This post will shock you. It’ll shock you first and then once what I share sinks in a bit, it’ll clearly demonstrate that, if you have a newborn child or a child who’s still very young, and if you make a decent living, you can easily make that child a multi-millionaire by his or her retirement. Easily. So easily. And legally. For very little effort.
I don’t expect much from this post, and honestly, I’m not even sure why I keep writing pieces like this. I talk about money with random people nearly every day of my life, and they’re almost always interested. They light up when they hear what’s possible. But after the excitement fades, most of them go right back to their normal habits: buying useless items and doing useless things instead of taking even the first small step toward building any sort of wealth. A few have tried. Most haven’t. Some start and then quit. I don’t always understand why, and it’s incredibly frustrating.
Nearly everyone I know thinks about money more than they’d probably admit. Yet even after I explain how they, or their kids, could realistically become financially secure or even marvelously wealthy, they go right back to spending on things that disappear: vacations, cars, bigger houses, and convenience purchases. It’s discouraging to watch so much potential slip away.
Still, I hold out hope. Maybe you’ll be the one person who actually follows through on even a fraction of what I share below. That small step could change your life or the life of your children. I’ll explain it all next, so keep reading.
My Goal With This Post
In this post, I’m going to walk you through a few simple calculations that might just blow your hair straight back. And if you don’t have any hair, they may still impress you enough that you’ll be kicking yourself years from now for not having acted sooner. My advice is purely financial, and my goal is to make your newborn or young children wealthier than you ever imagined they could be. Best of all, it’s all surprisingly easy.
I don’t mean to be crass, but none of this is particularly difficult or expensive to pull off and really, you have to admit, you’ve waited long enough already to get started.
The Power of Compounding
You’ve probably read or heard about the power of compounding somewhere along the way. The idea is simple: you open a savings or investment account and deposit some money. After the first year, you earn interest on your initial investment. As more years pass, you continue earning interest, not only on the original amount, but also on the interest you’ve already accumulated. Given enough time, the growth can become so substantial that the interest itself eventually exceeds what you originally deposited. That’s how real wealth is built.
The problem, of course, is patience. Most people struggle to think beyond tomorrow. Many assume they’ll never live long enough to enjoy the rewards anyway, so they spend freely today and stay financially stagnant. Too often, that pattern carries forward, and our children end up no better off, and sometimes worse off, than we were. It’d be nice to break that cycle, wouldn’t it?
To do that, we have to accept a simple truth: most of us will live long, healthy lives, and so will our children. Don’t let short-term thinking drive long-term decisions. The mindset of “we might as well spend it all today” rarely leads anywhere productive. Surround yourself with people who think beyond the next paycheck or vacation.
The reality with compounding – whether it comes from interest, dividends, or long-term investing – is that it often takes decades before the results become noticeable. But once the growth curve bends upward, the progress can feel almost unstoppable. That’s why I’ve chosen to focus on children in this discussion. A newborn has 60 or more years for invested money to grow and compound.
While I’ll highlight a specific type of investment account below that offers meaningful tax advantages, the same principles apply to most brokerage and retirement accounts if you approach them thoughtfully.
A Compounding Example
Let’s start with a fun example to get you in the mood for the rest of this post. For the moment, forget about taxes and IRS rules and focus simply on how exciting it can be to watch money grow.
Your newborn arrives, and you open an investment account (a regular brokerage account) in their name. A loving parent or grandparent contributes $10,000. You invest the money in VOO, an ETF that tracks the S&P 500, a group of stocks that has historically returned about 10.5% per year, on average (VOO’s return rate is actually higher, but we’ll stick with 10.5% here, just for illustration purposes).
No additional money is ever added to the account. However, as dividends are paid out each quarter, they’re automatically reinvested to purchase more shares of VOO. This process continues for 65 years while your child grows up, builds a career, and enjoys life.
On the day your child retires at age 65, that original $10,000 investment would have grown to approximately $6,584,883.13. Now tell me, was it worth the small hassle of opening and funding the account? I think so. This is the kind of thing grandparents love contributing to, so hit them up if you can.
By the way, I don’t want to jump the gun here or anything (I’ll get into VUG below), but if you were to invest in VUG at a 10-year annualized return of 17.45% for 65 years as opposed to VOO, that same $10,000 would turn into $347,093,413.40 ($347 million) after 65 years as opposed to VOO’s $6,584,883.13. So yeah, return rates matter – a lot. But just be warned, the growth curve remains relatively flat until year 40, when it goes parabolic.
VUG for Eight Years
Let’s say you own and operate a plumbing business and have a 10-year-old son. You need help with your company’s social media presence and online marketing, and your son happens to know how to help. So you hire him and pay him $7,500 per year (take-home). You start his employment at age 10 and continue it until he turns 18.
Every dollar your son earns is deposited into a custodial Roth IRA that you set up for him. Over those working years, he contributes a total of $60,000. Not bad for someone who hasn’t even reached adulthood yet.
With those contributions, he purchases an ETF with the ticker symbol VUG, a Vanguard growth fund that has averaged roughly 17.45% annually over the past decade. By the time your son turns 18, that investment would have grown to approximately $112,648.87. The fun part? He never contributes another dollar to his Roth IRA for the rest of his life. This is where things get interesting. He simply lets the investment compound until he retires at age 65.
Your son could be wealthy or broke during his working years. It doesn’t really matter. When he retires, however, he’ll be having a lot more fun than most people ever will. At age 65, his Roth IRA would have grown to an estimated $96,728,338.14. I know, it sounds absurd. Eight years of working as a kid and a retirement account worth over $96 million? It almost feels unfair.
Oh yeah. By the way, every dime your son withdraws after retirement and spends lavishly is totally and utterly tax free. That’s the benefit of a Roth IRA.
A Lifetime of VOO
Let’s walk through another fun example. This one might really light a fire under you. Over the past 16 years, VOO has returned an average of about 14.8% per year, which is well above the S&P 500’s long-term historical average of roughly 10.5% since its inception in 1957. If recent trends were to continue, it’s reasonable to expect returns closer to what we’ve seen over the past few decades. One possible explanation might be the steady expansion of the global money supply, ongoing debt issuance, and the growing dominance of large ETFs. Much of that capital eventually finds its way into financial markets, pushing asset prices higher over time.
Now, imagine you have a child. Early on, you find a legitimate way for her to earn income; perhaps modeling, appearing in commercials, content creation, or another age-appropriate opportunity. Her work earns $5,000 per year, take-home. Like everyone else, she files taxes, and because the income is earned income, it qualifies for contributions to a Roth IRA.
As in the previous example, you open a custodial Roth IRA for her. At the end of each year, the full $5,000 she earns is deposited into the account and invested in VOO. This continues until she turns 18.
By her 18th birthday, she will have contributed a total of $90,000 – and not a penny more during childhood. Assuming a 14.8% average annual return, that $90,000 would have grown to approximately $431,378.14, with more than $336,000 coming from growth and reinvested dividends alone. Pretty impressive, and we’re just getting started.
You’ve raised her well, and over the years she’s watched her account grow and learned firsthand how compounding works. On her 18th birthday, she tells you, “I’d like to keep investing. I have a part-time job, and I think I can continue contributing $5,000 per year to my Roth IRA.” What a kid.
She continues making $5,000 annual contributions for the next 47 years, consistently investing in VOO. If the fund were to maintain an average return of 14.8%, the results become remarkable.
So what does her account look like on her 65th birthday? Starting with $431,378.14 at age 18 and continuing to contribute $5,000 per year for the next 47 years, while earning an average annual return of 14.8%, her portfolio would grow to approximately $305,368,933.55. That’s $305 million.
Over her lifetime, she would have personally contributed a total of $325,000 ($90,000 during childhood and $235,000 during adulthood). The remaining $305,043,933.55 would come entirely from market growth and reinvested dividends.
That’s the power of long-term compounding at work.
In Conclusion
Like I said, I don’t expect too much from this post. Many people will read it, feel inspired in the moment, and then return to their daily routines without making meaningful changes to their investment habits. It’s hard to understand why taking action can feel so difficult, even when the path forward seems clear.
So many of us focus on a future $1,200 monthly Social Security check or a small pension or annuity payment, while overlooking the long-term potential of consistently investing even modest amounts, such as $5,000 per year. I was earning more than that as a lifeguard at 17, which really puts the opportunity into perspective. The disconnect between what’s possible and what people actually do is something I still find fascinating.
Just think about this: with a relatively small investment today, you have the potential to set up your entire family tree, financially, for generations to come. That’s a strange and powerful thought, if there ever was one.
If there’s one takeaway, it’s this: building wealth isn’t just about working hard, it’s about thinking strategically. It’s about earning steadily and investing wisely over the long term. If your goal is to build real wealth for yourself or for your children, try not to fixate on annuities, pensions, or Social Security alone. As you’ve seen, those income streams are relatively small compared to what disciplined long-term investing can make possible.
Disclaimer: These numbers assume ideal market conditions for illustration. Real-world returns will vary, sometimes significantly.
FAQs
I thought I’d address some questions that have likely come up while reading this post. Below, I’ve listed the ones I could think of along with answers. If you have any additional questions, feel free to leave them in the comments. I’d be happy to help. Thanks for reading!
- Can a young child open a brokerage account?
A young child cannot open a standard brokerage account because minors can’t enter legal contracts. However, a parent or guardian can open a custodial account (UGMA or UTMA) in the child’s name. The adult manages the investments until the child reaches the age of majority, usually 18 or 21. For a Roth IRA, the child must have earned income, and a parent can set up a custodial Roth IRA. These accounts let the child own stocks, ETFs, or other investments while giving the adult legal control until the child is of age. - What is a custodial Roth IRA?
A custodial Roth IRA is a retirement account set up by a parent or guardian for a minor who has earned income. The adult custodian manages the account until the child reaches the age of majority (usually 18–21). Contributions are made with after-tax money, and investments grow tax-free, with withdrawals in retirement generally also being tax-free. It allows children to start investing for retirement very early, taking advantage of long-term compounding, while still following legal requirements for minors and Roth IRAs. - Are Roth IRAs tax free?
Roth IRAs are not funded with pre-tax money, so contributions are made after taxes. However, the big benefit is that all growth and qualified withdrawals in retirement are tax-free. This means dividends, interest, and capital gains within the account are not taxed, and you won’t owe taxes when taking money out after age 59½, as long as the account has been open for at least five years. Essentially, you pay taxes upfront, but all future growth and withdrawals are sheltered from taxes, making Roth IRAs extremely powerful for long-term compounding. - What type of income qualifies as a deposit for a Roth IRA?
Only earned income qualifies for Roth IRA contributions. This includes wages, salaries, tips, or self-employment income – basically money you earn by working. Passive income, such as investment dividends, interest, or gifts, does not qualify. For a child to contribute to a Roth IRA, they must have earned income from a legitimate job, like modeling, babysitting, or work in a family business. The contribution amount cannot exceed their total earned income for the year, and it also must stay within the IRS annual contribution limits for Roth IRAs. - Can a baby open a Roth IRA?
No, a baby cannot open a Roth IRA on their own because minors cannot enter legal contracts. However, a parent or guardian can set up a custodial Roth IRA on the baby’s behalf if the child has earned income. Even small amounts, like money earned from modeling, acting, or other age-appropriate work, can be contributed, up to the child’s total earned income for the year. The adult custodian manages the account until the child reaches the age of majority, after which the child gains full control of the Roth IRA. - Can young children file taxes?
Yes, young children can file taxes if they have earned income that meets the IRS filing threshold for the year. For 2026, a child must file a return if they earn more than the standard deduction for dependents, which is generally their earned income plus $400. Filing ensures the child reports income correctly and pays any required taxes. It also allows contributions to a custodial Roth IRA since only reported earned income qualifies. Typically, a parent or guardian helps prepare and submit the return until the child is old enough to file independently. - If a person never sells shares of an ETF, do they ever have to pay taxes on capital appreciation?
No — if you never sell your ETF shares, you do not pay taxes on capital appreciation. Taxes on capital gains are only triggered when an investment is sold for a profit. However, you may still owe taxes on dividends or interest that the ETF distributes, unless it’s held in a tax-advantaged account like a Roth IRA or traditional IRA. In a Roth IRA, both dividends and capital gains grow tax-free, so you can let the investment compound for decades without owing taxes, which is why long-term growth in such accounts can be so powerful. - What is an ETF and how does it work?
An ETF (Exchange-Traded Fund) is a type of investment that holds a collection of stocks, bonds, or other assets, and trades on a stock exchange like a regular stock. By buying a share of an ETF, you gain exposure to all the underlying assets in the fund. ETFs can track a market index, such as the S&P 500, or focus on specific sectors or strategies. They allow investors to diversify easily, spread risk, and benefit from market growth. Dividends and interest earned by the ETF are usually reinvested or paid out to shareholders. - What happens to a custodial account when a child reaches adulthood?
When a child reaches the age of majority (usually 18 or 21, depending on the state), control of a custodial account automatically transfers from the parent or guardian to the child. At that point, the child can make all investment decisions, withdraw funds, or continue contributing if it’s a Roth IRA. Until then, the adult custodian manages the account responsibly. This structure allows parents to guide investments early while giving the child full ownership and responsibility once they legally become an adult. - Are there contribution limits for Roth IRAs?
Yes, Roth IRAs have annual contribution limits set by the IRS. For 2026, individuals under age 50 can contribute up to $7,500 per year. Those 50 or older can make an additional $1,100 catch-up contribution, for a total of $8,600. Contributions also cannot exceed your earned income for the year, so a child’s deposit is limited to what they actually earned. These limits apply across all your Roth and traditional IRAs combined, ensuring your account maintains its tax-free growth and withdrawal benefits while staying IRS-compliant.
