One time payment of 15 000 CHF in ETF by birth leads to 1.2 Million when retired

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Just read this article:
https://finanzfabio.ch/mit-etfs-die-ahv-retten

I dont want to talk about the political and AHV stuff. My wife is pregnant and I thought it would be a good idea to do this for my child.

Invest 15 000 CHF in an ETF via Interactive Broker and let it rest for 25 years. And after 25 years give it to my child which is hopefully able to let it rest furthermore. Even if not, after 25 years there should be a significant sum for whatever he needs in this age.

Which ETF oder Indexfunds works best for this idea?
I only invest in VT with reinvest dividends on. The problem is that after a time the Cash pile gets bigger because of a 200 USD dividend only 160 USD get reinvested (if VT price is 80 USD) and the rest stays Cash. I dont want a complicated calculation and the hassle for the baby ETF. So I am looking for an accumulation Indexfunds / ETF on Interactive Broker, low cost and similar to VT.

Do you guys know any good ones you use?

Thanks in advance.

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If you reinvest manually, there will not be more than the equivalent of 0.99 share in cash at any time

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Does automatic dividend reinvesting not make use of fractional shares? I thought IB activated this feature for everyone and VT offers fractional shares but I don’t personally own VT so maybe someone can tell.

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Sounds nice as an experiment, but if I were you I would just add some USD to round up to next full VT share :rofl:

Of course, accumulating Irish ETFs are also an option:

and Respective emerging markets if you want.

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Do I misunderstand accumulating ETF or did the guy make a mistake in his calculation?

As I understand an accumulating ETF re-invests the dividend automatically. In his calculation he didn’t do that, did he? He simply used the compound interest which is 15’000*1.07^65 (= 1.2 Million). Re-investing the interest would yield a much higher return.

I use VT for my son on IB. I simply buy about 3 shares more a month than I would for myself and transfer it to him (see @anon95353169 blog post).

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7% average return (1.07) is used as an example where dividends are reinvested.

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A similar idea was recently adopted at the house of cantons (in form of a postulate) : Amtliches Bulletin

Pro Jahr kommen in der Schweiz etwa 90 000 Kinder auf die Welt. So ergäbe sich mit diesen 514 Franken ein jährlich zu investierender Gesamtbetrag von 46 Millionen Franken. Wie gesagt: Unter Berücksichtigung eines Anlageertrags von 5 Prozent über 65 Jahre ergeben sich am Schluss sage und schreibe 21 Milliarden Franken.

Here I am not able to follow her explanations. How a single payment of 514 for each of the 90000 people born in a year (46 millions) with 5% interest could transfer to 21 billions at age 65 ?? I’d say it only goes up to 1 billion.

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They calculate with an investment of 46 million every year (because 90’000 children are born every year) for 65 years.

That’s how you get to 21 (actually it’s 22) billion.

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This works on an individual basis but it is complete bullshit when applied for an entire society. Remember that money holds its value in relation to goods and services you can buy. When all off a sudden the entire society hoards investments and/or gets loads of money - we face material inflation and no-one wins a thing.
Thats the same problem with the left logic of just re-distributing wealth and giving everyone half a million or so. The only thing that matters is that a society in comparison to its neighbours saves more than they do… and that it has the strength to ensure that these savings will not just somewhen be declared dust. If that is not given, you can’t increase the overall wealth of a population, but you can only optimize your personal situation (compared to the average individual).

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I think regardless of which economic theory you subscribe, those amounts are too small to have much influence over society.

(we’re talking about a 500 bucks at birth becoming 11k at age 65. Some cantons have 1B budget surplus :slight_smile: )

Maybe if you’d scale those it would matter (but then many countries have sovereign funds that kinda work like that, e.g. Norway has over 1k billions under management, SNB has over 620 billions on bonds and broad equity)