School is soon back in session, backpacks are being stuffed, lunches packed and your children (or grandchildren) are about to have a lot of wisdom imparted upon them. However, when it comes to investing, the library shelf at school may be gathering a little dust. So we ask ourselves, how do we teach our children the ABCs of investing?
- Start Early – The power of compounding is important to harness early on from an investment and learning perspective. Could you imagine taking all of your high school and college courses in just one year? No way! So remember that investing (and learning) the right way takes time. The earlier you start, the more time you allow for your investments to compound or for your children to learn from their failures.
- Let Them Fail – Speaking of failures, in my youth, my dad let me invest in a stock with the goal of buying my next present. Naturally, the stock tanked shortly thereafter and my panic ensued. Fast forward a few months to a recovered stock price and the end of our experiment, and I find myself just short of my goal. Failure. Or was it? What I did not realize is that my dad taught me a valuable lesson, which Blackrock and Dalbar have since proved in a more academic manner. Their studies show that the average investor significantly underperforms a simple balanced portfolio of stocks and bonds, largely due to emotional decisions similar to the one I wrestled with. Studies are helpful to increase your knowledge; however experiences like mine are often more impactful memories that your children can carry with them.
- Make it Fun – Children may not understand investment language such as kurtosis or standard deviation, but they certainly know how to have fun. Allowing children skin in the game to experience the joy (and failure) of achieving a goal helps build an understanding of the basic principles of investing. The more interest that is generated in investing, through the injection of fun, the better.
- Tailor Your Approach – Every child is different and your parenting style adapts with each one. I was generally the shy and risk averse kid, while my sisters would describe themselves as the adventurous family members. Recognizing that biological, psychological, and social factors influence our approach to investing leads us to appreciate the importance of diversification within investment strategies as well as our perspective as highlighted in a previous blog, “Investing… The Benefits of a Female Perspective”. Tailoring your approach can help your children gain confidence with investments and ultimately set them up for the day they leave the classroom behind.
With school back in session your children are ready to learn, so what is one thing you’ll do today to jump start their investment education process? Do your children understand the importance of starting early or learning from their failures? Lastly, are you excited to see your children run with the knowledge you have imparted on them? At BDF, we enjoy seeing the knowledge transfer to the ones you love the most and look forward to hearing the stories about how you have helped your children make their own sound decisions to enjoy a full life.
Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Future performance of any investment or wealth management strategy, including those recommended by Balasa Dinverno Foltz LLC (BDF), may not be profitable, suitable for you, prove successful or equal historical indices. Historical indices do not reflect the deduction of transaction, custodial or investment management fees, which would diminish results. Any historical index performance figures are for comparison purposes only and client account holdings will not directly correspond to any such data. BDF clients must, in writing, advise BDF of personal, financial or investment objective changes and any restrictions desired on BDF’s services so that BDF may re-evaluate its previous recommendations and adjust its investment advisory services. BDF’s current written disclosure statement discussing advisory services and fees is available for review at www.BDFLLC.com or upon request.