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Financial Planning for Entrepreneurs and Tech Professionals - Mike Morton, ChFC® EPISODE 14, 18th May 2021
Ep 14: How to turn $3,000 into $50,000,000!
00:00:00 00:27:31

Ep 14: How to turn $3,000 into $50,000,000!

Yes, you can turn $3,000 into $50 million dollars. What's the catch? It takes a long time. So, unfortunately, you won't be around to spend it. But this is a great way to think about setting up your kids or grandkids for long-term financial success.

It's really simple math that relies on compound interest to generate significant growth over many years. The basics:

  1. Invest $3k into a Small Cap Value Index Fund when your child is born.
  2. Assume 12% growth of that fund (which is the historical average for the last 100 years for SCV funds)
  3. As your child has earned income, slowly transfer the account balance to her Roth IRA to grow tax-free forever.
  4. At age 65, your child now has a balance of $4.75m.
  5. She starts taking out 5% / year from the account and it continues to grow at 12% / year.
  6. When she dies at age 95, over the last 30 years she has taken out and spent roughly $20m (5% / year) and the balance is $30m = $50m

Ok, does that seem far-fetched? Well, it could have easily happened over the last 95 years (if there had been a small-cap value index fund in 1926!

There are a number of ways to think about this for your own life:

  • Invest some amount, whatever you can afford, for your child or grandchild. Let it ride for a long, long time.
  • This could be for their retirement, or for a home down-payment or something else.
  • Think about setting aside a small amount each month for something "down the road" for your kids, or grandkids.
  • Invest in a single stock when a child is born for their high school or college graduation gift (whatever it grows to!)

The point is the earlier you can invest, the more compounding kicks in. The longer the child can stay invested, the more compounding works for them.

Resources: This post is inspired by Paul Merriman's fantastic work on this topic. Check out his entire site for great investing resources.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/