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If you can take a relatively small amount of money (e.g, $40,000-- the price of a new car, which is something the middle class does buy), and invest it for say,
by JMTQp8lwXL 5y ago
If you can take a relatively small amount of money (e.g, $40,000-- the price of a new car, which is something the middle class does buy), and invest it for say, 70 years, earning a 7% annual return, you could leave your heirs $4.5 million:
40000 * (1.07 ^ 70) = $4,559,575
If you can buy a car, you can make your beneficiaries multi-millionaires, if you want to.
- jedberg 5y agoThe chance that you live for 70 years after you have an extra $40,000 to invest is highly unlikely unless you started out wealthy. Also, you will not get 7% annual interest on $40K. Edit: Let me expand. You won't get 7% real returns on $40K. Yes, the S&P500 can return that much, but that's before inflation. OP was comparing the cost of a car now to the average wealthy person's inheritance now, which isn't a fair comparison. You have to account for inflation over 70 years.
- JMTQp8lwXL 5y agoThe S&P 500, over its history, has returned north of 9% per year. https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average...
- jedberg 5y agoSee my edit, I was talking about real returns including inflation.
- JMTQp8lwXL 5y agoThe nominal return (9%) is: 40000 * (1.09 ^ 70) = $16,669,203. The first calculation uses 7%. It is the real return. You'll actually have $16m, but the purchasing power would be $4.5m in 2021 dollars.
- slownews45 5y agoIf you just did the S&P 500 you'd have an average return of between 8% - 10%.
- jedberg 5y agoSee my edit, I was talking about real returns including inflation.
- AutumnCurtain 5y agoThe middle class in America is largely buying $40,000 vehicles with debt and in middle age, not in cash at 18 (and a very long life ahead of them).
- tstrimple 5y agoThe average life expectancy in the US is 78 years, so this plan is fantastic for all the 8 year olds with $40k just sitting around waiting to be invested.
- MisterBastahrd 5y agoHow in the hell is $40K a relatively small amount of money?
- JMTQp8lwXL 5y agoIt's less than the median household income. If you save 15% of the median income for a few years, you could come up with $40k. It's also small relative to $4.5m (0.88%).
- MisterBastahrd 5y agoHow many people making $50K a year can afford to save $15K of after-tax income? Single people living with their parents?
- thebricksta 5y agoIf I'm old enough to buy a car, then I likely am having kids soon - so a 70 year time horizon means that my kids will be multi-millionaires when they are around 70, which doesn't do much for them. Maybe it'll do something for their children, who probably are in their 40's with kids of their own, but by then you are splitting things maybe three to six ways, so it's just a nice inheritance, not quick riches.
- jandrese 5y agoIn 70 years that 4.5 million won't be nearly as impressive. If you had $40,000 in 1951 that was a pretty serious chunk of change. For reference, that new car in 1951 was around $1,500.
- acomjean 5y agoThis is true. If you have some extra money, its a lot easier to make more money. Though I would be most people just don't have 40,000 lying around, they usually have to get a car loan and borrow that.
- deleted 5y ago[deleted]