Investing advice for 13 year old?

[REWahoo]

My 13 year old grandson just sent me this text message:

I heard some of my friends talking about stocks, and I kind of understand how it works. Is it possible for me to start investing? I have about $900 in savings.

I'd love to hear how you folks would respond. Age appropriate reading suggestions?

So far my only response has been "We need to talk."

 

[pacergal]

What a wonderful text and conversation to have with your grandson!

No suggestions on reading material, however if it gets to the point of "real life" investing,
perhaps a small amount in a kids stock, such as Disney, might be fun to watch, along with the usual fund choices.

Grandpa, you've done a great job teaching!

 

[Aerides]

I'd probably get a little more out of him first. His friends could have been talking about high riding crazy stocks (that rare penny one that goes bonkers) or bitcoin, and mixing terms.

Probably a good place to start would be to bring him to reality and quickly supplement and correct whatever other 13 year olds think. Also, tell him not to tell his friends about his $900!

 

[braumeister]

Since he's family, I assume you'll offer him a favorable AUM fee to manage it for him?

Let's see, at 1% that would net you about 75¢ a month...

 

[HawaiiShrimp]

Hi REWahoo,

I highly, highly recommend 2 books that I read firsthand that changed my life for good.

1. Millionaire Next Door (Thomas Stanley)
2. One Up On Wall Street (Peter Lynch)

If your teen is not into reading, then listen to Audiobook. It's equally good. Make sure to take notes also.

After that, open a custodial account with his/her parent and start researching companies. Not stocks, COMPANIES. Understand how companies work, how they make money, how they spend money, and their products & services. At this stage, it's very important to focus on building a strong knowledge foundation so that he/she can stand tall when the weather gets rough.

I used to coach college kids' financial seminars at my church. I was surprised by how uninformed they are when it comes to personal finance and investing. Almost all of them: "Zero experience", "Never heard of it", "Retirement stuff is way too far out" etc...

Our schools are really lost their touch when it comes to preparing the kids for the real world...


Last but not least:
"Give a man a fish and he will eat for a day. Teach a man how to fish and you feed him for a lifetime."

Best regards,

Shrimp

 

[copyright1997reloaded]

Hi REWahoo,

I highly, highly recommend 2 books that I read firsthand that changed my life for good.

1. Millionaire Next Door (Thomas Stanley)
2. One Up On Wall Street (Peter Lynch)

If your teen is not into reading, then listen to Audiobook. It's equally good. Make sure to take notes also.

After that, open a custodial account with his/her parent and start researching companies. Not stocks, COMPANIES. Understand how companies work, how they make money, how they spend money, and their products & services. At this stage, it's very important to focus on building a strong knowledge foundation so that he/she can stand tall when the weather gets rough.

I used to coach college kids' financial seminars at my church. I was surprised by how uninformed they are when it comes to personal finance and investing. Almost all of them: "Zero experience", "Never heard of it", "Retirement stuff is way too far out" etc...

Our schools are really lost their touch when it comes to preparing the kids for the real world...


Best regards,

Shrimp

This!

(Looking over my shoulder for OLDSHOOTER to chime in) I think it is a great idea for him to want to own a companies stock. For my child, he was into Skylanders so we bought some Activision (ACTI) back when it was $15/share. That is, buy something that they can recognize through their business.

OTOH when college students ask me about investing (we sometimes look at what the market is doing before class starts), I suggest (in addition to learning about how companies function):
1) First order of business is savings of 3-6 months expenses (rainy day fun)
2) After 1 is complete, start investing every pay period in low cost broadly based ETF's (or mutual funds). If you are working for someone who does matching funds, do this at least to the match point.
3) After doing 2, pick one company and buy a bit of their stock. Follow it every day. Read the earnings reports, and listen to the conference calls. Write down what you think might be good and bad things for their industry in the next 10, 20 years.
4)If you get a raise/promotion, use that as an opportunity to increase your savings instead of buying more stuff. The only exception for this is to save money towards a home purchase.

 

[Car-Guy]

Great question to be asked by someone so young... I'm sure you'll give him good guidance...

 

[38Chevy454]

Good for your grandson to even be interested and asking about it. Most 13 year olds would be spending the money as it was burning a hole in their pocket. I would suggest open a Roth IRA, and invest in some individual company stocks that he has interest and familiarity with. With his age and being all after tax money already, the value of Roth is incredible opportunity. The power of compounding can be a great lesson here. He can watch the dividends get paid in, and watch as the news and success of the company has an effect on the stock price.

 

[travelover]

I think the Vanguard Star fund has a low, $1000 minimum.

 

[BoodaGazelle]

The main thing I would try to convey to him is the miracle of compounding. Put all of your money in either the S&P or Total Market index fund, reinvest the dividends, and keep adding to it. By the time he is 45, he will be reading up on how to ER.


I did well, but I think I would have done better if I had done this.

 

[MuirWannabe]

I’d love to get such a question from my 25 yo son. Much less my grandson. Congratulations on that.

I’m certain whatever advice grandpa offers will be sprinkled with wisdom and humor.

 

[Alectoris]

Yes on most of the above...

Build a safe and stable base (although at 13 the kid doesn't have the worries of a leaky roof).

Teach and beat
(gently) into their head the power of compounding interest.

You have a special kid there, I'm sure that you will do him well.

 

[bobandsherry]

I had similar talk with my daughter when she was younger. I kept it simple. Invest in S&P index fund, explained why and what it was. Explained it can go down but stay invested, then also showed that over time it continues to go up. Only time I expect it to collapse is if the country collapses and well we have lots of other issues to worry about. Then showed comparison of invested in S&P index over time and what $ in savings would be worth over same time, out to retirement. Also explained to steer clear of investing in individual stocks until they understood how to value and invest. Ignore the get rich claims by those who held stocks like Tesla, that does happen, but there are also companies that fail, point out Sears, Hertz and even GM. All reputable companies that still stuck it to their shareholders. Diversification of S&P protects against loosing it all.

Also explained value to investing even small amount every month and let it grow.

Good luck.

 

[Time2]

I'd have him take 1/2 of whatever he is going to invest and buy a Total Stock Market fund and then split the other half among 5 or 6 stocks.
Teach him how to calculate percentage returns over time.
Maybe he will learn to just put his money into low cost mutual funds and not try to pick stocks. But, maybe not, he might think he is a great stock picker.

 

[Brat]

I audited a math class at Portland State. The professor commented to me how little students know about credit cards and IRAs. I told her she can talk about credit cards and I would talk about IRAs.

I have just started to talk to my Portland grandchildren about investments, son brought out the game "Stocks and Bonds". The grandkids are 11 and 12, I found that the concepts were hard for them so I think I will try again in 6 months. Before there were 529s I had accounts for my children's college expenses. When they were about 13 I showed them the accounts, gave them a list of investment options and asked how they would like each of theirs invested. Son went 100% Magellan, daughter 50% Magellan + 50% savings bonds. Their careers reflect their risk tolerances.

Have the parents set up an account for them at Fidelity. I suggest you pick a couple of strong businesses and discuss them as possible investments, let him choose.

 

[street]

^ this right here. 100% equities is what I would advise my own grandson is this scenario. He could learn a lot and with a mentor he could see the ups and downs and how things work.
This would be a fun journey for him and you.

 

[RenoJay]

Last week my friend asked for investing advice for her 16 year old to invest $1,500 in “something like Tesla.” Somehow with all these newbies coming out, it’s feeling like the proverbial shoeshine boy giving stock tips.

In any case, the email I sent the lad first discussed length of time of investment and showed with graphs and charts how he could create a small fortune if he put it into a Roth IRA and forgot about it til retirement.

The next part of the email showed the amazing rise of stocks like Cisco, Intel and Amazon in the late 90’s, compared them to the hot stocks of today, and then showed the viscous aftermath from 2000 - 2002.

The last part talked about diversification of index ETFs including beaten down sectors like international, commodities, etc. and also suggested that he bet a few hundred bucks on his hot stock ideas so he could witness firsthand whether he has the rare ability to pick skyrocketing winners that sustain over time.

 

[O2Bfree]

If I had a young relative who was looking for advice on investing, I'd help with that and also throw something into the kitty as a reward for showing such foresight.

 

[deserat]

Bernstein's paper If You Can. http://bookslibland.net/william-j-bernstein-if-you-can-how-millennials-can-get-rich-slowly-pdf/ (searched on "bernstein if you can" and got lots of hits...pick one for free pdf download)

I've heard Robin Hood brokerage has hooked a lot of youngsters...makes trading like a video game/UI design...too much trading erodes value of portfolio, so if Robin Hood is part of his understanding, maybe a talk about having most money in boring brokerage but perhaps a small percentage in Fun -if Robin Hood... depends on person's discipline...

And if he starts at this age and is consistent, wow. I was just looking at comparison of $100 in 1928 invested in S&P, bonds, US Treasuries and AAA Corporate Bond...S&P won by a humongous long shot

 

[bolt]

STAR Fund.....1k min. in an Roth IRA.
Then suggest some indexing/sector funds literature. Theres much out there. Go look at Taylors reading list @BHeads.
I agree w/OB2free's post.

Good luck & Best wishes.....

I met a married couple in their late 20s/ early 30s yesterday that did not even recognize debits/credits. It is truely sad.

 

[pb4uski]

Fidelity recently offered fractional share investing. I think I would have a discussion with him and propose that you invest together... you each put in $750... then he'll still have $150 for "emergencies". Then talk with him about what things he and his friends do and the companies behind them.... together you can research and select 15 businesses that you like the future prospects of and put $100 in each. Then monitor "your portfolio" and "meet" once a quarter to go over the investment results and make any changes. Sort of like your own personal grandfather/grandson investment club.

Indexing is great, but admittedly a bit boring... once he has some experience with individual stocks and is interested you can talk about index investing.

Just be careful though, before long all your other grandchildren may want into "the club".

 

[ckelly78z]

How neat to think of Grandpa, and value your opinion. I think getting him invested in a company that sparks his interest would go a long way towards keeping him engaged in the investing mindset.

My 21 year old son read/recommended the book "Rich Dad, Poor Dad" so I read it, and we have had alot of indepth discussions about the book, and different options for investing.

A REALLY neat, and timely Christmas gift from you would be a small amount of stocks for him to own, in your own portfolio that he could watch grow, and later be given for college expenses/house/wedding.

 

[Badger]

I might have some discussions after he reads an age appropriate book on investing and find out what kind of investing he has been discussing with his friends. Then he makes a "fantasy investment" (no actual investment) of $1k on a selection of his own to see how well he has learned. Try it for a year. Gives him a chance to watch the market and read/learn/talk more during that time. If his investment can match or exceed a "fantasy investment" of $1k in a S&P 500 index fund of your choice then you pay him the money he would have made on his investment. A nice learning experience for him without consequences.



Cheers!

 

[donheff]

My 11 year old grandson (going on 50) has been participating in a virtual beat the market program at school. This is some sort of national system and DGS is rated in the upper percentiles. He told me he would really like some "real" stocks to trade. For Christmas/Hanukah I opened a custodial Scwhab brokerage account with $200. I put $25 each into stock "slices" of four stocks he likes and $100 into a total stock index. When I give it to him I will agree that he can hold or trade as he sees fit, except he must keep the index fund untouched as a control. If he stays interested, any future gifts will go half to the index and half to a sweep account for him to choose stock slices.

 

[donheff]

This thread prompted me to look at DGS' account. In the few weeks since I set it up he is up $12.50 in his stocks and $11.31 in SWTSX. His opening stock portfolio is AAPL, MSFT, VZ, and DIS. Unfortunately, only I can access the account so he will probably be calling me like an old style broker. "Sell DIS now!!!!"