How the Money Is Invested
Where the money goes
Every dollar in a Trump account must be invested in what the law calls an eligible investment. This cannot be changed or substituted during the growth period, or until your child turns 18. An eligible investment is the legal term for the specific type of fund that Trump accounts are allowed to hold. To qualify, a fund must track a well-established index of primarily U.S. companies such as the S&P 500, cannot use leverage or complex financial strategies to amplify returns, must keep annual fees under 0.1% of the account balance, and cannot be focused on a single industry or sector. In practice, this describes one category of investment: a low-cost, broadly diversified U.S. stock market index fund.
What an index fund is
An index fund is a single investment that automatically owns small pieces of hundreds of companies at once. When you invest in an S&P 500 index fund, you own a proportional slice of all 500 companies in that index. Examples of companies are Apple, Microsoft, Amazon, JPMorgan, Johnson & Johnson, Google and Walmart. You do not get to pick the companies. The fund holds all of them. When those companies grow in value, your investment grows with them. When one company declines, the others offset it. This built-in diversification is one of the reasons index funds have become the most widely recommended investment vehicle among financial experts.
What you cannot choose
You cannot invest in individual stocks, bonds, cryptocurrency, international funds, or actively managed funds. The money cannot sit in cash or a money market fund except briefly during a transaction. These restrictions apply to all Trump accounts during the growth period without exception. After your child turns 18 and the account converts to standard IRA rules, broader investment options become available.
Why this is not something to be suspicious of
Some parents wonder whether being told where to invest their child's money is a reason to be cautious. It is not. The S&P 500 index fund is arguably the most well-regarded investment in the world among financial professionals. Warren Buffett, widely considered the greatest investor of the past century, has said he plans to have 90% of his estate invested in an S&P 500 index fund, and recommends the same approach for everyday investors. The restriction exists to protect families from high-fee, high-risk products, not to limit their upside.
The 0.1% fee cap is particularly significant. Most actively managed funds charge between 0.5% and 1.5% annually. Over 18 years, a 1% fee difference on a growing account means thousands of dollars stay in your child's account instead of going to a fund manager.
What the historical returns look like
The S&P 500 has returned an average of approximately 10% per year in nominal terms over the past century. Adjusted for inflation — meaning what that growth actually buys in today's dollars — the long-term average is closer to 7%. This is why the projections throughout this site use 7% as the default assumption as the most honest and conservative figure.
No investment guarantees future returns. The market goes up and down in the short term. What history shows is that over long periods of time, the S&P 500 has recovered from every crash and produced positive returns. Every year the money stays invested is another year of compounding, which gives your child a substantial advantage in the market.
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