As groups interested in financial literacy seek to raise the stakes in the next generation of investments, the conversation inevitably turns into a stock market game. As you can see, pick stocks for next year and check in regularly to report on your progress. CNBC, high school and college classes, and financial services companies do it.
As an educational tool, stock market games have two fatal flaws.
1. They don’t teach you how to find good stocks at good prices. It may take years, or even longer, for the stock price to reflect the quality of the underlying company. On the other hand, even poor quality stocks can have great years.
2. We don’t use real money.
Nothing teaches you like real life experience. If you’re on the baseball team and all you do is practice, I don’t think you’ll learn as much as if you transferred the lessons to the game. When you make decisions with real money, it’s a true test of your belief in following good practices.
For the kids in your home, a great way to get them involved in investing is to dive into the deep end and buy stocks together. Percentage sales and revenue growth) and the importance of paying the right price.
There is always the question of whether buying more conservative stocks or riskier high-growth stocks is more appropriate for young people. On the one hand, conservative stocks can earn more predictable but less noticeable returns over the years. By reinvesting your dividends, investing regularly in these stocks, and waiting patiently, you have a chance to build great value over the years and teach your kids about the miracle of compound interest.
On the other hand, it’s boring. Children are probably far more interested in buying stock in companies that come to mind because they use their goods and services. Interesting. They may offer to buy stock in these companies, even if they have no track record and are overvalued. Other companies may be well-managed high-growth companies. In situations like these, you can convey a risk versus return mentality. Their investment runway is still long, so stock-picking mistakes can be easily overcome.
I feel all these lessons are important to learn. So follow your guidance and give them ownership of the experience and let them make some decisions. Make the money that is invested so they have skins in the game.
If you are under the age of 18, you must open a custodial brokerage account. That’s the service we or your financial advisor can help you with.
With pension-only days all but over and younger generations expected to finance their own retirement, financial planning knowledge is more important than ever. It is one of the most valuable things you can pass on to your children. Giving them a real life experience of investing will pay off for decades.
Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List member, and a financial expert at Avantax Investment ServicesSM. Evan leads a team of retirement transition strategists for clients who consider themselves the “millionaire next door.” He can be reached at 941-500-5122 or eguido@aksalawalth.com. For more of his insights, visit heraldtribune.com/business. Securities offered through Avantax Investment ServicesSM, member FINRA, SIPC. investment advisory services provided through Avantax Advisory ServicesSM; insurance services provided through Avantax’s affiliated insurance agents; 6260 Lake Osprey Drive, Lakewood Ranch, FL 34240.
