Published:
01/05/2012 12:27pm
Your Best Investment Ever
Editor’s Note: This is the first in a new series of articles to help families improve their financial situation and better prepare their children for financial and personal success.
THE BEST INVESTMENT YOU’LL EVER MAKE
The current recession is proof in itself that we are very bad at handling money.
Most of us are familiar with these statistics that I learned 50 years ago in high school.
Out of 100 people who start working at the age of 25, by the age 65:
* 1% are wealthy
* 4% have adequate capital stowed away for retirement
* 3% are still working
* 63% are dependant on Social Security, friends, relatives or charity.
* 29% have passed away.
Yet, I did nothing to put myself in the 1% or 4%. Why?
• Most people just never get started.
• Those who start have a hard time continuing
• Others make poor decisions with the investments they choose
Guilty of all three. I got started late, I made bad decisions; and poor management of my income prevented me from making and sticking with a plan.
Fortunately, I was able to set my children on a path to the 1%, while improving my own financial situation.
Here is the actuarial chart of my daughter Milena’s investments, held by NuView IRA, an administration service. Her brother’s chart is almost identical.
Interest Rate – 17%, Annual Contribution - $5,000
$ 9,800.00 Age 19
$ 16,466.00 Age 20
$ 24,265.22 Age 21
$ 33,390.31 Age 22
$ 44,066.66 Age 23
$ 56,557.99 Age 24
$ 71,172.85 Age 25
$ 88,272.23 Age 26
$ 108,278.51 Age 27
$ 131,685.86 Age 28
$ 159,072.46 Age 29
$ 191,114.78 Age 30
$ 228,604.29 Age 31
$ 272,467.02 Age 32
$ 323,786.41 Age 33
$ 383,830.10 Age 34
$ 454,081.22 Age 35
$ 536,275.03 Age 36
$ 632,441.78 Age 37
$ 744,956.88 Age 38
$ 876,599.55 Age 39
$ 1,030,621.48 Age 40
$ 1,210,827.13 Age 41
$ 1,421,667.74 Age 42
$ 1,668,351.26 Age 43
$ 1,956,970.97 Age 44
$ 2,294,656.03 Age 45
$ 2,689,747.56 Age 46
$ 3,152,004.65 Age 47
$ 3,692,845.43 Age 48
$ 4,325,629.16 Age 49
$ 5,065,986.12 Age 50
$ 5,932,203.76 Age 51
$ 6,945,678.39 Age 52
$ 8,131,443.72 Age 53
$ 9,518,789.15 Age 54
$ 11,141,983.31 Age 55
$ 13,041,120.47 Age 56
$ 15,263,110.95 Age 57
$ 17,862,839.81 Age 58
$ 20,904,522.58 Age 59
$ 24,463,291.42 Age 60
$ 28,627,050.96 Age 61
$ 33,498,649.63 Age 62
$ 39,198,420.06 Age 63
$ 45,867,151.47 Age 64
$ 53,669,567.22 Age 65
You will note that she will have a million dollars in her ROTH IRA when she is 40. ROTH IRA money is not a gift or an inheritance. It is money that the child has actually earned.
I want you to look at this chart and pick your age. Can you match her investment? Now pick the age of any children you know. Are they on track? You will see that she started at age 19 with only $9800. If you have a child of 9, he only has to earn about $20 a week to catch up to Milena.
• Children do not learn by example
• Children do not learn by lecturing
• Children do not learn by reading books
• Children learn by DOING
The key is that the children do everything themselves. They are not taught by lecturing. Because Matthew and Milena earned and invested money from their pre-school years, it was easy for them to continue. It was easy for them to see and receive the benefits of long term compounding. We all TALK about long term compounding, but don’t do anything about it. We regret that. When they were little, it was easy for me to tell them what to do with their money. By the time they were old enough to have opinions of their own, the benefits and good habits made up their minds for them, and they are continuing to make wise financial decisions as adults.
How have we taught financial literacy and responsibility?
We have public, private and parochial schools. Public and private colleges and universities. We were taught economics and how to balance a checkbook.
We have sports, arts, tutors, crafts, Boy Scouts, Girl Scouts, J
