Financial Tip of the Day - Leaving a Legacy

[STGS]

It has been a while since I posted up a FTOD. This one rehashes the power of compound interest, but in a slightly different light.

One of my financial goals is to "leave a legacy" for my children, grandchildren and future generations. There are a number of tools and financial instruments in which to do this, but this tip simply focuses on the math side of it.


I am thinking about what I could do to establish generational wealth, literally forever. Dream big!!!!!! What if I invested $5k and forgot about it for the next 100 yrs?

So, I put together some simple future value calculations over a 100 yr period (3-4 generations) just to see where certain numbers could end up in the future.

DISCLAIMER: I am making several reasonable assumptions concerning taxes, rates of return, reinvestments and hoping one generation doesn't destroy my legacy.....


I used an 11% rate of return (S&P 500 ROR over the last 100 yrs) and assumed no material taxable events during investment.


Yep..... $5K turned into $170 Million over 100 yrs.





What if you invested $10K?




$50K?




100K?



That is $3.4 Billion over a 100 yrs. Sure, lots can change and happen along with inflation and market collapse, but that would be one heck of a legacy!!!!!

If nothing else, it forces us to see to impacts of time value of money coupled with compounding interest over extended periods of time.

[Jon B]

That is very impressive

[ShockValue]

Sold....Where do I sign up for an 11% static return?

[ultrastealth]

Sold....Where do I sign up for an 11% static return?

This

[STGS]

Sold....Where do I sign up for an 11% static return?

OK Party Poopers.....If you would like, I can apply the annual S&P return for the past 100 yrs to the next 100 yrs and see what I come up with? Hang tight...

[ShockValue]

OK Party Poopers.....If you would like, I can apply the annual S&P return for the past 100 yrs to the next 100 yrs and see what I come up with? Hang tight...

HAHA...I get it. Your premise is a good one. I do enjoy your posts.

[Shake N' Bake]

Very cool

[lwelch70]

Getting people thinking on things like this is the big win from these posts - although I would also sign up for that 11% if you're slinging it

Interested to see what you're graphs are going to look like with S&P returns translated forward.

[STGS]

Getting people thinking on things like this is the big win from these posts - although I would also sign up for that 11% if you're slinging it

Interested to see what you're graphs are going to look like with S&P returns translated forward.

There are lots of models out there that take the returns and put them in a 100 different sequences, but here is the first one (reverse sequential).

Strangely enough, the end result is very close to the average. Still ended up with about 3.4 Billion, although I should have sold out in 1929 and got back in 1933.

Point is, the S&P 500 has returned almost 11% over the last 100 years. Think about it in terms of gas mileage. Going up a hill, your MPG looks pretty bad, going downhill it looks great, but what is the average over an entire tank of fuel, or even over the life of your vehicle?






Here is one more with the returns in the exact same order as the past 100 years.... **** near the same result. $3.422 B. 100 years is a pretty good duration and takes out a lot of the year to year variability.

[ctom87]

but what is the average over an entire tank of fuel, or even over the life of your vehicle?



[ATTACH]1043199[/ATTACH]

I will never know because at 40k my wife reset my truck's "Trip A".

[boy wonder]

This also requires your heirs to leave the money alone.......

[rtp]

This also requires your heirs to leave the money alone.......

That was one of his stated assumptions.....one generation doesnt screw it up.

[JayB]

I love compound interest!

Question came up...how can you start something and protect it from future generation to allow time for that exponential growth?

[STGS]

I love compound interest!

Question came up...how can you start something and protect it from future generation to allow time for that exponential growth?

Trusts with specific instructions/requirements for administration are a common tool. There are some specific examples out there that allow for certain types of distributions, maximum limits, generational limits, etc.....

[Killer]

Can you run it for 50 to 60 years? I think that is a more reasonable time frame for most people planning on leaving a legacy. You don't know what will happen after you are dead and gone. You can't assume your heirs will leave it alone for 100 years. Maybe there is a way to lock it up in a trust or something like that?

I know you were only trying to show the compound interest but I would be interested to see what it does on that time frame.