Even if it's just a few dollars a week, teach them to save and invest while they're at home (and have no expenses) and the results will be truly amazing. If they average just $2 a day in savings through the age of 21, then savings ratios of just 10% to 15% as adults, by the time they're ready to start families of their own, they can well acquire a "nest egg" of $200,753!
That's quite a sum for someone so young. And easily achievable even if they only make an average income as an adult. What's more, this only assumes the long-term annual average returns of the market for the entire 20th century, 12%, including bull and bear markets.
However, when investing correctly, it's reasonable to suppose slightly better returns. After all, they're investing for the long term and so can target the most downtrodden mutual fund categories.
And history tells us these are likely to produce the highest returns over the long term. Once we add this technique, the results are even more remarkable.
For instance, a few years ago, Wall Street money manager James O"Shaughnessey used Standard & Poor's entire Compustat database and tested various investment styles for long-term investment success.
In his book What Works on Wall Street, he reported that investing in value stocks with an emphasis on earnings growth produced 18.4% returns between 1952 and 1994.
At the same time, a study by the Wharton School shows small caps returned about 18.4% since 1951 and 1994.
If your children get these kinds of returns, their $2 a day through the age of 21 and reasonable savings and investment ratios as adults will turn into $673,137 by the age of 30!
And within three years after that, they'd have over $1 million by the age of 33 even if we suppose they never had an above-average-paying job in their lives!
These are examples of the power of investing early. But to make it work, you also have to take advantage of children's other unique strengths as young investors, including ...
Children's 2nd Great Wealth Advantage:
A Great Capacity to Learn!
During childhood, we have a greater capacity to learn than at any other time in our lives. This, for instance, is why it's so much easier to learn a second language when you're very young.
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