18 years is a long time in anyone’s book. It’s an especially long time if you’re a child becoming an adult and 18 years is your entire lifespan. Your child has just turned 18 and they’re ready to enter the big bad world of adulthood. But what happens now and where do they start?
Let’s look back in time and imagine that as parents, you started an investment plan for your child when they were born. Many parents save money for their children, but what do the results actually look like when that child reaches adulthood? Let’s find out….
At iInvest, we run an ‘iInvest for Kids’ program to help parents save and invest for their children. This can be started no matter the age of the child, but you’ll find the best results are found if the parents begin when their child is a newborn. This is because time is an important factor in investing. The greater the period an investment is held, generally the more growth you will see.
If we assume that a family with a newborn started an investment plan shortly after their child was born, with an initial $1200 investment, possibly from gifts given at birth / christening etc., and then saved $100 per month until their child turned 18, they would have saved $22,800 for their child, not taking into account any return on investment at this stage.
$100 per month might sound like a lot. When you break it down it’s about $3.25* a day – that’s not even the cost of a cup of your favourite café coffee!
$22,800 is a great 18th birthday present to receive. However, there are of course other options available. Many parents would typically put these savings into a regular bank savings account. This would yield around $11,785* in interest over the course of 18 years as the savings were added. Giving a total of $34,785* is a much nicer 18th birthday present to receive.
Now let’s assume that the parents invested their savings into some high yielding shares over the child’s life, rather than leaving the money sitting in a bank account. We’ve looked at a historical example of investing in Commonwealth Bank shares, and assuming the parents did this over the course of the child’s life and reinvested the dividends along the way. The return on investment from the shares would be around $62,980* in capital growth and dividends over 18 years of investing between 1997 to 2015. This would give a total of $85,780 worth of share investments held on the child’s 18th birthday.
Now imagine what your 18-year-old could do with $85,780. That could be enough to fund their university education. It could be a healthy deposit for their first home. It would certainly be a gift that would give them an amazing head start to life as a young adult. It would certainly put you as parents in line for “parent of the year” awards in your child’s eyes.
Don’t worry if you didn’t start investing when your child was born, you can start now! It’s just important to make a start, so that you can make a huge different to the start of your child’s life as a young adult. This will also help teach your children sound investment skills for their adult life when you can show them just how easy this was to do, and they can continue this on into their adulthood.
Grandparents can also set up similar savings plans for their grandchildren.
Oh, and if you don’t have children, what about setting up a savings plan for yourself. I’m sure you could imagine yourself on an exotic holiday in 18 years’ time with your $85,780!!
Georgia Harrison, Equities & Derivatives Adviser, ADA2 (ASX)
iInvest Securities, Stockbroking & Wealth Management
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This communication has been provided to you for your general information and does not take into account your objectives, financial situation and needs and must not be relied upon by you as personal financial product advice that has been provided to you by iInvest. If you require advice regarding any aspect of the information and statements of opinion set out in this communication, particularly as to whether you should base an investment decision upon the information or statements of opinion set out in this communication, please contact your financial adviser.
*Past performance is no guarantee of future performance.