Many of the gifts we give our children have a short shelf life. From smartphones that get replaced on an annual basis to short-lived fads like fidget spinners, it can be difficult for parents to predict what will last and what will collect dust. That’s why some parents prefer to use their extra funds to secure their children’s financial futures. But as interest rates get lower and lower, traditional savings accounts are starting to seem not worth the hassle. Meanwhile, the stock market can be volatile and risky. Classic investment options for kids just aren’t what they used to be. That’s why we suggest investing in your children by giving them the gift of gold instead.
As a safe haven asset with a proven history of growth, gold makes for a perfect way to generate wealth for your children without risking their future in a volatile market. And further, because more gold investors tend to be older, allowing your children to enter the gold market at a younger age will allow them to reap more benefits than the normal gold bug.
“gold makes for a perfect way to generate wealth for your children”
Let’s start by looking at gold’s potential growth. Earlier this month, we covered a webcast between U.S. Global Investors CEO Frank Holmes and Franco-Nevada chairman Pierre Lassonde where Lassonde predicted a bright future for the yellow metal. Specifically, he stated that the Dow to gold ratio could jump anywhere from 2:1 to 7:1 in the next five years. For comparison, the Dow to gold ratio is currently 22:1. This makes for a potential increase in the spot price of gold from its current resting place around $1,500 to an eventual $12,500, meaning now is a perfect time to begin investing in gold’s future.
Just look at the 30 year data. According to goldprice.org, the price of gold has jumped from roughly $400 per ounce to $1,500 per ounce in the past 30 years, more than tripling in value. Even taking inflation into account, $400 in 1990 should only be worth $811 in 2019. If this rate of growth increases, that means that $1,500 invested now would return around $5,625 in 2050. And even that is on the lower end of Lassonde’s estimates. If we assume a more optimistic approach, a 2:1 Dow to gold ratio would see $1,000 invested in a newborn’s name now become $8,300 by the time they are 30. $20,000 invested now would become $166,000. And that’s without continual deposits.
“now is a perfect time to begin investing in gold’s future”
There are three major reasons why Lassonde is so optimistic about gold’s future. These are increased central bank buying, increasing gold ETF popularity, and a shift in physical demand from West to East.
To go into detail, Lassonde said in his webcast that “The central banks have gone from selling over 400 tonnes of gold per year to buying over 600 tonnes of gold per year.” He clarified that when they are buying, you want to be buying as well. He also explained that gold ETF holdings have climbed from 0 to 2,500 tonnes in the last 16 years, and so long as competing safe haven assets like European treasury bonds continue to return a negative interest rate, he sees that trend continuing. Finally, he pointed out how China and India have grown from 10% of the overall demand for gold in 1989 to 53% of it now. With their GDPs continuing to rise, he also sees that trend as likely to continue.
Next, let’s look at the versatility available in gold investment. While a large gold bar might be a great way to start your child’s investment account, many classic savings account strategies for creating a future fund for a child suggest investing $100 monthly into the account to increase its returns over time. This is where fractional gold can help.
“This is where fractional gold can help”
Say you want to add a little over an ounce per year to your child’s physical gold collection. We at Bullion Exchanges offer many options around the $150 price point for purchasing 1/10 of an ounce of gold. That means that even one purchase of a 1/10 fractional gold piece per month can add $1,800 of value to your child’s fund per year, and that’s without taking potential growth in the value of gold into account. We also offer 1/20 fractional gold pieces around the $90 price point for those looking for a slower paced investment strategy, and 1/4 fractional gold pieces around the $390 price point for those looking to invest more quickly.
So, if we take our $1000 example from earlier and imagine that the parent who opened it has been adding 1/10 fractional gold to it every month for 30 years, plus apply Lassonde’s most optimistic growth rate to it, we get a total investment return of $456,300. Even 30 years of monthly 1/20 fractional gold investments would return $268,920. And 30 years of 1/20 fractional gold investments at a more conservative 5:1 Dow to gold ratio would still be worth $110,220.
While such returns do require continued investment, just starting a fund when your child is young still gives them an advantage. Now, let’s finish by talking about the benefits of investing young.
“starting a fund when your child is young still gives them an advantage”
First, we previously wrote about how most gold investors are over the age of 45. That means that they would be at least 75 years old before they would be able to enjoy the fruits of 30 years worth of steady gold investment. Meanwhile, if a 30 year old has access to such funds, they will have a significant step-up when it comes to major purchases or a rainy day. And on top of that, they will already have a strong foundation for future investment.
Second, gold is unique as an asset because 1 ounce of gold now is still 1 ounce of gold 30 years from now. So if you buy now and simply wait for the market to increase, it will accrue value over time just by existing. Next to other physical assets that can degrade over time, or more risky intellectual assets like stocks, this makes it attractive for nest eggs.
“gold is unique as an asset because 1 ounce of gold now is still 1 ounce of gold 30 years from now”
Lastly, investing in your kid’s finances while they are young can help teach them the value of a dollar. A gold fund could act as a learning opportunity to explain assets to a child in terms they can understand, and help give them a leg up when they reach adulthood. If you get your child involved and walk them through the process of their gold fund, it becomes less of an inheritance, and more of an investment journey you take together to build good habits with money.
Bullion Exchanges is here to help you take that investment journey with your child, grandchild, or other young relative. We offer the lowest premiums on the market, allowing your child to get the most value out of your investments as possible as you both prepare for the bright future they have yet to come.