Baby millionaire
I want to explore how much do you need to invest in a baby to make him a millionaire in today's dollar. Let's use a portfolio returning 7.1%. At this rate, we need to put aside for the baby
$11,600 for him to become a millionaire at age 65! That is without inflation. Net of inflation, or said otherwise 1 million in today money, $41,900 would be required.
Required balance to get 1 million at ag 65 with a return of 7.1% and 2% inflation
Note that these are all proportional numbers, meaning that half of $11,600 would provide for half a million at age 65 starting from 0, before inflation. In Canada, we recommend investing in a RESP for the children (max $2,500 per year). We qualify for 20% from federal from the SCEE. If you are in Québec, you also qualify for 10%. Here’s a small table if you contributed to the maximum from birth up to a certain age. Net from inflation, the baby is worth more than half a million after 10 years of contributions and a little under a million if we invest up to 18 years old.
In other word, we don’t
need to receive hundred of thousand to become a trust fund baby. A little 61k is suffisant. No need to inherent a lot to make a massive difference.
Great, can we do better? Say that you are a new father and want grandkids millionnaire. Instead of looking at only a 65 years horizon, couldn't we invest 30 years earlier when your kid are still baby's? Sure, this would cost you just a quarter of the above. But no, only takes $1,500.to grow at a million. Again net of inflation would require $9,700
Required balance to get 1 million at age 95(65+30) with a return of 7.1% and 2% inflation
The rate of return impact is tremendous on these calculations. Changing it to 8.0%, it reduces by more than half the requirement to get a million. A conclusion is also that if our fees are about 1%, than it would eat more than half of your balance at the end of your life.
Required balance to get 1 million at age 65 with a return of 8.0% and 2% inflation
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