Is your 8-year-old wondering why they have to learn about “old person stuff” like money? Have they retired on modding and influencer proceeds? Fine. Time to hook them with stocks, growth, and risk. Start with stocks. A stock represents a piece of a company that they can own. Starbucks (SBUX), Spinmaster (TOY), Disney (DIS), are all companies that your kid can own a piece of now.
We prefer diversification, but maybe you and your 8-year-old have your eye on a stock you’d like to buy? Great. But first, a #protip. Two, actually:
Do your research. Know what you’re buying. Look at the last year, five years, 10. Read up on the company. Look at how (and if) it’s growing. What do you think of the leadership?
Now, get real about risk tolerance — yours and your eight-year old’s. In a phrase, invest what you’re comfortable losing. Because once you’ve bought that stock, chances are you’ll want to check its price. Daily, weekly, then hourly. And traditionally, this is a surefire way to lose all your money. Investing works best with long horizons. Plus the willpower of a Jedi Knight.
As you start your investing journey, there are a few stats worth remembering.
An Arizona State University study found of the 26 000 stocks traded on US exchanges in the last 100 years, 1000 account for ALL profits. 86 stocks account for half of all gains. The average stock has traded for seven years and LOST money, and the most common return for a stock over its lifetime is… -100%.
Let’s take a beat.
OMG. WTF. Breathe. ETFs.
That read like a lot of bad news, we get it. But here’s the thing…
In the history of the markets, over a 20-year period, stock markets have always gone up. They’re one of the most consistent long-term drivers of wealth. But history shows that diversification is key, so you boost the odds of holding at least one (or part of one) of those magical, fairy dusty, 1000 winning stocks.
Exchange-Traded Funds — ETFs — are one way to get instant market exposure and diversification. They give you a slice of each stock in the market they represent. It’s like an all-you-can-eat buffet with limited portion sizes. If you’d like to learn more about ETFs, check out our Glossary. Or, better yet, invest in a Wealthie account!
All you really need to know about investing, though, can be summed up in the two words we know you’re crushing: