Nowadays there are various provisions for parents to invest on behalf of their kids, including the Junior ISA. Given the jump in Rolls-Royce (LSE:RR) shares this year, it’s probably a popular stock many are thinking about including. Yet let’s rewind to when I was born (back in 1990) and think about how things would have turned out if my parents had invested in the business for me.
How the investment would look today
Rolls-Royce has a proud history, formed back in 1904. Despite some solvency troubles in the 1970s the business was listed on the stock market back in 1987. This means that in 1990, my parents could have bought stock in the company.
I’m not going to reveal my exact date of birth, but will assume that my parents decided to buy the shares at the end of January. At that time, the share price was at 124p.
Now if we fast-forward to 33 years later, the stock is at 285p. So with the hard-earned £500, this holding would now be up 133%. It would currently be valued at £1,165.
Comparing the return
On the face of it, I’d be very happy to inherit that stake. After all, a profit is a profit. But after the initial happiness, how does it actually compare to other options?
Let’s start with the FTSE 100. From my historical data, the index was trading around 2,335 points at the same point when the Rolls-Royce shares were theoretically bought. Now the index is at 7,474 points. This is a 220% increase over the same period.
BAE Systems is one of the main competitors to Rolls-Royce in the FTSE 100. At the end of January 1990, BAE stock was trading at 130p. It’s now at 1,042p! This is almost a tenfold return.
So, when analysing the return of other possible choices, I can see that Rolls-Royce actually wouldn’t have been the best investment over the decades.
Takeaways for the next generation
If I ever have children, I’ll want to buy some stocks for them to pass on later in life. From looking at the performance of Rolls-Royce, I can see that over the course of several decades, the gains can be quite something. Taking £500 to £1,165 would be a boost for anyone. This shows the power of not over-trading and rather leaving stocks for the long term. But I realise I could do better, especially when I take the ipact of inflation into account.
The other major takeaway I have is not to put everything in one stock. Of course, I’d much rather have been gifted BAE Systems or other FTSE stocks that could have generated a much higher return. I can’t predict what will take off for decades to come. Therefore, it makes sense for me to put a smaller amount in several ideas that I like. Then I’ll hopefully be able to catch at least one stock that does well.
The post If my Dad had invested £500 in Rolls-Royce shares when I was born, here’s what I’d have now appeared first on The Motley Fool UK.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
