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The Birthright Fund – Setting Newborns up for Retirement

I recently read an interesting article containing the wisdom of the legendary investor, Bill Ackman. The title immediately caught my attention:

Give every child $6,750 so they retire a millionaire

You can read the original article here.

Essentially, Ackman is suggesting the U.S. government utilise the effect of long term compounding returns of the sharemarket and create a “Birthright” fund for every newborn child. 

Here is how it’d work:

Upon the birth of a child, the US government would invest $6,750 in the child’s birthright fund. The fund would be structured to invest in a “zero-fee” index fund. After 65 years of compounding at an average return of 8%, the child would be a millionaire upon retirement.

Given current birth rates, this would cost the US government about 26 billion per year. 

What I like about the Birthright fund.

No surprise, I think Ackman’s Birthright fund makes a lot of sense. He has done very well for himself and clearly knows a thing or two about finance. 

The fund concept would use long term compounding and the earlier you start, the better. 

Here is a great example – Compounding – why you should invest early

After 65 years, compounding can do some amazing things!

If this were to be done in Australia, it would cost a little over 2 billion dollars given the current average birth rates. Given inflation, I doubt 1 million dollars will be enough to retire on in 65 years, however, it will still be a nice stack of cash to be sitting on.

Utilising an index fund is also a great idea, take away interference of capital managers fiddling with the investments.

What needs improvement.

There are a few things that would need to be worked out for a Birthright fund to exist.

  1.  The government would need to spend further money to manage a “Zero-fee” index fund.
  2. strict rules and regulations are needed to avoid interference that has been seen with superannuation funds e.g. withdrawal during Covid or for first home buyers.
  3. Given inflation, in 65 years 1 million dollars will not be enough to retire on.
  4. An 8% average return is needed. If an average of 4% is achieved, the fund will return just over $86,000.

What do you think? Does a Birthright fund make financial senes? Personally, I doubt we would see implemented, at least in Australia given we have a strong Superannuation system.

As someone who would like to have children in the coming years, It gives me some things to consider. Maybe I’ll set aside a chunk of my portfolio for my future child. 

2 thoughts on “The Birthright Fund – Setting Newborns up for Retirement”

    • Sounds interesting, what would the concept behind that look like? I guess the argument against an education fund would have something to the current HECS system. There would also be less time for compounding to work given you generally start Uni at about 18 years… although I guess you would needs significantly less funds.

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