Do you know the number one factor for success in investing?
It’s not education, stock picking, research, intelligence, or even money.
Someone who has never read an investing book but has patiently been saving for retirement can easily turn $10,000 into a million over 50 years.
But even the smartest, most well-connected, most successful investor will struggle to do that over four or five years.
The secret to wealth is longevity.
Last a long time, and you’ll make a lot of money.
And if time is the biggest factor, then starting early will give you the biggest chance of success.
In this article, I will show you how you can almost guarantee your children will be millionaires, simply by opening a Kiwisaver for them on the day they’re born.
Starting Early Is The Secret
Warren Buffett is touted as history’s best investor, but there’s one thing about him a lot of people don’t talk about.
It’s that his investing returns are actually not that incredible.
Yes, he beats the market often, and has beaten it comfortably over his lifetime.
But Buffett’s real secret is he started side hustling and saving at about the age of 8, bought his first stock at the age of 12, and is still investing today at the age of 91.
That’s getting close to a century of saving and investing.,
In The Psychology Of Money, they did an experiment. They calculated how much Warren Buffett would be worth today if, instead of starting at age 8 and ending at age 91 like some crazy person, what if he had started investing at age 30 like most of us, still achieved the same exceptional rate of return, but then retired at 65 and simply enjoyed his riches?
Would he still be a mega-billionaire?
They found he wouldn’t even be much of a millionaire.
He would be worth $11.9 million.
99% less than the $84 billion he’s worth today.
This is the secret of compounding. The kicker isn’t how much you save, or how good the stocks you pick are, but your time in the market.
How To Start Your Kids Investing Early
The answer is obvious. Do it for them!
As soon as they pop out of the womb, open a Kiwisaver account in their names and put in $2,500.
Even if you or they never contribute a single dollar more, assuming the market is able to return 10% per year on average, how much will that be worth by the time they’re 65?
Now you might be asking, why Kiwisaver?
Why not just a regular brokerage account or a Sharesies account?
Putting it in Kiwisaver is actually what makes this so effective, and here’s why:
Kiwisaver accounts are not accessible until you turn 65.
Look at the graph above.
You can see most of the compounding happens from around year 30 onwards.
However, if you open just a regular Sharesies account, your child will get access to that at 18.
How much will it be worth at 18?
A measly $15,000:
Now, you and I have both been eighteen-year-olds before.
Ask yourself: What would you do, if, at the age of 18, your parents gave you a Sharesies account worth $15,000 and a big fat “WITHDRAW” button staring you in the face?
Would you be financially responsible and leave it to compound for another 45 years while you go back to your Pak N Save minimum wage job?
Of course not!
You’ll drain that motherf*cker immediately and go buy yourself a new car, some designer shoes and a brand new iPhone!
Kiwisaver is the secret ingredient that protects your teenage child from himself/herself.
Again, the secret is time.
Charlie Munger says the secret to wealth is to never interrupt compounding unnecessarily.
Kiwisaver will enforce that for you.
Which Kiwisaver Fund Is Best?
In this post I talked about the importance of low fees and how high fees can end up costing you millions of dollars, especially over a period as long as 65 years.
My suggestion would be to choose the lowest-fee indexing Kiwisaver fund you can find.
Personally, my Kiwisaver is with Kernel.
As long as you start early, any low-cost index fund should be fine.
Once again – the secret is not this fund or that fund – the secret is time!
Start early and the results should take care of themselves.
This Is How Generational Wealth Is Built
I’ve always said that in investing it’s the small, simple plays that get you the biggest results.
Imagine your child never having to worry about retirement, and can simply work a job or career he or she enjoys, even if it doesn’t pay that well, because they know their parents had the foresight to think 60 years ahead, and gave up $2,500 – the price of a new laptop or television – to ensure their child would retire a millionaire no matter what.
But let’s take it a step further.
Let’s say at 18, your son starts working.
You tell him about the Kiwisaver, which was $2,500 but now has grown 5x to around $15,000.
You explain to him the concept of investing and compounding, and how he will become a millionaire if he leaves it to grow.
You introduce him to blogs like this that will teach him to be financially savvy.
(Remember, schools don’t teach this stuff, financial education is a parent’s job).
A few years later, your son gets married, has three kids.
He does the same thing for all three kids – $2,500 into a Kiwisaver at birth.
Now instead of one account compounding to a million, his family should have five: him, his partner, and his three kids.
With patience, these investments will all grow in the background, and in time this family should be worth over five million dollars that required zero work.
And as those kids have kids, guess what happens? The process repeats, and the compounding grows.
This is how generational wealth is built.
And it all started from just $2,500. Giving up one vacation. One new television.
Invested at the right time, in the right way, with the right mindset, has the potential to set all your future generations up for life.