The answer to that rhetorical question is, of course, just about all of us. However, in reality, very few people ever make it. There are many ways to that magic million, from diligently investing, to starting and listing your own business. The reason most people fail to achieve it is simply that they spend the money along the way.

Einstein once said that the most powerful force in the universe is compound interest. Inherently we all know this, but somehow fail to take advantage of it. So what if we set out to achieve this for our kids using an extreme form of the time value for money, just as a bit of fun, but also to ensure that our kids have an odds on chance of indeed achieving millionaire status.

The Time Value of Money

Over the last 20 years the Dow Jones has recorded a 10 year average of 11.59%. For those disbelievers the source of the information is to be found at http://www.dowjones.com.

Yes it is true that that period included the highs of the bull market, but it also included the crash of 1987, and the trough of the last 3 years. The point is that over an extended period of time, the stock market has done extremely well. Yet despite this, most people do not retire as millionaires.

The Plan

The plan is simple. We invest a modest amount of money, say $4 000, for each of 3 years into a dow jones tracker fund. We place the funds in a trust, which simply may not be touched until the child turns 60. In the event of their death, the funds are paid out to other siblings or beneficiaries. To avoid fees curtailing performance, we keep the concept simple, and the investment mandate restricted to a tracker fund or its equivalent. We monitor it infrequently, say twice a year, and we let time take its course.

How to do it

Our concept is as follows:

• A stock standard trust is set up that provides for a payout on one of the following events:
  • Death;
  • Child turning 60;
  • Child becoming seriously ill.
• No fees are charged for the setting up of the trust. A fee of 1% pa is levied over the period to cover administration costs.
• The investment mandate is simple. Invest in a Dow Jones or equivalent tracker fund.
• Reporting is kept simple, probably by way of a web site.
• We wait for time to take its course.