In this second installment of my “Birthday Bonanza” series, I am going to discuss why it is better to invest $1000 in the stock market for your child when he or she is born, rather than in a savings account or the like.
Why stocks instead of a savings account?
If you’re like the average American, your view of the stock market might be – shall we say – jaded.
Most Americans view the stock market in the same manner as they do Las Vegas. They think of it as a casino, or a crap shoot.
Maybe you think that it’s only for the wealthy, and not for “average Joes and Janes” like you.
A savings account, on the other hand, is widely considered a very safe and secure investment. It’s backed by the FDIC, after all. So even if the bank becomes insolvent (goes bankrupt), your account is guaranteed up to $100,000.
Here’s the problem with savings accounts, though. They’re not as safe as you think.
When you deposit $1000 in a savings account, at the end of the year you will have $1001.
In the meantime, the price of goods and services we use every day will continue to rise.
$1000 in a savings account over an 18-year period – from the time your child is born to the time he or she turns 18, at current interest rates – won’t even generate a return of 10 percent.
On the other hand, if you invest $1000 in the right stock over an 18-year period, you could make 10, 15, or 20 times your money – or even more!
Is there risk associated with investing in stocks? Absolutely.
But the potential reward makes the risk worth taking. Wouldn’t you agree?
Tomorrow night, I’ll talk about how to go about investing $1000 in the stock market for your child to set him or her on the road to a wealthy start in life.