Invest for the future and make your children millionaires

Long-term investing is a tried-and-true path to creating wealth.

There are lots of different reasons for people to become interested in the stock market, however, it would seem likely that many want to provide for a comfortable retirement, or so they can enjoy a few extras in life, that beach house would be nice! Others want to grow a pool of savings so that one day they can help their children and grandchildren get a head start in life.

While the compound growth I am about to describe equally applies to retirement funds and saving for that beach house, it’s amazing to think that by putting aside a little each week, by the time your child or grandchild turns 31 years of age that head start I mentioned could be worth $1,034,909!

Consider this, you’ve just become a parent or grandparent. By saving $100 a week, at the time of the child’s first birthday you’ve saved up $5,200. You invest this into the stock market and earn 11% – yes we’ll get to how in a moment. Then on every birthday for the next 29 years you add another $5,200 to the account. All told you will have invested $156,000 on the child’s behalf (that’s 30 x $5,200) and the beauty of compounding the money at 11% per annum will do the rest – in this scenario by providing $878,909.

How do you earn 11% per annum?

It’s certainly the right question to ask and it’s necessary to achieve to compound $100 a week of savings into $1 million within 30 years. While you certainly won’t make it in a bank savings account the equity market can help make it happen. Top quartile fund managers can be a good place to start. Platinum Asset Management Limited (ASX: PTM) which has managed the MLC Platinum Global Fund has in fact achieved 11.3% per annum since inception in June 2004.

Alternatively you can buy a basket of shares to achieve 11%. This of course is more risky if you’re not an experienced investor or being guided by someone who is. However as has been the case in the past, owning high-quality growth stocks such as Ramsay Health Care Limited (ASX: RHC) and CSL Limited (ASX: CSL) will certainly get you there.

Wondering where you should invest $1,000 right now?

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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