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- Herausgeber: John Wiley & Sons
- Kategorie: Ratgeber
- Sprache: Englisch
Build a better future for yourself and your children by making the stock market work for your family
In Help Your Child Build Wealth: A Parent's Guide to Teaching Children To Be Successful Investors, bestselling author and investing educator Michael Sincere delivers an exciting and illuminating new take on the stock market. Perfect for rookie investors with children, this book explains exactly how you can get started as a long-term investor using index funds, ETFs, and individual stocks. You'll also discover how you can teach your kids about investing in a way that gets them excited about building wealth for their futures.
In the book, the author walks you through what the stock market is, how to open a brokerage account, how much cash you'll need to get started, and how you can protect yourself and manage risk through diversification. You'll also find out:
- About new and interesting ideas such as a 529 or custodial plan and their proper place in a well-managed portfolio
- What the difference is between “active” and “passive” investing and which path is right for you
- How you can find stocks that perform well over the long-term and how you can use compound interest and dollar-cost averaging to multiply your profits
- Learn about the best investing apps and how to use them with your children
An essential and easy-to-read financial guide for young parents looking to introduce their families to the stock market, Help Your Child Build Wealth is your (and your children's) ticket to a brighter and more prosperous future.
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Seitenzahl: 288
Veröffentlichungsjahr: 2024
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Table of Contents
Cover
Table of Contents
Title Page
Copyright
Dedication
INTRODUCTION
WHAT YOU AND YOUR CHILD WILL LEARN
SHOULD YOUR CHILD INVEST IN THE STOCK MARKET?
HOW TO PARTICIPATE IN THE STOCK MARKET
IS INVESTING COMPLICATED?
LET’S BEGIN
PART I: BUILD WEALTH WITH INDEX FUNDS
CHAPTER ONE: INVESTING 101
WHAT IS THE STOCK MARKET?
INDEXES: THE DOW, S&P 500, AND NASDAQ 100
THE RISKS
WHY SOME PEOPLE DON’T INVEST
WHY IT’S OKAY IF THE MARKET GOES DOWN
PAY YOURSELF FIRST
CONCLUSION
CHAPTER TWO: THE BROKERAGE ACCOUNT
STOCK BROKERAGE FIRMS
THE BROKERAGE ACCOUNT
TOP STOCK BROKERAGE FIRMS
OPENING A BROKERAGE ACCOUNT
FUNDING THE ACCOUNT
HOW TO BUY AN INDEX FUND (OR STOCK)
THE INVESTMENT GAME
CONCLUSION
CHAPTER THREE: INVEST IN INDEX FUNDS
THE S&P 500 INDEX FUND
CAN YOU DO BETTER THAN THE STOCK MARKET?
INTRODUCING INDEX FUNDS
DIVERSIFICATION
NO ONE DOES IT BETTER
HOW AN INDEX FUND QUIETLY CREATES WEALTH
INDEXING: SIMPLE MATH
WHO ELSE LIKES THE INDEX STRATEGY?
INDEXING RISKS
WHAT SOME CRITICS SAY ABOUT INDEXING
REMINDER: DON’T SELL
CONSENSUS: INDEXING IS A WINNING STRATEGY
CONCLUSION
CHAPTER FOUR: INDEX ETFs AND MUTUAL FUNDS
INTRODUCING THE S&P 500 INDEX ETF
S&P 500 INDEX ETFs AREN’T PERFECT
INTRODUCING S&P 500 INDEX MUTUAL FUNDS
INDEX ETFs VERSUS INDEX MUTUAL FUNDS
INVESTING IN (NON-INDEX) ETFs
INVESTING IN (NON-INDEX) MUTUAL FUNDS
THE MATH BEHIND MUTUAL FUNDS
PROBLEMS WITH MUTUAL FUNDS
CONCLUSION
CHAPTER FIVE: STRATEGIES, RULES, AND RISKS
DOLLAR COST AVERAGING
GIFTS AND ALLOWANCES
AUTOMATE THE MONTHLY DEPOSITS
HOW IS YOUR INDEX FUND DOING?
INTRODUCING ONE RULE
EXCEPTION: SHOULD YOU
EVER
SELL AN INDEX FUND?
CREATE AN EMERGENCY FUND
INTERVIEW WITH JOHN BOGLE, CREATOR OF THE FIRST INDEX FUND
CONCLUSION
CHAPTER SIX: 529 PLAN, ROTH IRA, AND UGMA
OVERVIEW OF COLLEGE SAVINGS PLANS
PREPAID TUITION PLANS
THE ROTH IRA
CUSTODIAL ROTH IRA (FOR CHILDREN)
DOWNSIDE TO A CUSTODIAL ROTH IRA
UGMA (UNIFORM GIFTS TO MINORS ACTS)
WHY CREATE AN UGMA
DISADVANTAGES OF UGMA
UGMA NEGATIVELY IMPACTS FINANCIAL AID
WHAT HAPPENS AFTER YOUR CHILD TURNS 18 YEARS OLD?
THE UGMA 529 PLAN
CONCLUSION
PART II: BUILD WEALTH WITH STOCKS
CHAPTER SEVEN: FIND WINNING STOCKS
WHAT IF YOU HAD INVESTED $1,000 IN ONE OF THESE STOCKS?
WHAT STOCKS SHOULD YOU BUY?
FIND GREAT STOCKS WHILE SHOPPING
BUY STOCKS THAT PAY DIVIDENDS
ARISTOCRATS AND KINGS
RISKS OF INVESTING IN DIVIDEND STOCKS
BUY GROWTH STOCKS
BUY VALUE STOCKS
BUY-AND-HOLD: RECOMMENDED FOR BEGINNERS
AMAZON: A BUY-AND-HOLD SUCCESS STORY
RISKS OF BUY-AND-HOLD
BUY-AND-HOLD UNTIL SOMETHING CHANGES
HIGH-RISK, HIGH-REWARD STRATEGIES: NOT RECOMMENDED FOR MOST INVESTORS
CONCLUSION
CHAPTER EIGHT: HOW THE EXPERTS FIND WINNERS
HOW PETER LYNCH FINDS WINNING STOCKS
HOW WARREN KAPLAN FINDS WINNING STOCKS
HOW WARREN BUFFETT FINDS WINNING STOCKS
CONCLUSION
CHAPTER NINE: ANALYZING STOCKS
OVERVIEW OF FUNDAMENTAL ANALYSIS
WHAT FUNDAMENTAL ANALYSTS WANT TO KNOW
PSYCHOLOGY UNDERMINES THE FUNDAMENTALS
OVERVIEW OF TECHNICAL ANALYSIS
THE WATCH LIST
THE STOCK SNAPSHOT PAGE
CONCLUSION
CHAPTER TEN: BUYING AND SELLING
BUYING STOCKS
STOCK-BUYING STRATEGIES
SELLING STOCKS
WHEN TO SELL STOCK
STOCK SELLING STRATEGIES
CONCLUSION
CHAPTER ELEVEN: TRAPS AND PITFALLS
INVESTOR QUOTES
FAMILY SCAMS
CONCLUSION
CHAPTER TWELVE: OUTSIDE-THE-BOX INVESTING
UNDERSTANDING CRYPTOCURRENCIES
FIXED INCOME INVESTMENTS
DRIP (DIVIDEND REINVESTMENT PLAN)
REAL ESTATE INVESTING
CONCLUSION
CLOSING COMMENTS
AVOID CREDIT CARD DEBT
MINIMIZE RISK
HOW TO BUILD WEALTH
GOOD LUCK
GLOSSARY: UNDERSTANDABLE DEFINITIONS
INTRODUCTION
APPENDIX USEFUL WEBSITES AND APPS
ACKNOWLEDGMENTS
ABOUT THE AUTHOR
INDEX
End User License Agreement
List of Illustrations
Chapter 9
Figure 9.1
Stock Chart
Figure 9.2
Stock Snapshot or Statistics Page
Guide
Cover
Table of Contents
Series Page
Title Page
Copyright
Dedication
INTRODUCTION
Begin Reading
CLOSING COMMENTS
GLOSSARY: UNDERSTANDABLE DEFINITIONS
APPENDIX USEFUL WEBSITES AND APPS
ACKNOWLEDGMENTS
ABOUT THE AUTHOR
INDEX
End User License Agreement
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PRAISE FOR HELP YOUR CHILD BUILD WEALTH
“This is a wonderful book about stock market investing. I highly recommend it to readers of my syndicated financial column—for both young children and interested adults. Everything you need to know to get started and remain successful in stock market investing is in this book. And that’s the savage truth!”
—Terry Savage, nationally syndicated financial columnist
“Readers of all ages will enjoy reading Mike Sincere’s Help Your Child Build Wealth. Mike introduces his readers to the stock market by taking them down an easy-to-understand path that explains why it’s important to invest in the market, how to open a stock brokerage account, how to build wealth with index funds, and how to profit from stocks. He explains key strategies for investing, as well as warning of risks to avoid. Mike is a best-selling author, trader, and educator, and he is a top-notch guide to lead readers of all ages (and you!) through the halls of the stock market.”
—Toni Turner, author of A Beginner’s Guide to Day Trading Online, Second Edition
“Michael Sincere’s latest book, Help Your Child Build Wealth, is his best book yet as it extends investor education to the full spectrum of the population, meaning it trickles down to teens and tweens. This book is just the kind of gentle, pragmatic approach that parents need to connect with their children to give them a head start on taking control of their financial future.”
—Jeffrey Bierman, CMT, professor of finance, Loyola University Chicago Quinlan School of Business; founder and chief market strategist, TheQuantGuy.com
HELP YOUR CHILD BUILD WEALTH
A PARENT’S GUIDE TO TEACHING CHILDREN TO BE SUCCESSFUL INVESTORS
MICHAEL SINCERE
Copyright © 2025 by John Wiley & Sons, Inc. All rights reserved, including rights for text and data mining and training of artificial technologies or similar technologies.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permission.
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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Library of Congress Cataloging-in-Publication Data
Names: Sincere, Michael, author. | John Wiley & Sons, publisher.
Title: Help your child build wealth : a parent’s guide to teaching children to be successful investors / Michael Sincere.
Description: Hoboken, New Jersey : Wiley, [2025] | Includes index.
Identifiers: LCCN 2024021651 (print) | LCCN 2024021652 (ebook) | ISBN 9781394257232 (paperback) | ISBN 9781394257249 (adobe pdf) | ISBN 9781394257256 (epub)
Subjects: LCSH: Investments—Study and teaching. | Index mutual funds—Study and teaching. | Children—Finance, Personal.
Classification: LCC HG4514 .S56 2025 (print) | LCC HG4514 (ebook) | DDC 332.6083—dc23/eng/20240628
LC record available at https://lccn.loc.gov/2024021651
LC ebook record available at https://lccn.loc.gov/2024021652
Cover Design: Jon BoylanCover Image: © Kabardins photo/Shutterstock
To my wonderful mother and father,and also Chip, Chili,and Lizzie
INTRODUCTION
Thank you for buying my book. I wrote this book for parents and their children, or relatives, or for anyone else who wants to use the stock market to build wealth. Teenagers who are interested in the market can read this book on their own.
I did my best to make this one of the most helpful books about investing you will ever read. If you believe that investing in the market is complicated or time-consuming, I hope to surprise you. I wanted my book to be a fast, enjoyable, and easy read. I teach only the most important ideas—what you and your child (or children) need to know right now.
Believe it or not, making money in the stock market is not that hard, as long as you have a strategy (i.e., an investment plan) and follow a few rules. Even more amazing, you and your child can beat the pros who analyze the markets for a living on Wall Street (where the New York Stock Exchange is located).
According to statistics, your child can beat more than 90% of the Wall Street pros. Maybe you think this isn’t possible or that I am making this up. Nope. Anyone in the financial world knows that 90% of the pros fail to beat the S&P 500 index each year. This fact is not a secret, but it’s not information the experts like to share.
What is the S&P 500 index? To learn more about this valuable financial product, keep reading. I’ll show you exactly what you need to do to beat 90% of the Wall Street pros, and also help your child generate wealth.
Before you or your child can expect to outperform the experts, however, you must know more about the stock market.
WHAT YOU AND YOUR CHILD WILL LEARN
By the time you have read all or even part of this book, you will learn about the following subjects. (Don’t worry if you don’t understand everything on this list, because it will be explained later.)
Begin by opening a stock brokerage account for yourself. By having your own investment account, it’s easier to explain it to your children. Later, you can open an account for them.
Invest at least $20 or $25 into an S&P 500 index fund, an investment that matches the performance of the S&P 500 index. In this book, you are going to learn everything you need to know about index funds, one of the smartest financial products ever created. Part I is all about investing in index funds.
Invest a set amount of money each month into the same index fund, a strategy called
dollar cost averaging
.
Hold the index fund indefinitely.
When you’ve gained more experience as an investor, you may decide to buy individual stocks. Choose the right one and you can make good money. Investing in stocks is explained in Part II.
SHOULD YOUR CHILD INVEST IN THE STOCK MARKET?
Your child may ask why they should invest their money in the market. The answer is simple: tell them that the stock market is one of the greatest wealth-building systems ever created. It is how many people got rich in the past and will continue to do so in the future. The good news is you can get started with a small amount of money.
Since the US stock market was created in New York in 1792, the market has moved much, much higher. Here is a fact: the S&P index has an average yearly return of about 10.26% from 1957 to 2024 (https://bit.ly/3RtDQ9Q).
Depending on other factors (i.e., dividends and inflation), some analysts claimed that the actual yearly return is closer to 15%, while others caution that a return of approximately 7% is more reasonable.
Most important, by following the basic investing strategies introduced in this book, your child can be millionaires well before they are ready to retire. Many people made a lot of money investing in index funds, and your child can do the same.
Fact: If someone had invested $100 in the S&P 500 index in 1928 (before the 1929 stock market crash), that $100 would be worth more than $700,000 in 2024. In comparison, investing that same $100 in a 10-year Treasury (i.e., cash) in 1928 would be worth a little more than $8,500 (https://bit.ly/3XGIOUX).
Fact: A $1,000 investment in the S&P 500 in 2014 would be worth $3,300 in 2024 for an impressive average annual return of 12.68%. A $5,000 investment in 2014 would have returned $16,498 in 2024. A $10,000 investment would have grown to $32,997 in 2024 (https://bit.ly/3VrJmLo).
Money provides financial security. With the right investments, your child (or relatives) can buy what they need, travel, and enjoy the quality of life that only money can bring. I’m not saying that money is all-important, but it does make life easier. As your child goes through life, they will feel confident knowing they can handle most financial emergencies (and without relying on credit cards).
In fact, financial security is one of the best gifts you can give your child. They can achieve this goal by using some simple investment strategies. The idea is to build wealth over a lifetime so they don’t have to worry about their next paycheck or paying for a medical emergency.
Some people spend their money on the lottery, hoping for a miracle. Your route will take longer but the odds of success are thousands of times greater. Fortunately, your child can have a comfortable life without waiting for a miracle.
Your child will discover that over time, stock market investing is the easiest, and one of the most dependable ways, for generating wealth. They will learn to set aside some money each month to buy shares of an index fund. Growth begins slowly, but a pot of cash could be waiting for them when they are older (as long as they follow a few rules).
Your child has a fantastic opportunity to become wealthy. Why? Because time is on their side. In fact, the earlier they start investing, the more money they can make. When you ask many older folks if they have any regrets about their finances, many say they wish they had started investing sooner. Don’t make that mistake: teach your child how to invest in the stock market now. This gives them a chance to have a financially comfortable life.
The good news is you already took the first step: you bought this book. I’ll do my best to make you happy with that decision.
As you keep reading, you’ll find that it’s not difficult to make money in the stock market. The hard part is having the patience and discipline to follow the strategies and obey the rules. If your children can do that, they can continue to build wealth for their entire lives.
Some of you may think that you need a lot of money to make money in the market. Sure, it helps, but it is not true. All you need to get started is a few dollars (or other currency).
The goal is to get into the habit of investing, even if it is a small sum. You can invest as little or as much money as you want. Later, as your children grow older and their income increases, they should be able to invest even more of their own money.
As you may have guessed, this is not a get-rich-quick book. The strategies in here are for long-term investors. The plan is to teach you and your child how to use money to make more money.
On the other hand, I know that for some children, the stock market is about as exciting as learning geometry or trigonometry. If that sounds like your child, be patient. One day, after they see how much money is in their account, their attitude is likely to change.
Right now, my goal is to teach you what you need to know about the stock market so that it is understandable, and hopefully, rewarding. Then you can pass that knowledge onto your children (or other relatives).
Note: If you are a teacher interested in teaching your students about the stock market, my book should meet your needs, no matter their age. This information can be adjusted to any grade level.
Speaking of teaching, it’s unfortunate that most teachers aren’t given much time to introduce their students to investing or money management. Ideally, children should learn about saving money early in life. Instead, most learn how to spend (usually with credit cards), but not how to invest. Perhaps that’s why so many people get into financial difficulties later in life.
HOW TO PARTICIPATE IN THE STOCK MARKET
There are two main ways to participate in the stock market. The preferred way is to be an investor, which means buying and holding index funds and other financial products for long time periods—which could be for years. This has been a proven method for generating wealth.
The other choice is to be a trader, which means buying and selling stocks over a very short time period. It could be a day, week, or a couple of months. Trading is a risky method best left to the professionals who do it for a living. Why? Because being a successful trader takes a tremendous amount of skill and discipline. It’s extremely difficult for anyone to predict where stock prices are headed in the next few minutes, days, or months.
For most people, and especially your children, the only way to be in the market is as an investor. This is because investing is far less risky. Also, it’s easier to make money, you buy but rarely sell, and it doesn’t take a lot of time to learn.
IS INVESTING COMPLICATED?
Some people stay away from investing because they believe it is too difficult to learn. Others believe they need a lot of money to get started. Fortunately, I cut through all of the confusion and show that investing is not that hard.
I’m not the first to create the strategies included in this book but because of my background as a teacher, I’m one of the few who can make it understandable.
To answer the question, is investing complicated?: investing is not complicated. Many people try to make it seem harder than it is. In reality, the challenge is sticking to the simple strategies that you’ll learn about in this book.
LET’S BEGIN
And now, let’s begin learning how to use the stock market to enrich yourself and your child. By the time you get to the end of the book, you may think differently about investing, and that is good. Although some folks chase after the next hot stock or new investment idea, you and your child will patiently invest a set amount of money each month into index funds while slowly watching your profits grow. It can’t get any better than that!
I hope that reading this book will help to motivate you to discuss investing with your child. Discussing money and personal finance early in life will benefit them. Perhaps this book will help start that conversation. I also made a list of understandable definitions that should be useful (see the Glossary).
Another goal is to help your children have a healthy relationship with money. They should learn that money is important but it’s not the most important thing in life (some people may disagree!). Teaching your children how to control money, rather than letting money control them, will reduce future heartache.
PART IBUILD WEALTH WITH INDEX FUNDS
Are you ready to go on a profitable journey? In Part I, you’ll learn about building wealth with index funds, one of the most ingenious investment products in history.
It’s not only index funds, but I also write about mutual funds and exchange-traded funds (ETFs). There is a lot of information in Part I, but I did my best to make it interesting as well as educational. You will definitely learn a lot.
Note: There are five main types of investments: cash, stocks, real estate, bonds, and alternative investments such as digital currencies (Bitcoin), collectables (art), and gold. As you will learn, the primary focus is on index funds, but I’ll discuss other investments in later chapters.
CHAPTER ONEINVESTING 101
In this chapter, I introduce you to the stock market and teach you a few basic vocabulary words. I’ll focus only on the most important strategies and ideas. Although this part is about index funds, it’s important to have a basic understanding of the stock market and stocks.
WHAT IS THE STOCK MARKET?
The stock market is a place where buyers and sellers trade stocks, index funds, bonds, and other financial products. Put another way, the stock market is similar to being at a street market. However, instead of buying and selling stuff at a market, you buy and sell stocks, which represents part ownership in a corporation.
Put another way, a stock represents shares in a corporation such as Disney, Apple, Mattel, or Nike. When buying shares of stock in a corporation, the goal is to share in the success (or failure) of that corporation.
If your child is old enough to understand, with your help, you can ask them if they want to buy shares of Disney stock (or choose stock in another company they know well). After you buy the stock for them (which you will learn to do in Part II), explain they are now part owner of Disney (in this example).
If Disney does well and makes a profit, then the Disney stock you bought will go up in price—and you make money. However, if Disney does poorly and earnings drop, then the Disney stock you bought declines, and you lose money.
Why does a stock price go higher or lower? When a lot of people buy stock in the company, then the stock price rises. When a lot of people sell stock in the company, then the stock price falls. Investors and traders constantly buy and sell stock when the stock market is open. The more buyers, the higher the stock price goes. The more sellers, the lower the stock price goes.
In summary, when you invest in stocks, you are hoping that the company will be profitable and that the stock moves higher. You want the stock price to be higher than when you bought it. If you choose winning stocks, you will make money. If you choose losing stocks, you will lose money. My goal is to help you find the winners. It’s that simple.
However, if buying shares of stock sounds complicated, don’t worry. As you will learn, to make money in the stock market, you can buy individual stocks if you want to. As I discussed previously, an easier way to build wealth is by buying an index fund. Buying an index is not complicated, the math is basic, and as you will learn later, those who invest in indexes outperform nearly all professional money managers every year.
The following is a brief introduction to indexes, but you will learn much more about them in Chapter 3.
INDEXES: THE DOW, S&P 500, AND NASDAQ 100
When I refer to the stock market, I am really talking about investing in individual companies such as Disney, Nike, and Amazon. However, instead of buying any of these stocks, you can also buy market indexes.
An index is simply a basket of stocks grouped together into a portfolio. For example, the most well-known index in the world is the Dow Jones Industrial Average (DJIA). This index, affectionally known as the Dow, consists of 30 large, well-known “industrial” US companies.
Each day, the financial media (online, print, and television) broadcast how “the market” is doing, and that usually means the Dow. “The Dow is up 400 points,” you may read or hear during the day. If the Dow is higher by over 400 points in one day, that is a good day for investors.
Note: When the market or a stock goes higher or lower, Wall Street uses the word point to describe the price change.
The second most popular index is the S&P 500 (Standard & Poor’s 500 Index). This closely followed index consists of 500 of the largest US corporations. It is also the index that most market professionals watch. Guess what? All of the stocks that I mentioned previously, including Disney, Nike, Amazon, and hundreds more, are in the S&P 500. As you will learn later, it’s a lot easier to buy one index that includes all of these stocks.
Finally, the third most popular index is the Nasdaq-100, which consists of 100 of the largest, most actively traded companies listed on the Nasdaq stock exchange.
Here’s the important part: although there are thousands of indexes, the index we are most interested in is the S&P 500. That is the index professional managers want to beat, and the index that I encourage you and your child to buy.
Truthfully, I’m getting a little ahead of myself as we will discuss the S&P 500 in greater detail in Chapter 3. The most important thing to remember is that there are individual stocks and there are indexes (which represent groups of stocks). I’ll show you how to invest in both. Owning these investments is the key to building wealth over the long term.
THE RISKS
It is my responsibility as an author to alert you to the risks that await you when you enter the stock market. I wish I could say that everyone who invests makes money, but that’s not true. Some people lose money.
Perhaps some of you are worried about this. Yes, there is a chance you may lose money if the entire market goes down. When you invest in the stock market, that can happen.
Fortunately, I’ll tell you exactly what to do when there is a large stock market decline. I also offer ideas of what to buy so that you won’t lose money over a long time period (however, it’s always possible to lose in the short term). Even better, I’ll show you a strategy that is easy to use and understand, and has worked for decades.
Do you want to know what one of the biggest risks is? It’s not investing at all. If you don’t invest in the financial markets, you and your child will miss out on a fantastic opportunity to build future wealth for yourselves. Although there is always some risk, investing in the stock market is still one of the best ways to have a financially comfortable life.
WHY SOME PEOPLE DON’T INVEST
Some people don’t invest in the stock market because they are afraid. Perhaps they heard scary stories of people who lost money after buying a terrible stock. Other people think the stock market is too confusing.
Some people believe that the stock market is a gambling casino. It’s true there are financial strategies that make investing similar to a casino. Fortunately, we will not be using those strategies. Instead, you will learn to be in the stock market without taking extreme risks (I didn’t say there were no risks, but there will be less risk).
The only way to avoid any financial risk is by putting your money into a savings account or money market account. If you take this route, after 70 years, your child’s money will still be there, but I guarantee it will be worth a lot less because of inflation.
However, if you put that same money into the stock market, you should be pleased with the results.
Note: Putting money into a savings account won’t generate wealth, but it’s a good place to start teaching young children about investing. You can also use the savings account to teach children how to store money for emergencies.
To help motivate your child to deposit more cash into a savings account (and later in an investment account), you may want to offer to match a portion of their contributions. For example, if your child saves $10, agree to a 50% match, or $5. You can also look for ways to add money to the savings account (such as a birthday gift).
After opening a savings account, you can open a brokerage account. Many children have their own savings account, but only a few have an investment account. With your help, your child will move from being just a saver to being an investor.
After you’ve read this book, they can join this elite group.
WHY IT’S OKAY IF THE MARKET GOES DOWN
It doesn’t matter if the market goes higher or lower as long as you participate. For example, if you are reading this book during a correction (the market has fallen by more than 10% in a few days) or a bear market (the market has fallen by more than 20% in a short time period), you are lucky. This is a good time to invest.
Why? It means that you and your child can buy stocks when they are on sale. The stock market is a marketplace, and the lower the prices, the better the deal. If your child uses the indexing strategy I introduce in Chapter 2, they should almost certainly do well later in life.
Although other people tend to panic when the market falls, you should be teaching your child to see it as a buying opportunity. “Hey, everyone, the market is on sale! It’s time to invest more money into the stock market.” Guess what? That is the opposite of what most people do!
PAY YOURSELF FIRST
I also hope you show your children how to pay themselves first. That means learning to set aside a part of their income for investing. As they get older, it is hoped that they pay themselves first before they pay their bills. One day, when they work for a company or themselves, they can automatically take part of their paycheck to invest in the stock market.
Note: When your child gets a job, paying themself first will be easier if the company they work for has a 401(k) plan
