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FINANCIAL PLANNING
Age 14 21 28 35 42 49 56 63 70 77
Investment $2,000 $4,000 $8,000 $16,000 $32,000 $64,000 $128,000 $256,000 $512,000 $1,024,000
By the age of 77, this investor has turned a small investment of $2,000 into over a million dollars. Imagine what that number would be
to help your kids get a head start. The biggest problem we see is that the kids never learn how to invest. Their parents take care of them and satisfy their financial needs. I would encourage parents to teach their kids about investing and the long-term benefits it can have. “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.” I commonly refer to Warren Buffett in my articles. I consider him to be
the most successful investor of all time. A big part of his success is due to the time value he created for himself. Warren bought his first stock at the age of eleven. He bought six shares of Cities Service at $38 per share. It dropped down to $27 per share right before it jumped up to $40 per share. Warren sold the stock. It then skyrocketed to over $200 per share and that was when Warren decided he was going
to be a long-term investor. As I write this, Warren Buffett is worth roughly $114 billion and is the 5th richest person in the world. He is a great example to illustrate how starting young can reap long-term benefits.
GETTING STARTED
There are several accounts that can work
typically don’t have that problem. Another great investment account for kids is a Uniform Transfer to Minors Act (UTMA). This is a way to introduce investing to your kids and grandkids while still controlling the assets. You, as the owner, would be the custodian and once the child turns 18 or 21 (depending on your individual state law), the funds transfer into their name. This way they can’t sell or withdrawal their investment without your approval, at least until they reach the age of majority. Lastly, a 529 account can be very helpful for young adults. This type of account incentivizes use for higher education. This could be a college degree, equine studies,
hair school, you name it. This also includes housing and any other costs associated with that further education. If a 529 account is used for schooling, the growth on the account will be tax-free. If the money is withdrawn for other purposes, there is a 10% penalty on the growth and will be taxed as ordinary income. Keep this in mind if you have a 529 account.
In summary, most young adults fail to grasp the opportunity of investing. Too many people look at investing as an activity for the wealthy. Try to change that mindset and think
with regular contributions.
If you are over the age of 14, don’t worry.
You can still become a millionaire. The investment amount just might take a bit more than $2,000.
What we commonly see in the financial industry is parents setting up investment accounts for their kids. This is a great option
great for kids and young adults. They all
have different benefits to utilize. First is a Roth IRA. This type of account is especially beneficial for younger individuals. The most obvious benefit to a Roth is tax-free growth. As long as you have earned income, you can contribute to a Roth. There is an income limit to be eligible to contribute to a Roth, but kids
of it like training a horse or going to the gym. By showing your kids and grandkids the Rule of 72, you are engaging them and showing them the benefits of investing if done right. There are several different accounts that could likely suit your needs. Get in contact with your financial advisor to see if they can help you with generational planning.
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