How to give your kids $2 million: US

I wish I had known the power of compounding at a younger age. I want to better my parents in this life and I want my kids to better me. I opened up a UMTA  (investment) account at Vanguard for both of my kids, set them up with an initial $3000 each and have been giving them $100 each per month.

Let’s see how much they’ll be receiving on their 18th birthday with a 7.5% average return. I used 7.5% as this is the average 30 year return adjusted for inflation between 1980 and 2009:

Found here:

9-26-2017 1-51-58 PM

Year Start Invested Return End
1 $3,000 $1,200 $225 $4,425
2 $4,425 $1,200 $332 $5,957
3 $5,957 $1,200 $447 $7,604
4 $7,604 $1,200 $570 $9,374
5 $9,374 $1,200 $703 $11,277
6 $11,277 $1,200 $846 $13,323
7 $13,323 $1,200 $999 $15,522
8 $15,522 $1,200 $1,164 $17,886
9 $17,886 $1,200 $1,341 $20,428
10 $20,428 $1,200 $1,532 $23,160
11 $23,160 $1,200 $1,737 $26,097
12 $26,097 $1,200 $1,957 $29,254
13 $29,254 $1,200 $2,194 $32,648
14 $32,648 $1,200 $2,449 $36,296
15 $36,296 $1,200 $2,722 $40,219
16 $40,219 $1,200 $3,016 $44,435
17 $44,435 $1,200 $3,333 $48,968
18 $48,968 $1,200 $3,673 $53,840

Yes, that’s right…$53,840. Of course I don’t plan on just handing this over without a discussion. Once I feel they can calculate and understand the power of compounding, I’ll spend some time with them to show them this. They’ll be further ahead at 18 than I was at 30. Hopefully they’ll continue to work and invest then they can be F.I early in life.

If they continue to invest just $100 a month until 65, they will accumulate $2 million. I think it’s fairly safe to conclude they will be set for retirement. The power of compounding is amazing the more time you give it, so start early and track it.

If you don’t have the initial $3000, open a betterment account which has no minimum investment amount. This has a slightly higher expense ratio so when you have your first $3000 (after 2.5 years) transfer this to Vangaurd/Schwab/Fidelity. I have my kids invested in the S&P 500 Index fund, it has a tiny fee around 0.04%. If Warren Buffet can recommend this fund to his wife then this is good enough for my kids.

Here is a chart for the full 65 years:

Year Start Invested Return End
19 $53,840 $1,200 $4,038 $59,078
20 $59,078 $1,200 $4,431 $64,709
21 $64,709 $1,200 $4,853 $70,762
22 $70,762 $1,200 $5,307 $77,270
23 $77,270 $1,200 $5,795 $84,265
24 $84,265 $1,200 $6,320 $91,785
25 $91,785 $1,200 $6,884 $99,868
26 $99,868 $1,200 $7,490 $108,559
27 $108,559 $1,200 $8,142 $117,900
28 $117,900 $1,200 $8,843 $127,943
29 $127,943 $1,200 $9,596 $138,739
30 $138,739 $1,200 $10,405 $150,344
31 $150,344 $1,200 $11,276 $162,820
32 $162,820 $1,200 $12,211 $176,231
33 $176,231 $1,200 $13,217 $190,649
34 $190,649 $1,200 $14,299 $206,147
35 $206,147 $1,200 $15,461 $222,809
36 $222,809 $1,200 $16,711 $240,719
37 $240,719 $1,200 $18,054 $259,973
38 $259,973 $1,200 $19,498 $280,671
39 $280,671 $1,200 $21,050 $302,921
40 $302,921 $1,200 $22,719 $326,841
41 $326,841 $1,200 $24,513 $352,554
42 $352,554 $1,200 $26,442 $380,195
43 $380,195 $1,200 $28,515 $409,910
44 $409,910 $1,200 $30,743 $441,853
45 $441,853 $1,200 $33,139 $476,192
46 $476,192 $1,200 $35,714 $513,106
47 $513,106 $1,200 $38,483 $552,789
48 $552,789 $1,200 $41,459 $595,449
49 $595,449 $1,200 $44,659 $641,307
50 $641,307 $1,200 $48,098 $690,605
51 $690,605 $1,200 $51,795 $743,601
52 $743,601 $1,200 $55,770 $800,571
53 $800,571 $1,200 $60,043 $861,813
54 $861,813 $1,200 $64,636 $927,649
55 $927,649 $1,200 $69,574 $998,423
56 $998,423 $1,200 $74,882 $1,074,505
57 $1,074,505 $1,200 $80,588 $1,156,293
58 $1,156,293 $1,200 $86,722 $1,244,215
59 $1,244,215 $1,200 $93,316 $1,338,731
60 $1,338,731 $1,200 $100,405 $1,440,336
61 $1,440,336 $1,200 $108,025 $1,549,561
62 $1,549,561 $1,200 $116,217 $1,666,978
63 $1,666,978 $1,200 $125,023 $1,793,201
64 $1,793,201 $1,200 $134,490 $1,928,891
65 $1,928,891 $1,200 $144,667 $2,074,758

Just look at those last fifteen years. Time is so powerful in the market. The one thing I haven’t done is adjust the contributions, I hope my kids will increase their contributions once they start working.

What are other readers doing for their children? Click here to leave a comment

6 thoughts on “How to give your kids $2 million: US

  1. Is the 9% before inflation? How does Sequence of Returns Risk affect DCA? If the market crashes now, new purchases will be bought at a discount. It sunk shares will be underwater, same number of shares, bought at a higher cost. How does this affect a portfolio?

    Liked by 1 person

  2. […] Using the 4% rule, we would be able to live off $60,000 a year. This is more than enough, we have budgeted that we will need just $40,000. The next six years we will continue to work hard, we want to have freedom and this is what we’re working towards. I also hope that when reading this, you’ll realize that we do not need or want any inheritance from you. I want you to spend every penny you’ve worked for on enjoying the rest of your life and doing experiences you want (if you leave anything to my brother and sister I won’t mind). If you read the rest of my blog, you will see that I’ve already made plans to look after your grandchildren in the long term (if not, you can read it here). […]

    Liked by 1 person

  3. You should consider opening/funding a Roth IRA for them. Take a look into it and see if it’s feasible for your family! Many parents pay their child to do easy office things (like shredding paper or modeling for photos). The money can be used for school expenses if needed, and it’s tax free growth for the rest of their lives. 🙂

    Liked by 1 person

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