absolutely special story, and I really love the envelope! She clearly did love you very much and saved and invested for your future, even though she was potentially struggling in the present. That’s a testament to love, if there ever was one 🙂

  15. Aw, what a lovely story! And it sounds like your grandma was an awesome lady.

    When I was home a few weeks ago, my parents gave me five savings bonds various family members took out the year I was born. Mine haven’t stopped accruing interest yet (it was 6% previously but they’re now accruing 4%) so now I’m facing the dilemma of whether or not to cash them out and invest them or to go ahead and continue earning 4% interest on them through 2022 since it’s extra money anyway. It’s a good dilemma to have!

    • Accidental FIRE says:

      Cool! Well you’ve only got 4 more years on them and who knows what the markets will do. If the bears are right it’d be best for you to leave them for 4 more years, but if the bulls are right and we get more of the past 2 years then you should cash out and put in the market.

      Get your dice out and roll ’em! 😉

  1. February 21, 2018

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