Yes the title is a bit odd. “Babies can’t invest, you idiot!” you say. Well no, but at this point in American history, with education costs through the roof- you may be wondering, “Ok, what are the best investments for my baby?” I’m here to tell you that there are some excellent choices out there for the best investment for your baby. Let’s take a look and see what will last your baby for the long haul.
It is fun to think, you could invest for your newborn baby today, and they have somewhere along the lines of 65 years to earn returns on that investment for their retirement. Think about the life they could live without having to save at all for retirement if they never have to worry. Let’s do an analysis about how much you could invest at T=0 for your baby and leave them well off when you shuffle off your mortal coil.
I say we start with a modest investment, and take a conventional rate of return for the S&P over the course of its life- 7%. (For this example, the best investments for your baby are the S&P ETFs)
At a rate of 7% per year, a $1,000 investment for your baby will grow to $81,000 in 65 years. I am assuming the retirement age will be 65 when your newborn eventually comes of age, who knows, it could be 75 or 85 at that point, but let’s keep this optimistic.
Now this example is a onetime investment of $1,000. Let’s say you invest $1,000 per year for 18 years, and then you let it grow for the next 47. Your investment ending at 65 will be worth $900,000. Your full investment up front would be just $18,000. Compound interest would take care of the rest.
How about a third example? Let’s say you have an abundance of money to start with, and you’re feeling generous. You start with $10,000 and you add just $500 per year after that. By the time they retire they will have $1.2M. Not too shabby- that sounds like a pretty great life for your child by the end of their working days.
Here is one last example. You start with $10,000, and you add $1,000 per year. By the time baby quits their job for the last time, they will be walking away with a whopping $1.6M.
Now this isn’t taking into account inflation growth and an increase of living expenses. But at the same time, this is pretty low performance overall for the S&P. This was a particularly conservative approach.
Let’s say the market does just 2 points better- to 9% per year on average. That last example would grow from $1.6M to FIVE MILLION DOLLARS. Even the first example, where we are just packing away $1,000 per year for your little baby, grows to $2.6M by the time they retire.
Imagine how great a life your baby will have when they don’t have to worry about how they will live after you are gone. I know it can be morbid to think about, but you could be making waves in their future long after you’re dead. And they can carry on the tradition and pay it forward to their children and their children.
Investments for your baby are very sweet.