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December 18, 2006

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This is a nice example of how compound interest works, but strategically speaking one might be wisest to fund a 529 plan for educational expenses for a newborn. Otherwise, the assets are in the child's name (a strike against financial aid and loan rates) at the age of 18 and it will likely be spent on college and its related expenses -- I'm talking about booze here.

One could leave it in your name and transfer it into an IRA over time once they begin to work.

This is why my wife and I are investing in Roth IRAs. We hope to retire on one and leave the other to our grandkids someday. Right now, both our kids and grandkids are in the "pre-newborn" stage, so compounding ought to really pay off for them! :)

We hope to do this wisely & carefully, of course, so as not to ruin them!

Another point to consider: The authors of the Millionaire Next Door make a compelling point, drawing on the experience of wealthy people, that there is an inverse relationship between the money you give children and the wealth they accumulate. In principle it sounds like a good thing to free your children from the challenge of making it on their own or to improve their odds, but in practice it is likely to enable them to be irresponsible with money.

RE: How to make your child a millionaire.
I read the article where you need $6721.00
for a newborn to be a millionaire. I'm very curious where you would deposit this sum. Is it in a mutual fund where you would pay taxes yearly or or a tax deferred account or would it be a roth Ira. The article doesn't specify how to achieve this millionaire result.

Guys,
This is all good, please can somebody explain where to get gauranteed 8% year after year for 65 years????????

AKS --

Guaranteed? No investments are guaranteed. But the stock market has averaged 10% annual return over the past 100 years or so.

The devaluation of any currency and the rate of inflation will make the value of the investment equall to if not less than its worth at the time of the deposit. This logic is supported by numerous worthy people. I do not believe this is the way to secure a childs future or wealth creation.

it's a start. Atleast it would be a parent that is concerned about a child's future. Though for some families - coming up with that lump sum may be hard to do.

I would suggest a monthly amount set aside or invested for child and as child grows involve the child in picking investments and more.

It doesn't help if you don't teach the child how to wisely manage money and then one day they have a large sum of money that they waste in 2 years flat...

I recently opened a savings account for my 1 month old and deposited $25. I know it's not a lot but it's a start. When I have extra money I will put it her account. When I get my tax return I'm going to her a savings bond or a cd.

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