Updated: Nov 16, 2020
Let me give you the answer first. It is a one-time investment of $25,000 when your kid is born. Yep, that’s round and easy to remember. This one-time gift will guarantee your kid to retire as a multimillionaire.
So, what will you do with the money? All you need to do is to open a brokerage account for your baby (a custodial account where the child will take control of the account when he/she is 18), invest the money in a low-cost total US stock market index fund (SCHB, VTI, VTSAX etc.) and you’re done. You’ve contributed to your kid’s life more than you can imagine.
When your kid grows up, just ask them not to touch the account under any circumstance until retirement age. This is the key for them to retire millionaires.
If the zombie apocalypse doesn’t happen and the world doesn’t come to end, your child will have over 5 million dollars when he/she reaches retirement age. Yes, you heard right. A $25,000 investment becomes $5 million. That’s why generational wealth just keeps exponentially growing.
Let’s go crazy for a second. Let’s assume that your kid did well in her life, was financially responsible, saved enough money for her retirement and didn’t need your super gift. Instead she just handed it over to her grandkid when he was just born. Guess how much your $25,000 would become when kid’s grandchild retires? Make a really wildly ambitious guess and then put it on steroids. Ready? Find somewhere to sit before continue reading.
It would become $1 billion with a B. No, it’s no joke, just pure math. Open an excel sheet right now and grow $25,000 for two retirement durations or 130 years with an annual return of 8.5%. Ok, let’s calm down, take a sip from our coffee and go back to the subject.
(Also, here’s a fun fact. If you put your $25,000 into a checking account instead of investing in the market, it would be worth less than $1,000 in terms of buying power in the same period)
You may say why not set a goal of one million dollars? An investment of only $5,500 would become a million dollars in 65 years, however the buying power of one million dollars in 65 years is not going to be the same as today, thanks to inflation. Assuming a 2.5% annual inflation rate, we will need to get to around 5 million dollars in the future to have the purchasing power of $1 million today. Guess what? $25,000 -invested as explained above- gets us right there with an average annual return of 8.5%!
This is the magic of the round numbers, compound returns, America and math.
Accumulating wealth is not the only motive of this move. Imagine for a second that your child will know throughout her life that her retirement is secure. Put yourself in her shoes. This security enables you to move from a position of strength when you make decisions. Think about how many decisions are we afraid to make because of our anxiety about our financial future? How many of us feel stuck but can’t see a way out because we are worried? How many of us don’t take a gap year to travel the world because we are afraid of not being able to go back to work from where we left? What if you had a way out whenever you felt stuck? A card that you could pull from the deck that gives you the upper hand every time?
For my own life, the core enabler of happiness and joy is having the power to make the decisions that my heart desires without any overshadowing worries.
Your child will be encouraged to pursue any venture in their life, they can pick any profession that they desire while feeling much less pressure about their retirement. Hell, even if they spend every dime that they make, financially they will be in decent shape when they get old. But of course they won’t do that, since you raised them as financially responsible kids. Your kids are lucky to have you.
One of the most empowering things about this gift is that it is in the reach of most families. Think about all expenses that you make for your kids, all money that you’ve been saving for their future. What is the goal? Indeed, many of these expenses are actually investments for your child to have a financially secure future. What if you could buy that security today that guarantees it? How much would it be worth to you to be able to provide a multi million-dollar retirement for your child? Tell me a better way to spend $25,000.
Finally, what if you already have a kid (or kids) and you didn’t invest anything on their behalf? Don’t worry, Immigrant On FIRE is here for you. Here is how much you need to invest today based on the age of the kid to catch up with the math and be on the exact same path:
As you can see, the required investment starts to increase very rapidly. Therefore, the earlier you make the move the better!
Don't worry if you don't have $25,000 to invest at once. Any amount that you will be able to invest will add up significantly. Even you can only put $1,000 in the investment account, it is expected to grow over $200,000 in 65 years!
Here you have it, the choice is yours now 😊