How to make your child a billionaire? What every Parent wants for their children.

"Children are not things to be molded, but are people to be unfolded." - Jess Lair

What are the major desires a parent always has for their child?

1. Emotional Health.

2. Physical Health.

3. Spiritual Health.

4. Passion for Learning.

5. Good Friends.

6. Purpose.

7. Wisdom.

8. Hope.

9. Love.

10. and last but not the least "Wealth"

How to make your child a billionaire? Sounds fascinating right? Well, it is authentically simple, authentic and possible withal. Let us optically discern how we can achieve 1 billion for your child. Today in this article, we want to actually share a different perspective of investment. Here, we obviously don't have a Magic recipe to create a Billion for your child. But certainly a practical approach of creating wealth.

                                  How to create wealth of a billion for your child?

For this, we considered some assumptions. You must be clear with what we have assumed at first. 

Our assumption is that the kid is born today and Immediately after the birth, his/her father starts monthly investment of Rs.25,000. 

Father will increase the monthly Investment every year at a rate of 10%. This means his monthly investment in the first year will be Rs.25,000 and the second year it will be Rs.25,000+10% and so on. 

Therefore, his first-year investment will be around Rs.3 lakh and next year it will increase to Rs.3,30,000. The distribution between Debt and Equity is 40:60. The returns from equity is assumed at 10% and debt is assumed at 6%. Hence, the combined debt and equity portfolio will be 8.40%. 

Father will continue to Invest in this manner until the Kid grows up to 20 years. So in totality he will invest around Rs.1,72,29,244. How this figure of 1.7cr could be a billion? Well, once the kid turns around 20 years of age, father stops the fresh investment. He handovers the accumulated corpus (which is approximately around Rs.3.48 Cr considering the Return earned on 1.7Cr investment) to his kid and suggest him to manage the same asset allocation and not touch the same for the next 40 years i.e. until the age of 60. So at the age of 60 the corpus of Rs.3.48Cr will be worth of around 1 billion!!! 

Yes, you got it right. It is all a result of using the power of compounding for your favor. It feels fantastic to handover a billion to your kid when he or she has turned 60 years of age. Note the growth for the first 10-15 years, it won't be noticeable at all. However, as the investment period passes, see how it takes a big leap. So by doing this you turn unimaginable numbers into imaginable, what are we trying to explain here? Well trying to say few important aspects of investments.

Compounding works only for LONG TERM: 

Yes, you do not feel the compounding effect on your Invesment if you invest for less than 10 years. However, if it is beyond 10 years or so, it starts to work like a magic. Hence, never expect that wondering numbers if you are short term investors. Also, do remember one thing that only two things are under your control when you invest. First one is how much you invest and the second one is how long you wait. 

But sadly, we all concentrate on "KITANA MILEGA: 

Actual returns are not Linear:

Although, the returns on investments will show in a linear line as if we get around 8.4% year on year returns. However, in reality, it is not like this. There can be certain period where it can be flat returns or negative returns or 4-5 years. Hence, never expect especially from the assets like equity that the returns will be linear like Bank FDs. 

Hence, being calm, investing continuously, doing proper asset allocation and holding your assets is a must for long term investing. 

Return on investments

For calculation purpose of the above example, we have considered the equity investments as 10% and debt returns as 6%. Hence, with an asset allocation of 60:40 between equity and debt, assumption of 8.4% returns from the portfolio is considered. These numbers are fair numbers to consider the return on Equity, as usually 12% is considered. 

Asset allocation is must

Yes, even though the investment period is long term, asset allocation between debt to equity is a must to protect your money. Risk management should be your first priority. As we went through an investment book, we are sharing you the research result of what are the ingredients for one’s success in investment. What makes you successful in Investing 

-Asset Allocation 93%, Fund Selection-2.5%, Other-2.2% and MARKET TIMING-1.7%. 

Hence, never ignore the concept of asset allocation. 

Controlling your Emotions is Mandatory

In the above example, the biggest task for both father and son is controlling their urge to stop and withdraw. Father has to invest continuously for 20 years without deviating from what he believed. At the same time, his biggest task is to teach his kid to manage the same principle and behavior for his kid too. The same way the biggest task for a kid is to hold on the accumulated corpus which his father gave for the next 40 years (i.e up to his 60 years of age). It is not easy for both father and kid. However, winning in investment requires such a strong grit to hold on and believe in what they do.

Conclusion

In the end, we would conclude that these studies are based on realistic assumptions and real results may vary accordingly. But our moto was to prove that being a Billionaire after all is not that difficult. What's important is to have a lot of Patience and Control over the years.

Happy Investing!