Author Topic: Investing with my 10 Year Old  (Read 4524 times)

ChaseMcD

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Investing with my 10 Year Old
« on: January 21, 2017, 08:42:16 PM »
So thanks to an awesome board game called Stockpile (seriously, it is great) my son has gotten interested in the idea of real stock trading. Of course I know that I would have to do it for him but I am looking for a way to help him do this so he can understand the market and investing from a young age. I am thinking of using the Robinhood app since that has free trades and the small amount of money he has will go farther that way.

My main question is I guess, does anyone have a good means of finding stocks that are low value currently? And not low value like Sears/Kmart but low value because maybe it is a newer company. I'm just looking for something that he can get his feet wet with and learn some investing concepts and my own knowledge of stock trading is fairly limited.

Thanks

boarder42

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Re: Investing with my 10 Year Old
« Reply #1 on: January 21, 2017, 08:54:09 PM »
Don't teach him bad habits like stock picking at a young age. Teach him about indexing and move on. I started trading stocks at 10. It took me 17years to figure out that indexing is the way to go.

ChaseMcD

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Re: Investing with my 10 Year Old
« Reply #2 on: January 21, 2017, 09:13:34 PM »
Can you unpack that answer a bit more for someone who obviously doesn't know what he doesn't know?

boarder42

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Re: Investing with my 10 Year Old
« Reply #3 on: January 22, 2017, 07:05:08 AM »
Yes stock picking is bad invest in low cost index funds and forget about it. Go read jlcollins stock series it's all the information you need to know why. 

It's even what MMM suggests here.

And the Oracle of Omaha suggests - the best investor ever.


ChaseMcD

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Re: Investing with my 10 Year Old
« Reply #4 on: January 22, 2017, 07:33:57 AM »
Thanks for the help.

MattC

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Re: Investing with my 10 Year Old
« Reply #5 on: January 22, 2017, 07:49:59 AM »
You could have him get a share (or fraction of a share?) of berkshire hathaway.  And maybe start reading Warren Buffet's annual letters.  Reading those letters is one of the best financial educations a person can get. 

And really, it wouldn't be the worst thing in the world to have your son pick stocks.  Just make sure fees are low and that you're buying and selling for the long haul i.e. steer him away from any day-trading type philosophies.  Sure, index investing is great, mainly because it saves time and mental energy while providing good returns, but buying random stocks and holding long term with low transaction fees will also provide good returns. 

boarder42

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Re: Investing with my 10 Year Old
« Reply #6 on: January 22, 2017, 08:04:46 AM »
You could have him get a share (or fraction of a share?) of berkshire hathaway.  And maybe start reading Warren Buffet's annual letters.  Reading those letters is one of the best financial educations a person can get. 

And really, it wouldn't be the worst thing in the world to have your son pick stocks.  Just make sure fees are low and that you're buying and selling for the long haul i.e. steer him away from any day-trading type philosophies.  Sure, index investing is great, mainly because it saves time and mental energy while providing good returns, but buying random stocks and holding long term with low transaction fees will also provide good returns.

It's extremely high risk and a bad example to set forth.

GrumpyPenguin

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Re: Investing with my 10 Year Old
« Reply #7 on: January 22, 2017, 08:12:36 AM »
I second (fifth?) the recommendation to read JL Collin's Stock Series.  Teach the kid to buy index's (VTSAX) and move on. 

ChaseMcD

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Re: Investing with my 10 Year Old
« Reply #8 on: January 22, 2017, 11:09:18 AM »
I've read through the first 5 of his articles so far and it is great stuff.

Unless I misread it though, VSTAX requires a minimum $10k investment. Unfortunately, my 10 yr old son is just a little short on that kind of cash.

Nothlit

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Re: Investing with my 10 Year Old
« Reply #9 on: January 22, 2017, 11:33:45 AM »
You can buy VTI (the ETF version of VTSAX) with no minimum amount necessary.

There is also VTSMX, the investor shares version, which only requires $3k (still probably too much for a 10 year old).

ChaseMcD

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Re: Investing with my 10 Year Old
« Reply #10 on: January 22, 2017, 01:14:01 PM »
Thanks

Trifele

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Re: Investing with my 10 Year Old
« Reply #11 on: January 22, 2017, 01:38:40 PM »
Chase-- Schwab has a $100 minimum for kids' accounts, and some nice index funds with low fees.  (Not quite as low as VG, but pretty darn good).  When our kids turned 10 we got them an account at Schwab, they put $100 of their own money into the Schwab 1000 index, and have been contributing to the accounts since then.   Another nice feature is that the minimum buy is only $1. 

Laura33

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Re: Investing with my 10 Year Old
« Reply #12 on: January 22, 2017, 04:18:28 PM »
I don't think it's a bad idea at all to use a few stocks as a lesson in what the market is and how it works, but I do think you are asking the wrong question -- it's not "which stocks are undervalued and will go up?"; it's "how do I teach my kid about stocks?"  The actual stock selected is irrelevant for that question -- you are just using it as a tool so he learns (a) that a "stock" is a piece of an actual company that entitles you to that much of the company's future earnings, (b) that it's a lot of work to try to pick the "right" ones and you will guess wrong anyway, and (c) that you should just buy Vanguard.  Here is what I would recommend:

1.  Do some research with your kid into companies he may be interested in.  Narrow it down to 3-4.  He can read the company reports, and you guys can talk about what you think is going to happen, why you think this is a good stock, etc.  Then buy a few shares of one of them. 

2.  Then watch what happens -- he can track the stock, read the news about the company, see whether the promises paid off, etc.  No matter what happens, *do not sell.*

3.  At the end of a year, sit down again.  Look at how his pick did.  And look at how the *other* stocks that he liked but didn't buy did, as well as various index funds.  Note: make sure to point out the fees that he paid for the privilege of buying the stock (and thus will pay again if/when he chooses to sell), along with the effect of dividends/capital gains. 

If he wants to continue, do the same thing again.  But he has to do the same research - if he were starting over today, would he still buy the same stock?  If so, why?  If not, why not?  Talk about all of the high-paid MBAs and Ph.Ds out there getting paid to do the same thing he's trying to do (so how does he really think he is going to choose better than them?).  If he makes some money, great; if he loses, even better (the worst-case scenario is that he ends up being the monkey who throws the dart and beats the experts for the year).

You're not actually teaching him to pick stocks or to trade -- you're teaching him about what stocks are and how they work; you're teaching him the fundamentals of evaluating a business (i.e., that it's a lot of work, not just throwing money at a cool idea); and perhaps most importantly, you're teaching him how hard it is to predict the future, pick winners, outsmart the hedge funds and quants, etc.

We are doing this with my DD - her bat mitzvah money went 90% into Vanguard, but her grandpa gave her a little that was specifically intended to teach her about stocks and investing and all that.  Frankly, she is lazy, so I can't see her really wanting to do the work of stock picking on an ongoing basis.  ;-). But I hope she does lose on some of her picks and does worse than the indexes overall, because I'd rather she learn that lesson now, when it is "play" money, than when she is out on her own trying to figure out what to do with her own hard-earned savings.

Proud Foot

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Re: Investing with my 10 Year Old
« Reply #13 on: January 23, 2017, 09:50:14 AM »
Since you said your own knowledge of stock trading is limited I would teach him how to invest in index funds and hold for the long term.  If you were knowledgeable on stock trading then I would recommend the same as Laura33.  Find a product that he is into and help him research the company.  Pull the white papers, go through the 10-K with him, teach him how to research the company. Teach him how to rationalize how to come to the conclusion whether a stock is a good buy or not based upon the company information and then based upon the stock price.  If he thinks its good then buy a few shares for him and help him track the performance.  Follow earnings reports and news on company and sector they are in and see how that effects the stock price. 

Retire-Canada

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Re: Investing with my 10 Year Old
« Reply #14 on: January 23, 2017, 10:12:21 AM »
Teach him to index and put his money towards that. I wouldn't teach him or let him pick stocks. The issue is that a monkey could get lucky with a stock pick and at his age success due to luck vs. skill is not so easy to explain. He doesn't have the life experience to understand that he'll need to beat the index for decades as that is his investment horizon not just one year. I also wouldn't want a kid to get the idea investing is a game, which I think can happen with stock picking.


boarder42

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Re: Investing with my 10 Year Old
« Reply #15 on: January 23, 2017, 10:15:55 AM »
Teach him to index and put his money towards that. I wouldn't teach him or let him pick stocks. The issue is that a monkey could get lucky with a stock pick and at his age success due to luck vs. skill is not so easy to explain. He doesn't have the life experience to understand that he'll need to beat the index for decades as that is his investment horizon not just one year. I also wouldn't want a kid to get the idea investing is a game, which I think can happen with stock picking.

Yep. I was investing and doing the stock market game in grade school in the peak of the late 90s tech boom. I lead our team to crazy awesome returns and thought I was a great stock picker. And that thought kept churning til 2013 when a smart Tesla play barely beat the market. Then I found this site learned of indexing and said forget trading individual stocks. It's gambling.


Laura33

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Re: Investing with my 10 Year Old
« Reply #16 on: January 23, 2017, 12:20:28 PM »
The fundamental problem with "just teach him to invest in index funds" is:  have you ever known a kid who does everything his parents say?  Once your kids hit 12-13, we become boring, clueless, totally out of it for about, oh, a decade or so.  So then what?

My thinking on this is exactly the same as on other difficult parenting issues:  I model/teach what I want them to do -- and then I try to give them the information they will need whenever youthful hubris takes over.   If I'm lucky, her early efforts will flop, and she will learn that it's a game she can't win while I'm still around to protect her from the consequences of her over-enthusiasm.  But if she is going to try to pick stocks at some point, I at least want her to understand how to evaluate companies based on fundamentals (and that it takes work) vs. just "I should buy X because my buddy says it's a sure thing."

Wow, you could pretty much replace the nouns here with just about any other parenting-issue noun, couldn't you?  :-)

boarder42

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Re: Investing with my 10 Year Old
« Reply #17 on: January 23, 2017, 12:24:50 PM »
The fundamental problem with "just teach him to invest in index funds" is:  have you ever known a kid who does everything his parents say?  Once your kids hit 12-13, we become boring, clueless, totally out of it for about, oh, a decade or so.  So then what?

My thinking on this is exactly the same as on other difficult parenting issues:  I model/teach what I want them to do -- and then I try to give them the information they will need whenever youthful hubris takes over.   If I'm lucky, her early efforts will flop, and she will learn that it's a game she can't win while I'm still around to protect her from the consequences of her over-enthusiasm.  But if she is going to try to pick stocks at some point, I at least want her to understand how to evaluate companies based on fundamentals (and that it takes work) vs. just "I should buy X because my buddy says it's a sure thing."

Wow, you could pretty much replace the nouns here with just about any other parenting-issue noun, couldn't you?  :-)

yes but its also quite apparent the OP has no knowledge of even how to do any of that themselves.

Laura33

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Re: Investing with my 10 Year Old
« Reply #18 on: January 23, 2017, 12:33:47 PM »
The fundamental problem with "just teach him to invest in index funds" is:  have you ever known a kid who does everything his parents say?  Once your kids hit 12-13, we become boring, clueless, totally out of it for about, oh, a decade or so.  So then what?

My thinking on this is exactly the same as on other difficult parenting issues:  I model/teach what I want them to do -- and then I try to give them the information they will need whenever youthful hubris takes over.   If I'm lucky, her early efforts will flop, and she will learn that it's a game she can't win while I'm still around to protect her from the consequences of her over-enthusiasm.  But if she is going to try to pick stocks at some point, I at least want her to understand how to evaluate companies based on fundamentals (and that it takes work) vs. just "I should buy X because my buddy says it's a sure thing."

Wow, you could pretty much replace the nouns here with just about any other parenting-issue noun, couldn't you?  :-)

yes but its also quite apparent the OP has no knowledge of even how to do any of that themselves.

Great learning opportunity for the whole family!

But I agree, if the dad doesn't have the time/inclination to dive in and do it right, the best alternative is just to say, you know, this is beyond me, and unless you want to put in a whole lot of time and effort learning the fundamentals, the best thing you can do is low-cost index funds. 

Retire-Canada

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Re: Investing with my 10 Year Old
« Reply #19 on: January 23, 2017, 01:10:10 PM »
But I agree, if the dad doesn't have the time/inclination to dive in and do it right, the best alternative is just to say, you know, this is beyond me, and unless you want to put in a whole lot of time and effort learning the fundamentals, the best thing you can do is low-cost index funds.

The best thing you can do is low-cost index funds even if you want to put a whole lot of time and effort learning the fundamentals.

https://www.ft.com/content/6f04eb52-1141-11e6-839f-2922947098f0

Retire-Canada

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Re: Investing with my 10 Year Old
« Reply #20 on: January 23, 2017, 01:13:09 PM »
The fundamental problem with "just teach him to invest in index funds" is:  have you ever known a kid who does everything his parents say?  Once your kids hit 12-13, we become boring, clueless, totally out of it for about, oh, a decade or so.  So then what?

Then his index funds will keep churning away making him wealthy until he is ready to get back to saving and investing. The fact he may be a clueless teenager for a bit doesn't mean you don't teach him the fundamentals: clean your living space and yourself, tell the truth, don't be an asshole, etc... He may not follow ideal behaviour as a teenager, but that's irrelevant and certainly not an agruement to teach him stock picking.

boarder42

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Re: Investing with my 10 Year Old
« Reply #21 on: January 23, 2017, 01:42:28 PM »
The fundamental problem with "just teach him to invest in index funds" is:  have you ever known a kid who does everything his parents say?  Once your kids hit 12-13, we become boring, clueless, totally out of it for about, oh, a decade or so.  So then what?

Then his index funds will keep churning away making him wealthy until he is ready to get back to saving and investing. The fact he may be a clueless teenager for a bit doesn't mean you don't teach him the fundamentals: clean your living space and yourself, tell the truth, don't be an asshole, etc... He may not follow ideal behaviour as a teenager, but that's irrelevant and certainly not an agruement to teach him stock picking.

very true ... eventually most teenagers grow up and look back at what there parents taught them and realize most was correct.  though i'm now teaching my father about how he should be investing... i'm getting him to come around slowly but its a bit too slowly for my liking.

Laura33

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Re: Investing with my 10 Year Old
« Reply #22 on: January 23, 2017, 02:15:19 PM »
The fundamental problem with "just teach him to invest in index funds" is:  have you ever known a kid who does everything his parents say?  Once your kids hit 12-13, we become boring, clueless, totally out of it for about, oh, a decade or so.  So then what?
 
Then his index funds will keep churning away making him wealthy until he is ready to get back to saving and investing. The fact he may be a clueless teenager for a bit doesn't mean you don't teach him the fundamentals: clean your living space and yourself, tell the truth, don't be an asshole, etc... He may not follow ideal behaviour as a teenager, but that's irrelevant and certainly not an agruement to teach him stock picking.

We're not talking about where the kid's actual investments should go -- ITA that that should be Vanguard, and that you teach your kid that indexing is the primary path to wealth.  And I am not talking about teaching them stock-picking -- the whole idea is to teach them that stock-picking doesn't work. 

The thing is, I can preach all I want, I can set a great example, but one of my kids is hard-headed as hell and has to learn everything for herself.  She also likes pretty things and the easy way out.  So I think it's pretty safe to assume that at some point, she's going to be tempted by the lure of making a quick buck playing the market.  So, sure, I can give her a flat "that's stupid, don't do that," and in all likelihood be blown off and watch her pour her first few years of earnings into CNBC hot tips.  Or I can try to teach her that lesson now with a couple of shares of stock and a couple hundred bucks.  Because at 15, losing $100 is a huge deal -- and I'd rather make my point with $100 now than leave her to learn it on her own at a cost of $1,000 or $10K later.     

I also think it's short-sighted to pretend that no one ever picks stocks and no one ever makes any money from it -- look at Wall Street, look at all the hedge fund managers who are making a mint even though their performance over time is worse than an index fund.  If I tell my kid it doesn't work, she'll see examples in the news every day that tell her I'm lying (have I mentioned that, as a teenager, she is also highly attuned to parental hypocrisy?).  So I'd rather tell her that, yeah, some people do invest in businesses as their career, but the ones who are successful long-term are highly-educated and devote their whole lives to finding good businesses at good prices.  Heck, she might get really interested in the stock market and want to go into business or finance as a career -- but if she does, I want her role model to be Warren Buffett, not Jim Cramer. 

And then, once she decides that, boy, that's a lot of work, and she really doesn't want to put that much effort into it, she's going to be more receptive to the lazy way out -- i.e., you're a civilian, don't try to compete with the MBAs and quants who spend 20 hrs a day on this stuff, just go buy Vanguard like mom and dad. 

Retire-Canada

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Re: Investing with my 10 Year Old
« Reply #23 on: January 23, 2017, 02:45:55 PM »
We're not talking about where the kid's actual investments should go -- ITA that that should be Vanguard, and that you teach your kid that indexing is the primary path to wealth.  And I am not talking about teaching them stock-picking -- the whole idea is to teach them that stock-picking doesn't work.

How do you plan to teach them stock picking doesn't work?

Laura33

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Re: Investing with my 10 Year Old
« Reply #24 on: January 23, 2017, 03:18:08 PM »
We're not talking about where the kid's actual investments should go -- ITA that that should be Vanguard, and that you teach your kid that indexing is the primary path to wealth.  And I am not talking about teaching them stock-picking -- the whole idea is to teach them that stock-picking doesn't work.

How do you plan to teach them stock picking doesn't work?

Read my first post above.  Research several companies, pick one, explain why you think that's the best choice.  Track the returns of the stock you chose and the ones you didn't, along with the returns of the index; evaluate following year whether what you thought was going to happen happened, what went right, what went wrong.  Repeat.  Odds are kid isn't going to pick the big winner consistently and will learn that you can't predict the future and indexing is just flat-out easier.  Added bonus that if you're paying for trades, kid will see for himself how the cost of trading weighs down the returns.   

ginger

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Re: Investing with my 10 Year Old
« Reply #25 on: January 23, 2017, 03:27:19 PM »
Delurking to suggest the OP look into one of the many fantasy stock market games (google "how the market works" for an example of one)  available on the Internet. I haven't vetted many of them, but something along those lines may be a great way to do as Laura suggested, while investing real money in index funds or Vanguard to compare at the end of the year ("how did your Monopoly money do vs. your real money in the index fund?").