How to turn your kids or grandkids into millionaires by your ability to save & invest say $2,000 a year because you're getting 70% discounts on kids clothes & shoes! |
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How to turn your grandkids into multimillionaires It’s easier and less costly than you think. By giving your grandchildren relatively small sums of money now for five
years in a row, you can put the gilded edge on their golden years. By Scott Burns Want someone in your family to be rich? You can make it happen with a mixture of affection, forethought and relatively
small sums of money. The mixture can be turned into millions of dollars if that "someone" in your family is a grandchild.
The magic ingredients, of course, are compound growth and time. Suppose, for instance, you have a newborn grandchild. You're not so well off that you can make that child wealthy today.
But you'd like to do something to assure financial security in a distant tomorrow. It can be done. Give $11,000 a year (the
annual gift exclusion) for five years. Let it grow while invested in a low-cost equity index fund. Your grandchild will have
more than $5 million at age 56 and nearly $16 million by age 69. But if you assume a long-term inflation rate of 3% (the average
from 1926 to 2003, according to Ibbotson Associates in Chicago), the original investment will still grow to $1 million of
current purchasing power by age 56 and $2 million of current purchasing power by age 69. These figures assume the 10.4% annual
rate of return on large common stocks, fully taxed at 15% each year, or a net of 8.84% annually. Returns, of course, could
be lower. Taxes and inflation could be higher. Gifting $11,000 a year for five years could put a grandchild among the nation's top wealth holders. No, I'm not talking
private-jet-and-houses-in-Aspen-San-Francisco-and-London rich. I'm simply talking about having a grandchild with higher net
worth than most Americans -- before they make their own contribution to the family stash. Recall, the most recent Survey of
Consumer Finances showed that a net worth of $1,154,000 put a household in their 50s in the top 10% of all households. No
doubt the figure will be higher in the future -- but however you slice it, a head start is a good thing. And it really doesn't
take that much. Start smaller - Don't have $11,000 to give for five years? OK. Let's try giving $2,000 a year for each of five years but
investing it in small- capitalization stocks, the ones that have returned 12.7% annually, according to the Ibbotson Associates
data. Shave off one-tenth of a percent for fund expenses, and you end up with $6 million at age 56, less whatever you had
to pay in taxes. A small increase in annual return will do a lot to overcome making smaller gifts. Unlike the old joke, you don't make a small fortune by starting with a large one. You start with amounts of money that
are imaginable, that many people have. Nor does it require brilliant investment management -- the money will be invested in
low-cost, tax-efficient index funds. With the recent announcement from Fidelity Investments that it will lower the annual
expense charge on its index funds to only one-tenth of 1 percent -- less than price-leader Vanguard -- anyone can invest with
no commission expenses, nominal annual expenses and tiny annual taxes in the long-term growth of America or the world. Want to see for yourself? Be my guest. I've created a new calculator at my Web site. I call it The Generous Grandparent
Calculator, but you don't have to be a grandparent to use it. You can also be a parent putting money away for a college education,
or a pre-retiree trying to figure out what your current savings and four more years of savings can grow to. What do you do?
Simple. Enter the age of your grandchild today. Enter the grandchild's age when the money will start being used. Enter gifts
in any amount over a five-year period. Enter an assumed investment return and rate of inflation. The calculator will show
you how much your gifts will accumulate to before and after adjusting for inflation. (Editor’s note: MSN Money also has this Savings Calculator, which allows you to find out how long it will take you
to save your first million or to reach a goal of your choosing.) http://moneycentral.msn.com/investor/calcs/n_savapp/main.asp
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