They’re the worst possible gift you can give a grandchild, niece, nephew, or any other young person in your life despite they’re ongoing popularity. You’d never know how bad they are from the high praise they receive.
Kiplinger’s calls them “the gift you buy for a newborn niece or nephew.” Bankrate.com says they’re “the gift that keeps on giving.” The U.S. Treasury calls them the “gift for any occasion.”
I guess that’s a big part of why 55 million Americans now own them. That’s more than one in six Americans.
I’m talking about U.S. Savings Bonds. Over the years, they have become the ultimate “fall-back” gift for the tough people to shop for. Kids, infants, teens…savings bonds always seem to be a decent fit. But they’re no longer the gift that keeps on giving.
First of all, their yields are pitiful. The EE Bonds, the most common, yield a paltry 1.3%. The yield is low and going lower. The EE bonds will reset at an even lower rate in April. The I Bonds, which are indexed to inflation, aren’t much better. The I Bonds only yield 0.7% on top of inflation (as tracked by the Labor Department’s Consumer Price Index). Older I Bonds had fixed yields of inflation plus 2% or more.
The long-term outlook for them is even worse. The U.S. government is currently $10 trillion in debt and could easily double that in the next five years if the economy doesn’t recover. A U.S. Savings Bond is basically a loan to an otherwise bankrupt U.S. government.
Finally, there are just so many better options. Remember, the majority of savings bond recipients have 15 years or longer before they’ll probably need to cash out. That’s why I’m urging everyone I know to give better financial gifts; ones which will offer true prosperity to the young ones in our lives.
The Gift of Real Prosperity
When you think about it, most of us don’t have the luxury of a 15 or 20 year time horizon when it comes to investing. We’ve got to turn over a lot of stones to find investments which offer capital appreciation, high levels of current income, or both. But young people are in a much, much better position. And with the market collapsing this year, we’ve got the potential to give away a truly life-changing fortune within the next few years.
For instance, my nephew is almost two years old. He’s not getting any toys from me this year. He’s in for a big box of disappointment over the short-term, but he’ll be getting a lot more in the long-term. I’m buying him stocks in these three sectors which, even if only one pans out, will be worth a lot more than any savings bond in 15 years.
Stem Cells – In his book The Stem Cell Dilemma, Dr. Leo Furcht states:
“No new approach to dealing with the monumental suffering and social costs of major diseases comes close to the promise of stem therapy.”
In 1968 the first successful bone marrow transplant was conducted at the University of Minnesota. The stem cells in the donated marrow rebuilt the recipient’s blood-producing marrow.
In the last five years dozens of blind people can see again after receiving stem cell treatments. Damaged spinal cords in mice were repaired with human neural stem cells. A new trachea (windpipe) was created with stem cells and transplanted successfully to a 30-year old woman in the United Kingdom.
We’ve already looked at how Corning (NYSE:GLW), a company which reinvents itself practically every decade, is moving big into stem cells. Pfizer (NYSE:PFE) is throwing a couple of hundred million dollars into research.
More than 40 years of stem cell research are working their way into real-life medicine. At the rate advances are coming, the medical industry will be completely changed over the next 10 to 20 years. Big Pharma, hospitals, medical equipment manufacturers, and everyone else in the healthcare industry will experience radical changes.
Owning a broad subsector of stem cells plays will certainly have one or two which pay off big. I believe there are tremendous opportunities in stem cells for long-term investors right now.
Farmland – This is a pretty simple one. The world’s population is growing and the world’s available farmland is not. The question here is not if there will be a big payoff, but when.
The recent agri-boom sparked a worldwide race to bring underutilized farmland into production. Venture capitalists scoured the world for farmland. Hundreds of millions of dollars were invested. Farms in the Ukraine, Russia, and South America were modernized.
There’s very little undeveloped farmland left in the world. The amount of arable (suitable for farming) land is in steep decline compared to the world’s population…and it’s only getting worse.
In 1961 there were only 3 billion people in the world. There was plenty of food to grow around. There were about 40 arable acres for every man, woman, and child in the world. That was more than enough to feed everyone. Add to all that a decline in the average quality of soil around the world and it’s pretty clear we’ve hit “Peak Soil.”
The fervor for agriculture-related investments may have cooled, but the fundamentals haven’t changed a bit. Farmland will be one of the dearest real estate in the world over the next 10 to 50 years. There will be advancements in fertilizer, genetically modified seeds, and other agriculture technology, but farmland will still be a very dear asset.
India – Last week, I had a chance to speak with Harry Dent. He’s written a few best-sellers like the “Roaring 2000s” and predicted the economic stagnation in Japan long before anyone else. Harry is one of the best big picture guys in the world. He focuses heavily on age demographics, spending patterns, and has dozens of spot on predictions over the long-term.
We were both completely on the same page when it came to India.
In his newest book, The Great Depression Ahead (a book which will surely make its way to our recommended reading list when it’s released in a few weeks), he states:
“There will be a more concerted global boom again from the early 2020s into the mid 2030s – and beyond in many countries from India.”
India has everything going for it. It has a relatively young population. Its workforce will be growing for decades. It has the government institutions in place to protect property rights to support a capitalist economy. As a result, it could very well be the best place to invest if you’ve got a long-term time horizon.
India stands head and shoulders above the rest of the other BRIC countries when you look 15 years out or longer. Brazil and Russia have gone up and down with commodity prices and China, as a whole, is getting old. I expect we’ll see the downside of China’s “one child policy” in the next 10 to 20 years. Don’t get me wrong, India’s not perfect, but it’s the best of the bunch and we’ve got time on our side.
There are so many great investments out there. Stocks are cheaper than they’ve been in years. As we looked at the other day, there are incredible values in convertibles bonds. Also corporate bonds are undervalued.
There are a lot of options, but you’ve got to stick to the plan. In this case, the plan would be to ride the waves which will likely have big payoffs over the next 15 or 20 years. When I’m investing money for a two year old with the understanding it’s not going to be touched for at least a decade, I’m betting on the big sweeping trends and looking for the biggest wins.
A long-term perspective gives us a lot of luxuries. The biggest luxury is not having to time a buying point (I still think there is going to be a significantly better time to buy over the next two or three years) and not having to worry about what will happen one or two years down the road.
I’m looking forward to passing on the savings bonds and giving a true gift of prosperity this holiday season. At the Prosperity Dispatch, we believe there are fortunes to be made in stem cells, India, and farmland if you’ve got enough time.
By Andrew Mickey