How to make your children millionaires

Saving and investing from a young age can set your kids up for life.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

For those of your out there with teenage kids (or grandkids), you might be thinking how best to help them get the best possible start in life.

As well as the provision of a good education, possibly the next most important decision a parent can make for the young ones in their lives is to establish and commit to a long-term savings and investments plan.

Now, although it's true that teenagers don't have a lot of money, what they do have is a lot of time: your teenager has at least 50 years in front of them to take advantage of the stock market's ability to create long-term wealth.

Imagine this: the establishment of a savings plan of $200 per month, being put aside quietly in the background until they're at the stage where they can continue this themselves once they reach full-time employment, say by age 26.

Assuming $1,000 down on the investor's 15th birthday, $200 socked away each month, and providing an average annual 7% real rate of return, your teenager's investment 11 years later would have grown to $41,753.

If your now-adult child has taken a keen interest in this investment plan and decides to continue with it for the next 39 years, he or she would be sitting on a nice $1,122,395 at age 65.

(That's $121,000 down for an investment return of $1,001,395, excluding the effect of taxes).

But you know, I think a 15-year-old today, with parents or grandparents able to help with the plan at the beginning, can do much better than this if their commitment remains.

What he or she needs to do is to invest in younger, smaller companies with all of the associated risks these entail. However, these are risks that a young person can and should take on.

Here are three companies for consideration:

Superloop Ltd (ASX: SLC)

Here's a business that came to the public markets only in June 2015 and yet has already risen in value by 57%.

Despite a blow-out in losses between 2014-15 and 2015-16, the market has so far acknowledged that the business is still very much in the construction and development phase.

Promoted as Asia's newest telecommunications provider, it designs, constructs, and operates networks throughout major metropolitan centres in the Asia Pacific region and is currently valued at just under $400m.

As an extremely young, immature and higher-risk business, but with plenty of growth potential in front of it, a small position in Superloop can be considered for any young investor's portfolio.

Reckon Limited (ASX: RKN)

It's easy to disregard Reckon's competitive position when compared to the likes of the US accounting-software giant Intuit Inc. and New Zealand's Xero FPO NZX (ASX: XRO).

But Reckon still has a pretty sizeable customer base that has yet to make the transition from desk-top accounting to the cloud.

Given the growth in the cloud accounting space, it's not necessarily a given that if Reckon isn't a number 1 or 2 in the market then it's all over for them. I actually anticipate that Reckon will do quite nicely in the years ahead as it continues to move towards a Software-as-a-Service (SaaS) pricing model for its accounting software.

Priced at 16 times earnings and with an unfranked dividend of 3.1%, its valuation doesn't seem too demanding. I actually think the market is overly pessimistic on the company's prospects and for long-term investors, there's the opportunity.

IPH Ltd (ASX: IPH)

An intellectual property services company, IPH provides services that help its clients commercialise, protect, enforce, and manage its intellectual property.

Focused mainly on Asia and the Pacific, it's a fast-growing company with a reasonable valuation now that the company's stock has fallen from $9.43 to under $6 today.

Again, for any young investor with time on their side, IPH looks to be a sound investment.

Foolish takeaway

So, why aren't we all looking out for our kids and starting a savings and investments plan?

Naturally, the cost of living does tend to get in the way, but unless you have no disposable income, then I'm hoping that some of you out there reading this can make a decision to sacrifice some potentially unnecessary spending in your life and instead lay down some capital for your kids.

If you can afford to do so, saving and investing with a long time horizon (which your kids have) means that you may provide them the opportunities later in life that can be only dreamt about today.

The side benefit to this is that your kids become engaged with the process, learn more about money and the economy, and become financially-savvy as they grow older.

Win-win? You bet.

Motley Fool contributor Edward Vesely owns shares of Xero. The Motley Fool Australia owns shares of IPH Ltd and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »