I’m sitting here in a café in Cebu – Philippines. Trying to look cooperate in my beige wife beater. Sipping the least expensive coffee on the menu (1 $/cup). While I’m scrolling through the investment platform I use.
I’m doing that because I need to open an investment account for my good friends new born child.
This is the fourth time I’m doing so. Whenever one of my good friends are having a kid. I will be the “financial uncle” who helped their parents not to fuck up their financial future.
FIRE… My Kids?! NO!!!!!!
Oh yes. And here is why.
Your kids are not going to worry about money from when they being born till they gotta move away from home.
Well yes. They might start to “worry” about money when they become teenagers. But that will only concern 15 $ for a couple of beers they can hammer. When they have told you they were going to watch some movie at their friends place. (Yes, I have done that)
So from when a kid is born. We have 20 years of undisturbed investing. Which is a good long time span to invest in stocks.
My Mom Tried to Set Me On FIRE
The biggest risk is not taking any riskMark Zuckerberg
My mom did the best thing she thought she could do.
She opened an account for me and my sister. Paying 15 $/month to the account. And in 18 years. That money would be around:
(12 months x 15 $) x 18 years = 3240 $
That is not too shabby when you are 18 years old, and need to buy pots and pans for your new place to live.
But what my mom didn’t do. Was to make money do the heavy lifting. And take advantage of those 18 years of undisturbed time.
I was born in October 1990. And I got these money from my mom when I decided to leave home when I was 18. That will be around late 2008.
If my mom would have invested that money in a 100 % world index portfolio. I would have had 5200 $. And that is with the financial crack in 2008. The year before I would have had about 7000 $ to my name.*
The worst 20 year period to invest in stocks the last 50 years was from 1989 to 2009. So despite investing the worst 20 years. My mom would still have a 5,7 % annual return. AFTER taxes and fees are paid.*
It is Not The Parents Fault
The sad thing is. Alot of people are doing this. With the best intentions. They are doing it because nobody has told them that there is a better way to give your kid a head start.
And that is why I’m writing this article.
What you have to do is:
- Just do what you normal would. (Like my mom for example)
- Transfer them to an investment account
- Find the cheapest and broadest diversified stock index portfolio (Preferably an environmental one)
- Invest in that
It was a coincidence that I was borned in the worst time to invest in stocks. If I was born in 1974 and my mom would have started invested there. The annual return would have been 12,3 %. (After fees, taxes and inflation*)
Then the 15 $/month would have turned into:
12,150 $ (After fees, taxes and inflation*)
That is almost 4 times more money, than if she just had kept them in cash. Or about 9000 $ just left on the table.
Set Your Kids on FIRE (With Gasoline)
We can take it even further.
Imagine if we swapped that 15 $/month out with 50 $/month instead.
Yes, that would be an awful lot of money your kid will end up having. But who says that these money is for the kids?
Well it is. But if we did saved up 50 $/month on a seperate account for them. We could withdraw from that fund, whenever they had an expensive birthday or similar. It would just be like saving up for the 15 year old birthday.
Let’s take an example.
If we had a kid 18 years ago, and we managed to save and invest 50 $/month from the day it was born. Their account would look something like this*:
If our kid had an account like that. We could easily withdraw a couple of 1000 $ here and there, without it meant that they didn’t have any money when the turned 18.
Have you read about all this FIRE thing. And still are confused where to start?
Or do you just need a mentor to along your journey?
That is why I have started the 1:1 coaching. I walk the talk. And as I write this I’m in the middle of my mini retirement.
Check the whole thing out here on this site, and feel free to write me questions. Or if you just want to say hello.