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$1,000 FOR NEWBORNS - HOW MUCH WILL IT GROW?

The Trump Administration is discussing a program in which the government may offer $1,000 to seed index fund accounts for U.S. citizens born from 2025 through 2028.

While that will no doubt provide a boost for recipients who can cash out after they turn 18, the degree of returns may vary wildly depending on when the child is born, based on historical experience.

Analysts at Bespoke Investment Group ran the numbers and found that $1,000 invested in the S&P 500 50 years ago that reinvested dividends would be worth $350,000 today.

But how many people will be able to avoid the temptation, or necessity, to cash out before the 50-year mark?

The sum quickly drops to $127,000 if invested at the end of November 1980 and $40,000 if it starts in August 1987. Not bad, but the payout still relies on some restraint by the recipient to not cash out too early.

Moving into this century, $1,000 invested in August 2000, just after the peak of the dot com bubble, would be worth around $6,200 today. A better investment would have been to wait until February 2009. In that case the lump sum would have now grown to around $11,000.

Could the new incentive lead stock following citizens to try to market time their babies? Time will tell, with Bespoke quipping that “if this provision comes to pass, we may see birth rates go up during lengthy bear markets!”

(Karen Brettell)

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