This was something that I started thinking about not to long ago. People close to me recently got a child and were telling me that they saved €25 each month for the newborn. In this post I will show you the difference between just putting this money in a savings account or investing it in a simple ETF portfolio which frankly is just as easy in my opinion.
- 18 years of 0% annual yield: €5400
- 18 years of 0.5% annual yield: €5391.00 (worst case scenario)
- 18 years of 2.0% annual yield: €6188.90 (best case scenario)
For this part I am going to assume the money is put in an all world ETF or an ETF portfolio like the one i’m recommending here. For annual yield I am going to assume a 5.0% return which is a modest view of what such a portfolio is yielding the last decades. If we would invest the same €25 every month we would end up with €8606,03. This number takes into account Belgian tax of 0.35% every time we buy the shares and 0.35% ones we sell the shares at the end. Bare in mind that this is a theoretical number. In practice, when you are not able to buy fractional shares, this will mean that you can not invest the total amount of €25 every month because you will have to buy whole shares. For this reason I am going to take a more conservative number of €8000.
For those scared of investing in the stock market I would call this the perfect case where you SHOULD do it. Since this money will not be directly yours you will probably be able to be more distant from it. Short term the stock market can be volatile. But if you invest 18 years or even longer the chances of ending up with less money than you started with are historically speaking 0%.
Lets give a quick final overview of the different cases:
- 18 years of 0% annual yield: €5400 (Money under mattress method)
- 18 years of 0.5% – 2.0% annual yield: €5391.00 – 6188.90 (Child savings account with bank method)
- 18 years of 5.0% annual yield: €8000 (Investing in ETF’s method)