How To Help Your Children and Grandchildren Retire As Millionaires

A few years ago, I had a subscription to one of those investment newsletters that provide you with investment information for stocks and mutual funds. In the end, I stopped reading them. I realized it’s much easier just to find somebody reliable who knows what they are talking about to help you invest properly. Nevertheless, there were a few interesting articles I thought were worth saving. One such article was titled “Make your kids and grand-kids millionaires”. [1]

The main point of the article was about the power of compounding. If, for example, a 45 year old were to invest $2100 in a stock portfolio that provided a yearly compound return of 10% then his investment would be worth only $14,128 by the time he retired at age 65. However, if $2100 were invested for a newborn child in a similar stock portfolio providing the same returns, by the time the child retires at age 65 the total investment would be worth $1,029,779.

Of course, it’s not that simple. You need to know about taxes and where to invest. The article suggested investing in a stock portfolio that would provide a nice yearly growth over a long period. Investing in stocks that are more appealing to kids i.e. toy companies, might not be such a good idea as they may not be able to sustain growth consistently for a long enough period. On the other hand, oil, financial, utilities, and manufacturing companies are likely to be around and continue to perform well over the next 65 years.

In addition, the article suggests that you invest in companies that offer dividend reinvestment plans (DRPs). With these plans, money made through the dividends is automatically reinvested to purchase more stocks thus growing the investment portfolio.

Usually the companies that offer DRPs are of good quality and many of them are sure to be around in the next 65 years. Examples of big companies that offer DRPs are Exxon, Johnson&Johnson, Walmart and Coca Cola.

A really good site to visit to learn about DRPs and get an example of portfolios for different age groups is DirectInvesting.com

This site provides a similar example as the one I have above:

…starting them early takes advantage of what they have the most of…time. We’ve written before about the effects of compounding and how the investment of $600 per year for six years…from the age of six…or a total of just $3,600, would grow into $1.3 million by the time the child retires, even at a historical 11% rate of return.

You could also read more about DRIP investing on Epinions.com. Included in the list of reviews is one titled “How I put my son thru college”. Its a really interesting review.

See, when it comes to finance, I don’t know a thing. I practically failed the course and had to take it over three times when I did my MBA two years ago. So, if you are someone like me then just find somebody who knows something about all this stuff and ask them what you need to do to make it work and get it done.

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[1] The Investment Reporter “Make your kids and grand-kids millionaires” August 2003 (251-252)

This post was submitted to the November 12 issue of the Carnival of Family Life hosted over at All Rileyed Up.

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