PennyPinscher wrote: ↑
Wed Nov 20, 2019 8:25 am
The main point of my post: I have two kids, 5 and 6. I want to start them an account now so they can have a head start on life and not have to scrape together pennies like I do. They can't have a Roth IRA from what I've read. Is my only option to start 2 brokerage accounts and when they're older and employed, transfer them over into an IRA in their names? Is there a better option? I could also just do an additional $100 a month into my current portfolio and "call it theirs" but I want them to see individually how my small contributions grew over their lifetime so they too take saving/investing seriously.
Thank you all in advance!
let's say you invest $100 a month for each of them and earn 8% per year (a big if, but go with me on this journey).
you want them to start saving and investing too (as you say) so at what age would you like them to start doing that?
Let's say age 25 when they land their first job after graduating college (and graduate school). What would they have at age 25 (say 20 years from now)?
(in excel type =FV(.08/12,20*12,-100) which says "earn 8% per year for 20 years investing $100 each month.
now I'd be pleased as punch if a loving father offered me $58,902 at age 25. But would I understand how it grew? No. You could say $100 a month is $1200 a year. $1200 a year for 20 years is $24,000. So dad turned $24,000 into $58,902 by investing (for 20 years).
Would that excite them? I.e., would investing $100 a month starting at age 25 to get $58,902 by the time they are 45 blow their minds?
I doubt it.
But if instead you say you gave them a good head start (the $58,902 you'd give them at 25) to add to their own $100 a month from 25-45 then they'd turn your $58,902 and their $100 a month contributions from 25-45 into:
(in excel type =FV(.08/12,40*12,-100)
now we're getting somewhere. now that "might" excite them to have $349,100 at 45.
Keep going having them invest another $100 a month til 65 and what do they get? (by your starting $100 a month at age 5 and them taking over at 25 and continuing $100 a month for another 40 years--60 years in total):
try it yourself:
what did you get? Don't peek.
that's a goodly amount of money. you've technically "help" make them a millionaire. Mission accomplished I'd say.
but remember that a million dollars 60 years from now won't buy you what a million dollars buys you today.
so hopefully you can motivate them to invest more than $100 a month from 25-65.
Then they can thank you when you're in the old folk's home (and maybe do the same for their own kids, should they choose to have any).
"May you live as long as you want and never want as long as you live" -- Irish Blessing |
"Invest we must" -- Jack Bogle