Million Dollar Baby - the worst case scenarios explained

The Million Dollar Baby program is an INVESTMENT in your child’ future financial independence which is tied to the performance of indexed funds. There are few ‘catches‘ within the program you should know about and accept for the future benefits. The program performance tied to the performance of an indexed funds and some financially savvy parents try to model the worst and the best case scenarios for they child. This article outlines few of the scenarios assuming $100/month investment for 25 years ($1200 a year, $30,000 total). How it will look like in 25 years when a child is grown enough to take ownership of the program and carry it forward?

The worst case scenario

The absolute worth case scenario, please forgive us for even mentioning it, something terrible happens to your child. This is by far the worst case scenario. No money will ever fill the void, but for the sake of mentioning it, the program will pay $150,000 - $200,000 lump sum tax-free irrespective of how much you invested to the date of tragedy. Well, we totally understand how uncomfortable it is talking about such an outcome, but it is good to have this extra insurance just in case, particularly knowing that statistically more than 600 newborns out of 100K will never reach the age of 25.

The second worst case scenario

Ok, let us the doom scenario aside, and talk strictly money. What is the worst case scenario for the performance of investments? The absolute worst case scenario can be described as something that never happened in trackable market history. Assume for the next 25 years the whole world will get into a nasty depression and markets in the USA, Europe, Asia will returns negative every year for 25 years straight! Assume the World War One, the Great Depression, the World War Two, the dot-Com burst, 9/11, the housing market burst, the Great Recession - all following each other nonstop for 25 years straight! Isn’t this sounds like another unrealistic scenario of disaster? Sure it does, but you asked for the worst case. In this unfortunate and unrealistic scenario, you will have just about $20,000 saved in the program and your child will have an insurance during all that time. We assure you it is not that bad compared to what will happen to your 401K in that case.

Realistic worst case scenario

The more or less realistic worst case scenario, but still highly improbable is if the whole world follows a 25-year long pattern of the recession in the Japanese economy. For more than 25 years from 1990 till today, the Japanese economy was stagnating with NIKKEI index going down and up, down and up and ending up where it started with no gains:

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In this highly improbable worst case scenario, your $30,000 will grow to approximately $40,000 and your child will have essentially free insurance for all these years, while everyone else will be just lucky to preserve their money. Sounds great, isn’t it? Even in the worst case, improbable scenario, you get a free insurance for your child and $10,000, WOW! There is just no way to lose! We hope you see why we are in such a love with the program.

Setting worst-case scenarios aside, statistically, and backed up by historical performance, your child will be well underway to an extra million dollar during retirement years by doing literally nothing! Give them a proper financial education, build a right financial foundation and see them growing way more you ever thought is possible!

Don’t wait - every year of procrastination takes away from the compound interest!

Wallio: from Wallet to Portfolio