Attention new parents, you can buy shares in great companies like Wesfarmers Ltd (ASX: WES) or Woolworths Limited (ASX: WOW) early on, and probably make a mint.
Or — if you have enough money — you could also consider buying an investment property. Both of these investments have worked wonders for investors over the years.
If you are savvy, you could probably make enough money to give your kids access to better education, retire early and leave something for the next generation.
Well, that's the dream anyway.
My #1 investing tip for new parents
When I was born, one of my uncle's, who was very keen on the sharemarket, told my mum, "Put $500 in shares and leave it there." It was sound advice (see below).
Alas, she didn't put money aside in shares. In fact, my parents probably couldn't afford it at the time.
Now, as a very mature (or so I'm told) 26-year-old, I figured it would be interesting to see what that $500 would have become.
Using Vanguard Australia's historical average sharemarket returns, which work out to be about 9% per year since 1990. My parent's $500 would have turned into $4,700:
Now, I know what you are thinking: 'I was expecting something like $100,000!"
You're right, I'll admit, $4,700 is hardly going help you retire early. But let's consider one 'alternative strategy'. Let's say that instead of putting $500 in Aussie shares and forgetting about it, my parent's could have rustled together an extra $200 per month to invest.
My parent's $500 would have turned into $228,677.
You see that little blue line in the chart above? Yeah, me neither.
My number-one tip for new families is this:
START EARLY
Starting early allows your investment to be reinvested for better returns. Earning 'interest on interest', as the experts say.
Going one step further, I'll add this: identify solid, dividend-paying shares, diversify, maybe invest in an index-tracking fund (like one from Vanguard) and leave it alone. If you have an emergency fund set aside for 'rainy days' and you live within your means, the rest is easy.
'99% of long-term investing is doing nothing — the other 1% will change your life' – Morgan Housel.
