I don't invest directly in ASX ETFs for my own portfolio, but I plan to utilise exchange-traded funds to give my kids a solid financial foundation.
We all want a bright future for our children. One where they have the tools to go out and chase their ambitions. Sometimes, those goals come with a price tag — whether it be music lessons, tutoring, equipment, university, or maybe even a move abroad.
I'm yet to have kids. However, when I do, I plan to follow Warren Buffett's example. As the famed investor said, "I want to leave my children enough so that they can do anything, but not so much that they can do nothing." This helps lower the barriers to pursuing whatever endeavour they choose without robbing them of the often-overlooked joy from adversity.
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Aiming for $50,000 from an ASX ETF
When the goalposts are 18 years in the future, the last thing I want is my inherently human psychological shortcomings derailing this helping hand. That's why I'd rather turn to an exchange-traded fund and let compounding do all the heavy lifting.
This gift is helpful even if I don't outperform the market. While a 15% annualised return over 18 years would be nice, I'd probably bear a substantial risk of losing capital if I selected one, two, or even a handful of individual companies.
As such, I plan to keep it dead simple. One ASX ETF offering vast diversification: the iShares S&P 500 AUD ETF (ASX: IVV).
The ETF provided by BlackRock tracks the S&P 500 Index, which is made up of the 500 largest listed companies in the United States. We're talking companies such as Apple Inc (NASDAQ: AAPL), Microsoft Corp (NASDAQ: MSFT), Meta Platforms Inc (NASDAQ: META), and Buffett's own Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B).
All for a relatively low management fee of 0.03%.
Based on the ASX ETF's 6.38% post-tax return since its inception, if I invest $4,000 on the day my child is born and continue to invest $100 per month until they're 18 years old, they will receive $50,627 (before fees).
That's quite impressive, considering my contribution would be $25,600 — almost doubling the money.
Keeping it simple
The dollar amount isn't so important. In fact, my circumstances might change, and I might be able to invest only $50 a month. Any amount invested is still better than none.
What I believe is most important is the approach.
See, I expect life will get busier with kids. I'd rather spend my spare time making memories with the family than stressing over optimising the returns on a gift. The fact is that corporations' average lifespan is getting shorter. An investment in a singular company today may not even exist in 18 years.
Investing in a diversified, market-weighted ASX ETF removes this worry completely. Leaving more time for the truly important things in life while also setting my kids up in the process.
