Rearing a kid will set you back $245,340 including food, shelter and other expenses. How much would you have if you invested in stocks, instead?
Don't get us wrong. Having a child can provide a lifetime of joy. But we're just talking hard numbers here. Let's see how that $245,340 could grow using a variety of portfolios.
Given that the $245,340 figure is for having a child in 2013, we're probably talking about a somewhat youthful set of parents with a decent taste for risk. We're going to keep this somewhat simple to see the trend.
Let's say rather than spending $245,340 on a child the day the child was born, that money was put into the Index Fund Advisors' moderate portfolio that starts out with 38% in large U.S. stocks, 19% in small U.S. stocks, 9.5% in real estate, 19% in international stocks 9.5% in emerging markets and 5% in bonds. The long-term return of this portfolio has been 10.4% a year, says IFA.com. That means the $245,340 that would have been spent on a child would be worth $1.45 million in 18 years.
Let's take another example of a slightly less aggressive portfolio, that's adjusted over time to reflect the fact taste for risk falls over time. This portfolio from IFA.com has 36% in large U.S. stocks, 27% in small U.S. stocks, 9% in real estate, 18% in international, 9% in emerging markets and 10% in bonds. The portfolio then tapers its risk, and moves toward bonds over time, in what's called a "glide path." The long-term return of this portfolio is 7.2%. This portfolio would have turned your $245,340 investment into $857,580 over 18 years.
Some might say, correctly, that it's not like the $245,340 is spent on the day the child is born. The costs are spread over 18 years. True. But the investment is still huge. Let's take the first IFA portfolio, the one generating 10.4% average annual return. But rather than looking at the return over 18 years, let's imagine that one-eighteenth ($13,630) is invested each year for 18 years. The return? $646,810.
No matter how you calculate it, one thing's for sure. Having a child is a big financial sacrifice. Make sure you remind your kids tonight at dinner. And kids? Give your parents a $1.4 million hug, will ya?
How much a $245,340 investment made today would be worth based on the historical long-term returns of a number of diversified portfolios (not on glide path):
HISTORICAL AVERAGE AVERAGE % RETURN
VALUE OF $245,340 IN 18 YEARS
Aggressive, but prudent
Sources: S&P Capital IQ, USA TODAY research