Let’s say you’re a twenty-something with money to invest. Maybe you just started your first real job. Of course you’ll want to fund your 401(k), especially if there’s an employer match. You should open a Roth IRA. You may even want to start saving toward your first home purchase. But at the end of the day, your best performing investment might be your stock of birth control. It doesn’t have a ticker symbol and it doesn’t pay a quarterly dividend, but it insures against one of the biggest expenses a young person can incur: an unexpected child with an arbitrary partner.
We know that children are expensive compared to the low cost of birth control. But just how well does birth control perform as an asset class? We can actually run the numbers to find out using a simple Return on Investment (ROI) calculation. An ROI equation is simple: ROI = (gain – cost)/cost. For our equation, we’ll use ROI = (cost of children – cost of contraceptive) / cost of contraceptive.
Just how much does it cost to raise a child? Numbers vary by location and income level, but according to this CNN Money calculator, the average cost sits at $245,340 over 18 years. While I’ve argued elsewhere that you can do a lot better, these are the stated numbers from the USDA, so we’ll take them at face value. And shockingly, they don’t include college tuition. If we want to cover a child’s higher education at a private institution, we’ll have to add $23,290 in yearly net tuition, room and board, or $93,160 over four years. All told, raising a child through college could cost $338,500. I’ll assume that we can afford this cost, and that by sidestepping a pregnancy we are “gaining” this cash back for ourselves.
Our initial investment cost is our birth control. Since insurance covers female contraceptive in most cases, I’m going to focus on male contraception. Namely, condoms. For an “investment horizon”, let’s use a ten-year period in our early twenties when we’d want to prevent a pregnancy. Being savvy investors, we’ll buy condoms in bulk, netting 1,000 “shares” of birth control for $295.98. This should be enough to last us ten years (your mileage may vary – I know mine did quite a bit in my twenties).
Now our equation looks like this:
ROI = ($338,500 – $295.98) / 295.98
ROI = 114,266%
Using this methodology, our ROI for birth control is an astounding 114,266%. To see just how astounding, we should compare this to what our condom investment of $295.98 would have returned if we instead invested it in the stock market. At an 8% annualized return (what most experts expect from the market), our $295.98 would turn into $1,095.13 in 18 years. That’s a ROI of 270%. Not too shabby, but nowhere near the stellar performance of condoms.
But it gets even better, because we can invest all of the money we save. If we, as twenty-five year olds, delay having children by ten years, we’ll have roughly $18,800 per year to plow into a balanced portfolio (I’m dividing the total cost of raising a child by 18 years for a yearly figure). If we invest this sum for ten years and then never touch the investment again, can you guess how much our portfolio would be worth? At age 55? $1.4M. At age 65? $3.1M. At age 75? $6.8M. These ridiculous numbers, though they are rough estimates, are in line with what financial advisors would project. When you do have a family, that’s not a bad safety net to fall back on.
Judged on these standards, the humble condom might be the world’s strongest asset class. Sell your gold. Forget real estate and the pathetic S&P 500 (a measly 30% return in 2013!). Condoms outperform them all (insert your best joke here…). They fare even better as an investment class than rare works of art. A Stradivarius violin, sold in 2011 for $15.9M, delivered a paltry 11,566% ROI to its owner.
This raises a question: are there any investments that beat contraception for a twenty-something? The only way to improve on an ROI of 114,266% would be to cut your investment costs by replacing condoms with abstinence.
But then again — it’s just money.
The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities. Past performance is not indicative of future results.