A blueprint to set your grands up for retirement.

[RSKY]

A blueprint to set your grands up for retirement.

If I understand the program correctly the government is going to give every newborn child in the U.S. a grant of $1000 invested in the stock market. My guess is that it will be invested in something like an S&P 500 Index Fund. The S&P 500 is a stock market tool that tracks the 500 leading companies listed on the U.S. stock exchange. The Index Fund follows the stock values of those 500 companies.

I got to thinking about this and did some research. Please correct me it you see a mistake in my figures.

I did a google search and the S&P 500 has yielded a return of around 10% for the past 100 years and this includes the Great Depression. Some simple use of an Internet investment calculator shows that at 10% this would give the child a total amount of over ONE HALF MILLION dollars at age 65 if no other funds are added. Fidelity Financials’ S&P 500 index fund (FXAIX) has a yearly yield of 11.23% since it’s inception in 1988. Boost the return to this and the child will have ONE MILLION at age 65. For the past ten years the fund has returned a 14.62% yearly average which would give the first million at age 51 and over seven million at age 65! All this is without adding a penny to the account IF it is started at birth with just $1000!

The same $1000 invested in a money market account or CDs at 5% would have earned only $23,000 by age 65.

To verify what I am writing simply go to www.calculator.net and in the Financial Calculators column select Investment Calculator. Put the appropriate numbers in the appropriate boxes and you will get your answer.

Some examples for an investment of $1000 at birth with no additional monies invested. This is starting at birth and at early retirement at age 55.

6% - $24,650 Highest I’ve seen on a CD in past ten years

8% - $68,914 High yield Bond Fund

10% - $189,060 S&P 500 over the past 100 years

11.23% - $348,503 Fidelity S&P 500 index fund since inception in 1988

14.62% - $1,816,860 Fidelity S&P 500 index fund average return for the past ten years

15.55% - $2,833,656 Fidelity Select Semiconductor fund returns since inception in 1986. Fidelity’s highest performing Mutual Fund

These figures are for $1000 invested at the baby’s birth with NO ADDITIONAL FUNDS ADDED!

Please see if you can find anything wrong with my figures.

Comments??

RSKY

 

[ultrarunner]

I guess the big difference is market past performance is not a guarantee of future return?

 

[ponytug]

@RSKY I think that there might be a few demographic humps ahead of newborns vis-à-vis the stock market.

I think that your 10% average return is from the 1950s to the present; I don't know how representative that will be going forward for a variety of reasons, but near term there is a demographic hump of folks retiring and spending assets which will exert some price pressure on the market. To the extent that the wealth is inter-generational, that's less of an issue, but there is still inheritance costs and taxes for some of those, exerting downward price pressure.

I can see some real headwinds for newborns that will eat into average returns, e.g. as more variable weather cuts into agricultural yields, driving more price fluctuations, fire/earthquake/storm damage, and I find it is hard not to look at the geopolitical trend over the last decade and not think that the economic environment will be substantially less stable than in the past 50 years, sadly.

I think to your overall point, compound interest is beneficial, and starting to save earlier, rather than later makes it more beneficial. I am however mindful of how many kids fail the "one marshmallow now vs two marshmallows in the future" test without education in will power.

All the best,

Peter

 

[EscapedSuburbia]

I'd like to see financial concepts like the power of saving, compound interest, and not borrowing money taught in schools since parents clearly aren't doing it. I'm all for government programs like 529Bs, IRAs, and 401Ks that encourage saving but I'm on the fence about about giveaway programs like the one proposed. I don't think it sends the right message for a government that is $38 trillion in debt to be giving away money.

 

[Snobdds]

What is the point of this exercise?

 

[EscapedSuburbia]

What is the point of this exercise?

I *think* the idea is to encourage saving and teach kids about compound interest and the power of the market. Some percentage of kids will probably learn from it but most probably won't. My understanding is that the money becomes free and clear when the kid turns 18 so rather than long term savings it'll probably be blown on a car and partying. I'd be more likely to support it if there were strings attached like the money could be rolled into an IRA or spend on medical bills, education, or a down payment on a first home. But I still don't support it because I don't believe in the government borrowing money to finance giveaway programs.

 

[Hay Dude]

A blueprint to set your grands up for retirement.

If I understand the program correctly the government is going to give every newborn child in the U.S. a grant of $1000 invested in the stock market. My guess is that it will be invested in something like an S&P 500 Index Fund. The S&P 500 is a stock market tool that tracks the 500 leading companies listed on the U.S. stock exchange. The Index Fund follows the stock values of those 500 companies.

I got to thinking about this and did some research. Please correct me it you see a mistake in my figures.

I did a google search and the S&P 500 has yielded a return of around 10% for the past 100 years and this includes the Great Depression. Some simple use of an Internet investment calculator shows that at 10% this would give the child a total amount of over ONE HALF MILLION dollars at age 65 if no other funds are added. Fidelity Financials’ S&P 500 index fund (FXAIX) has a yearly yield of 11.23% since it’s inception in 1988. Boost the return to this and the child will have ONE MILLION at age 65. For the past ten years the fund has returned a 14.62% yearly average which would give the first million at age 51 and over seven million at age 65! All this is without adding a penny to the account IF it is started at birth with just $1000!

The same $1000 invested in a money market account or CDs at 5% would have earned only $23,000 by age 65.

To verify what I am writing simply go to www.calculator.net and in the Financial Calculators column select Investment Calculator. Put the appropriate numbers in the appropriate boxes and you will get your answer.

Some examples for an investment of $1000 at birth with no additional monies invested. This is starting at birth and at early retirement at age 55.

6% - $24,650 Highest I’ve seen on a CD in past ten years

8% - $68,914 High yield Bond Fund

10% - $189,060 S&P 500 over the past 100 years

11.23% - $348,503 Fidelity S&P 500 index fund since inception in 1988

14.62% - $1,816,860 Fidelity S&P 500 index fund average return for the past ten years

15.55% - $2,833,656 Fidelity Select Semiconductor fund returns since inception in 1986. Fidelity’s highest performing Mutual Fund

These figures are for $1000 invested at the baby’s birth with NO ADDITIONAL FUNDS ADDED!

Please see if you can find anything wrong with my figures.

Comments??

RSKY

How about Gold/Silver?

 

[MapleLeafFarmer]

I think your FUTURE VALUE of a one time investment is working as it should but how taxes and inflation both REALLY and SIGNIFICANTLY will change the final outcomes hoped.

But the value of compounding is truly amazing.

 

[RSKY]

I guess the big difference is market past performance is not a guarantee of future return?

Very true. The Semiconductor Fund has been up to $37, down to $22, up to $47, down to $41 all within a year. But the stock market is an indicator of the economy. If it completely crashes then nothing will be worth much.

 

[ultrarunner]

Maybe commodities and rural land with water and fertile soil for a self sustaining lifestyle?

I’ve seen profitable business after business leave my state, some with very long history here.

The only losses I’ve realized have been market related company stock.

Grandparents married in 1927 and had a nice nest egg… they put it into the stock market and we’re financially wiped out and that lesson still reverberates a hundred years later.

Maybe moderation and diversification is the key?

 

[RSKY]

@RSKY I think that there might be a few demographic humps ahead of newborns vis-à-vis the stock market.

I think that your 10% average return is from the 1950s to the present; I don't know how representative that will be going forward for a variety of reasons, but near term there is a demographic hump of folks retiring and spending assets which will exert some price pressure on the market. To the extent that the wealth is inter-generational, that's less of an issue, but there is still inheritance costs and taxes for some of those, exerting downward price pressure.

I can see some real headwinds for newborns that will eat into average returns, e.g. as more variable weather cuts into agricultural yields, driving more price fluctuations, fire/earthquake/storm damage, and I find it is hard not to look at the geopolitical trend over the last decade and not think that the economic environment will be substantially less stable than in the past 50 years, sadly.

I think to your overall point, compound interest is beneficial, and starting to save earlier, rather than later makes it more beneficial. I am however mindful of how many kids fail the "one marshmallow now vs two marshmallows in the future" test without education in will power.

All the best,

Peter

A quick search yielded this statement: "The average annualized return for the S&P 500 over the past 100 years is approximately 10.48%, which includes dividends reinvested. When adjusted for inflation, the real average annualized return is about 7.31%."

I have something like this set up for my five grandkids. They will know nothing about it until my wife and I pass on. On our deaths my financial holdings are split evenly between my two daughters except there are five accounts that have each grand as the beneficiary. There is a letter in my safe deposit box addressed to each one explaining that this is generational wealth and it is to be used for emergencies or retirement and not for frivolous items. Of course when I am gone it won't matter what they spend it on. They have all been great kids and hopefully they will be responsible adults.

RSKY

 

[CH4Ohio]

What business does the government have giving tax dollars to newborns? This is just another unfunded unlegislated welfare program. The government does not have ANY money except what is extracted by force from the citizens.

Very easy to spend other people's money -- especially if they don't object.

 

[ultrarunner]

I thought deeding each a modest income property would be my path…

The parents totally opposed this… I guess it shows just how financially set they are?

A paid for rental is seen more of a burden rather than opportunity.

 

[RayIN]

Thank you for your time and skill in making those calculations. Your figures will change when you consider the present retirement age is 67 if born after 1960 instead of 65, and SSA is considering raising retirement age again.
This is also very informative: Charles Schwab

 

[Jstpssng]

The government does not have ANY money except what is extracted by force from the citizens

I disagree with this. Currently the government has no money except what they are borrowing against your grandchildren's paychecks... the very people who the bill purports to be for.

A brief search indicates this idea started at the White House,

https://www.forbes.com/sites/dereks...nts-what-to-know-about-the-1000-baby-bonuses/

 

[bigtiller]

It's a good deal for those kids born for the next 3 years. But what happens to the Trump Accounts after 2028 when he leaves office? I ask because the $6.25 billion program is privately funded by Michael Dell. Will another billionaire donate money to keep it going? Will the next administration renew it?

 

[RayIN]

I thought deeded each a modest income property would be my path…

The parents totally opposed this… I guess it shows just how financially set they are?

A paid for rental is seen more of a burden rather than opportunity.

Land is the only thing that is limited, no more will be made, yet the population doubles at an ever increasing rate. I think that is an excellent legacy.

 

[EarPlug]

You have left out the cost of inflation. Here is a response from CoPilot AI

AI Overview

In 30 years, $1,000 will be worth much less in buying power due to inflation (potentially $2,000-$3,000+ depending on rate), but if invested, it could grow significantly, maybe reaching $10,000 to $20,000+ (or much more with monthly additions) depending on returns like 6-8% annually, highlighting how saving and investing protects against inflation's erosion
.

If you just keep the cash (Inflation Effect)

• With average inflation (e.g., 2.5-3%): $1,000 today might only buy what $2,000-$3,000 buys in 30 years, meaning its purchasing power is cut in half or more.
• Example: Using a 3% inflation rate, $1,000 today could be worth around $2,427 in 30 years in terms of future purchasing power, but its real value (what you can buy) drops significantly.

If you invest the $1,000 (Growth Effect)

• Conservative (e.g., 5% annual return): Could grow to around $4,322.
• Moderate (e.g., 7% annual return): Could grow to about $7,612.
• Strong (e.g., 10% annual return): Could grow to over $17,000.
• With monthly contributions: Investing $1,000 monthly for 30 years at 6-8% could see you end up with well over $1 million, showing the power of consistent investing.

Key Takeaway

• Holding cash loses value over time.
• Investing $1,000 once, or even better, monthly, dramatically increases your future wealth and combats inflation's negative effects, making it essential for long-term financial goals.

 

[RSKY]

I realize that there are many alternatives to this but it is a fairly cheap easy way to put some money aside for a grandchild. It can serve as a tool to teach them about financial matters as it has with my 16-year old granddaughter. I misspoke above when I said none of the grands knew about the funds in their names because I let it slip when she was working with me on something else on my computer. She is now paying more attention to money matters and has it in her head that she will go to school studying finance instead of pursuing some worthless degree. My daughter has remarked a couple times that the grand is becoming as stingy with her money as her granddaddy. (Makes me proud!).

My whole point of this post is to encourage TBNers to start an account in their name with their grands as the beneficiary to help them in the future. Heck, the US may not exist by the time my 2-1/2 year old grand reaches her fifties or sixties. But at least I have made the effort to provide for her in the future. I just hope that she remembers me when she receives her inheritance.

 

[ultrarunner]

It's a good deal for those kids born for the next 3 years. But what happens to the Trump Accounts after 2028 when he leaves office? I ask because the $6.25 billion program is privately funded by Michael Dell. Will another billionaire donate money to keep it going? Will the next administration renew it?

If billionaires leave California for Florida a person like a Mr. Page could easily continue with just a portion of his savings if the California Tax on billionaires comes to be.