One of the best gifts you can give your child or grandchild is a financial education and a start in investing. Armed with money management and investing skills, they can make savvy financial decisions throughout their lives and end up financially secure.

Another way to give your descendants financial security is by leaving them money. Many of us plan to do so, but we may not be managing to leave much by the end of our retirements. So here's how you might go about giving a fat sum to your grandkids. (These strategies could work with your children, perhaps, but they'll work best with grandchildren.)

A young boy is looking amazed at the cash he's holding.

Image source: Getty Images.

How money grows

Let's start with a refresher about how money grows. When I offer tables such as the one below, it's often meant to reflect just a few decades. I usually use an average annual growth rate of 8%, to be a little conservative, because the long-term average annual return of the stock market is around 10%.

Since we're talking long-term here, I'll use 10%. The table below shows how much a single investment of just $10,000 can grow at an average annual rate of 10%:

Over This Period

$10,000 Will Grow to

5 years


10 years


15 years


20 years


25 years


30 years


35 years


40 years


45 years


50 years

$1.1 million

55 years

$1.9 million

60 years

$3 million

Source: Calculations by author.

Huge gift strategies

How might you go about amassing huge sums for your grandchildren? Here are a few ways you might do it.

1. One initial lump sum

You could take an initial lump sum, such as $10,000, and invest it in a brokerage account, perhaps in a low-fee index fund that tracks the overall stock market -- or maybe just the S&P 500, which encompasses around 80% of the U.S. stock market. Let's say you're 40 when you do this -- long before you even have any grandchildren -- and you become a grandparent at age 60, 20 years later.

Thirty years after that, when your grandchild is 30, a full 50 years will have passed since you invested the $10,000 -- and it will have grown to a massive sum -- $1.1 million, if it grows at an average of 10%.

2. Contributions over time

If you don't have $10,000 to spare per grandchild right now, you might opt for making contributions over time, instead. If you start when you're 40, for example, and sock away $5,000 per year for 25 years, you may be able to amass more than half a million dollars in an account for your grandchild. The table below shows what might be achieved over various periods with various regular investments:

Growing at 10% for

$1,000 Invested Annually

$3,000 Invested Annually

$5,000 Invested Annually

10 years




15 years




20 years




25 years




30 years




Source: Calculations by author.

3. This and that

You might also just do a little of this and that. Set up a few accounts for potential future grandchildren, for example, and plunk a few thousand dollars in each one. Then add a few thousand more now and then over the following years.

Remember that the earliest invested dollars are the most powerful, though, so front-end your contributions as much as possible. Your first invested dollars may have 50 years in which to grow, but 15 years later, they will only have 35 years, and that can make a big difference.

Two kids are holding lots of cash and screaming.

Image source: Getty Images.

Death and taxes

Depending on when and how you leave an investment account to a loved one, there can be taxes due, shrinking the value of the gift. One of the best ways to transfer assets such as stocks is to do so upon your death.

Let's say, for example, that you have amassed $500,000 or even $1 million in an account for a grandchild when you die. With current tax laws (which might change in the future), they can inherit that account and not have taxes due on it. Instead, their cost basis is "stepped-up" to the date that you die, so they'll only owe taxes on growth in the account's holdings starting on the day of your death.

Even if they owe some taxes on the jumbo account you give or leave them, your grandchildren will still receive a wonderful windfall that can help set them up for a more secure future. They could use some of it for a down payment on a home, and perhaps invest the rest for retirement. If they've been good money managers, saving and investing on their own, your funds added to theirs might enable them to retire early or achieve some other dream, such as starting their own business.


Don't forget inflation, which can make a mess of your financial plans if disregarded. If your grandkid inherits a $1 million account 50 years in the future, it might only have the buying power of $300,000 today (or a lot more or less). Over just 30 years, purchasing power might get cut in half. Inflation has averaged about 3% annually over long periods, but there are times when it can be much higher or lower.

No matter how much you save for your grandchildren (or children), and no matter how you do it, it will likely end up being very helpful to them and a treasured, touching gift. Don't do it instead of saving for retirement, but if you're doing OK in your retirement saving and investing, you might be able to set aside some thousands for your descendants. Even just a single $5,000 or $10,000 lump sum can end up turning into a huge gift.