I was thinking.
You know sometimes people say.
If only my parents bought... whatever asset, then we would be rich and won't need to work anymore.
Then I also think. Well, buying XYZ asset would cost a lot in their time and they probably won't have the funds when they were younger.
So I came up with a table. The below is basically for USA. But it's just an example of what life was like. So take it with some salt and pepper.
So if in year 1950, 66 years back, if someone invested USD1,000 in the S&P, it would be worth around USD130k now.
Then some folks would say, do you know how much USD1,000 was worth in 1950? Maybe our parents won't have USD1,000. It was worth a lot during that time.
Well, USD1,000 in 1950, is worth around USD10,022 in 2016.
Not as much as I had thought. So if you have USD10,000 now, means it IS possible, that your parents had the opportunity to invest USD1,000 into the S&P.
But hey, what's USD130k worth now anyway right? Even if my parents had invested USD1k and it's worth USD130k now, that's not going to change my life.
So how much would they need to invest in 1950 to make it worth it for me?
I think I would be really delighted if my parents would say, "Hey son, we invested some money in 1950 and now it's worth USD1million. You don't need to work or worry about finances anymore."
So I reckon USD1m is nice. I'm happy with less but let's put it at a good life changing number.
So how much would they need to invest in 1950 to gift me USD1m now? Approx USD7,500.
Which is worth USD75,000 in 2016.
Hey! Not too impossible. It's not a small amount of money. But it IS manageable. Meaning, it IS possible to have saved up USD7,500 in 1950.
But wait a minute! 1950... My dad would have been... 10 years old... ok now that sucks.
Ok now what would be a reasonable age for my dad to have worked a few years and be frugal and saved up some money for investment. I think 30 or so, would be realatively reasonable. He probably would have worked a few years already. So in 1970 he would be 30 years old.
Let's look back at that table.
Investing USD1,000 in 1970 means it's worth USD25,000 now.
USD1,000 is worth USD6,300 in 2016 dollars.
Then we scale it like the above.
So he would need to invest USD40,000 to give me USD1m now.
And how much would USD40,000 be worth in current dollars? USD252,000!!!
Ok now THAT'S a different matter right?
Saving USD252,000 by 30 years old would be a tough thing to do.
It's like saying you save USD252,000 now at 30 years old and invest it in S&P and 45 years later you can gift it to your son. Tough.
It's more likely you save and invest this USD252,000 for your own retirement. Then bequeath it to your children when you go.
Anyway so what's the point of this whole post today?
Well. It's always nice to hope that my/your parents did some good investing when they were younger so that we can reap the benefits now. But it's not as easy as it seems. Possible but not easy.
Not to mention that this is all on hindsight. Meaning, how did they have the confidence to invest large amounts in certain assets or asset classes. There probably wasn't any ETF previously. Financial knowledge also wasn't as easily learnt in the 1970s.
Well anyway. The next point would be, what would YOU do that would make YOUR children happy?
What awesome investment could you make such that your children would say, "Thanks dad/mom!!"
To reap the rewards 30-40 years down the road means you need to start your investment NOW!
What are the decisions that you can make now that your children will thank you for in the future.
*Side note, I'm not saying that it's necessary for parents to gift anything to their children. It's a hypothetical scenario. IF they wanted to do it, what they needed to do in their time. Same as IF you want to give to your children, what you might need to do in your time.
<<PREVIOUS POST // NEXT POST>>