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.
- The government would need to spend further money to manage a “Zero-fee” index fund.
- 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.
- Given inflation, in 65 years 1 million dollars will not be enough to retire on.
- 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.