Alarming news!
It appears I was born in the wrong generation. My kids are going to have all the fun, and that, quite frankly, is unfair.
Did you know that over the next 20 years, the next generation will be inheriting $3.5 trillion?
I didn’t know, and now I am a bit cranky about it. I have been sulking for a week.
Anyway, our government is too concerned about making sure our children can calculate long division manually (which they will never use), so it will be down to you to make sure your kids use your money wisely.
There are other issues, too. If your children get divorced, there is a chance 50% or more of your hard-earned dough will disappear to someone you probably don’t know or even like.
And what happens if they somehow get into financial difficulties? Will your hard own cash disappear never to be seen again by some greedy credit card company or bank?
So, what should you be teaching your kids?
Compounding
Einstein called this the 8th wonder of the world. He said those who understand it will earn it. Those that don’t will pay it.
And compounding works best when you start young.
Compounding returns are when an investment’s returns are reinvested, and those profits, in turn start to generate their own profits. This can lead to exponential growth, but the important factor is time; the longer the investment is held, the greater the compounding effect.
Below shows a table of what happens if you invest $100,000 for 20 years with a return of 5% a year. Let’s assume no further funds were contributed, but all returns were reinvested.
As you can see, even though the growth is only 5% a year, the average growth is 8.27%. You do not need to be Einstein to know that if you invest and add more to the pot, you could have a massive pot of gold.
Get your kids to understand compounding. And make sure they start young. Even if, like me, you think it’s unfair and are cranky about it.
Get Them to use Trusts
When I got to understand what trust was and how it works, I was amazed such a thing existed. They can be very powerful and resourceful.
Assets held in trust can be protected (so you don’t lose them if you get into financial strife), and they can reduce taxes, too. What’s not to like?
Get your children to understand what a trust is and how it can help them. And if they do get into financial trouble, it might save the family silver from being stolen.
Forget the Fad
When I talk to young adults, they think the latest fad investment is the one to go for. Crypto? They are all in. Non-Fungible Tokens? Yep, they will have a massive slice of that, too.
Basic boring investments? Nope. They have no time or energy for that.
This is a result of modern times. No one seems to have the patience to wait these days. Everything must be instantaneous. Immediate. Right now. And if you can’t, then they have no interest.
A recent survey by ASIC showed that those under 30 had a massive part of their portfolio in crypto. Like social media, it gives instant trills. That may be excused, but there is a scary part? Over a third of them did not think crypto was risky.
Yes, crypto should be part of your portfolio (although I have stayed away from them), but not a massive part. Centuries of investments has showed us that boring and basic is the best way forward financially. I doubt that is going to change in my lifetime.
If you have any questions regarding the above, please contact Hitesh Mohanlal at hitesh@medisuccess.com.au or call 07 3161 9548.
