3 Strategies to Teach Your Child to Invest

Chicago, Ill.-based actor Mike Wollner says at ages 7 and 10 his daughters are already learning how to invest.

Three years ago, Wollner opened custodial brokerage accounts for the girls through Monetta Mutual Funds, which has a Young Investor Fund specifically for young people to invest for the future. Through the fund, parents can open custodial brokerage accounts or 529 college savings accounts on behalf of their children, as well as get access to financial education and a tuition rewards program.

Wollner decided to open the accounts once his daughters began to nab acting gigs and earn an income. They’re already beginning to understand what it means to own a part of the world’s largest companies. “They will ask me to drive past Wendy’s to go to McDonald’s and say, ‘well, we own part of McDonald’s,’” he says.

Wollner hopes his daughters will have saved enough for college by the time they graduate high school. His 10-year-old’s account balance already hovers around $13,000, while his 7-year-old has a little less than $10,000 saved for college in her account.

The contents of the package a child receives in the mail when an adult opens a Monetta Mutual Young Investor Fund custodial account on their behalf.

The Value of Starting Young

The Monetta Fund is only one example of a way to invest on a child’s behalf. The downside to using an actively managed investment account like the one Monetta offers is that it comes with higher fees — the fund’s expense ratio of 1.18% in 2016 is higher than the 0.10% – 0.70% fees typically charged by state-administered 529 college savings plans.

In addition to 529 plans, parents can open Coverdell Education Savings Accounts, or other custodial brokerage or IRA accounts through most financial institutions like Fidelity, Vanguard, or TD Ameritrade.

A college fund serves as a great way to teach kids a little about the time-value of money, but they’ll need to know more than that to manage their finances as well as adults.

“There’s no guarantee that they are going to be financially successful because anything can happen in life, but you’ll be better off with those skills and have a better chance of being successful with those skills than without them,” says Frank Park, founder of Future Investor Clubs of America. The organization operates a financial education program for kids and teens as young as 8 years old about financial management and investing.

He says FICA begins teaching financial concepts at an early age with hopes that the kids who start out with good money management habits now will continue to build on them as they age.

“If they fail to get that type of training now, it may be years into their late 20s, 30s, or 40s before they start. By then it could be too late. It could take 20 years to undo the mistakes they’ve made,” says Park.

3 Ways to Teach Young Kids About Money

Use real-world experiences

Wollner has each daughter cash and physically count out each check they receive from acting gigs.

“They just see a big stack of green bills, but that to a child is cool. It’s like what they see in a suitcase in the movies,” says Wollner.

He then uses the opportunity to teach how taxes work as he has his daughters set aside part of the stack of cash to pay taxes, union fees, and their agent.

“They start to see their big old pile of money diminish and get smaller and smaller,” says Wollner, who says the practice teaches his daughters “everything you make isn’t all yours, and I truly believe that that’s a lesson not many in our society learn.”

Kids don’t need to earn their own money to start learning. Simply getting a child involved with the household’s budgeting process or taking the opportunity to teach how to save with deals when shopping helps teach foundational money management skills.

Park urges parents to also share financial failures and struggles in addition to successes.

“They need to prepare their kids for the ups and downs of financial life so that they don’t panic if they lose their job, have an accident, or [their] identity [is] stolen,” says Park.

Gamify investing

Gamified learning through apps or online games can be a fun way to spark or keep younger kids’ interest in a “boring” topic like investing.

There are a number of free resources for games online like those offered through Monetta, Education.com, or the federal government that aim to teach kids about different financial concepts.
Wollner says his youngest daughter benefited from playing a coin game online. He says the 7-year-old is ahead of her peers in fractions and learning about the monetary values of dollars and coins.

“This is how the kids learn. It’s the fun of doing it. They don’t think of it as learning about money, they think of it as a game,” says Bob Monetta, founder of Monetta Mutual Fund. The games Monetta has developed on its website are often used in classrooms.

When kids get a little older and can understand more complicated financial concepts, they can try out a virtual stock market game available for free online such as the SIFMA Foundation’s stock market game, the Knowledge@Wharton High School’s annual investment competition, or MarketWatch’s stock market game.

“The prospect of winning is what makes them leave the classroom still talking about their portfolios and their games,” says Melanie Mortimer, president of the SIFMA Foundation.

Anyone can play the simulation games, including full classrooms of students.

Aaron Greberman teaches personal finance and International Baccalaureate-level business management at Bodine High School for International Affairs in Philadelphia Penn. He says he uses Knowledge@Wharton High School’s annual investment competition in addition to online games like VISA’s websites, financialsoccer.com, and practicalmoneyskills.com, to help teach his high school students financial concepts.

Adults should play the games with children so that they can help when they struggle with a concept or have questions. Adults might even learn something about money in the process. Consider also leveraging mobile apps like Savings Spree and Unleash the Loot to gamify financial learning on the go.

Reinforce with clubs or programs

For more formal reinforcement, try signing kids up for a club or other financial education program targeting kids and teens.

FICA, the Future Investors Clubs of America, provides educational materials and other support to a network of clubs, chapters, and centers sponsored by schools, parents, and other groups across the nation.

When looking at financial education programs, it’s important to recognize all programs are not equal, says FICA founder, Frank Park.

“Generally speaking, you’re going to go with the company that has a good reputation of providing these services, especially if your kid is considering going into business in the future,” says Park.

The National Financial Educators Council says a financial literacy youth program should cover the key lessons on budgeting, credit and debt, savings, financial psychology, skill development, income, risk management, investing, and long-term planning.

Mortimer suggests parents also try getting involved at the child’s school by offering to start or sponsor an after-school investing club. She says many after-school youth financial education or investing organizations nationwide use SIFMA’s stock market simulation to place virtual trades and compete against other teams.

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4 Things to Consider as the Dow Rallies to 20,000

Here are four things to keep in mind as the Dow Jones reaches the 20,000 milestone.

With the Dow Jones industrial average surging this week, some stock pickers are wondering whether the 20,000 mark is in reach. As CNN reported, Wall Street is betting on President-elect Donald Trump to beef up the economy. It’s quite the opposite of what happened when Barack Obama was elected president, although that changed over time, and there’s no telling if this winning streak will last.

“Most investors think of round numbers as good,” Robert Dowling, a certified financial planner with Modera Wealth Management in Westwood, New Jersey said, but “I wouldn’t say someone should make a specific move” based on the 20,000 milestone. Dowling and Jude Boudreaux, a certified financial planner with Upperline Financial Planner in New Orleans, shared some things to consider as investors keep an eye on the index.

1. Asset Allocation

Now’s the time to look at your asset allocation and see if it’s where you’d like it to be, Boudreaux said. “We keep hitting new highs in U.S. markets, and valuations are at historical highs, especially compared to international equities, which are at historical averages.” So rebalancing, or taking some of your gains and reinvesting them in slower-performing assets, may be the best practice. “If we believe things tend to reverse to the mean over time, which we do, and we don’t know when that will happen,” Boudreaux said, “now’s the time to take some of those gains [and reinvest them].”

Ask yourself: Do you have too much exposure in a particular area? If so, should you reduce it and allocate it to other assets that aren’t performing as well this year? “You need to be aware of how much is in each asset class,” Dowling said, not because you think the market is ready to burst but so you have confidence in what lies ahead. “The old adage is, buy low and sell high,” Boudreaux said. “When the market hits new highs, we have to ask ourselves if it’s time to sell even just part of our portfolio, but that’s never the way our brains work.”

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2. Tax Implications 

“This is the time of year to be thinking of tax strategy because these transactions have to happen before December 31,” Boudreaux said. You may consider gifting your appreciated stock or mutual funds to a charity or working with your tax advisor to determine your percentage of capital gains, which are capped at 15%.

3. Upcoming Expenses

As you look to the new year, consider any expenses for which you’ll need to prepare. These may include paying off credit card debt, refinancing your mortgage or shoring up enough savings to take on that home improvement project you’ve been putting off. Whatever it is, taking advantage of the market now by selling off assets may give you the cash cushion you need in the future, Dowling said. No one knows what will happen months from now, but some concrete planning can take out the guesswork.

4. The Number Itself 

Remember, it’s likely that, at some point, 20,000 will be just another milestone in the Dow’s long history, Dowling said, so don’t make any decisions based on the number itself. Be aware of the tax implications for selling gains, and don’t make any drastic moves if you can’t afford it. “Don’t say, ‘OK, the market is going to crash, so I’m selling everything or buying more of whatever is doing well,'” Dowling said. Plan your moves based on what’s best for you.

Image: shapecharge

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5 Easy Steps to Buy Your First Stock


couple investing financial planner adviser

The stock market can seem complicated, but most people agree that it’s a necessary component to achieving financial wellness. There are a few steps needed when buying your first stock. Let’s go through the basics for your first purchase.

5 steps to buying your first stock

First thing’s first: Save money to invest.

We’ve all heard the phrase, “It takes money to make money.” Although this is true, it’s best to have a proper plan in place to build up a personal fund specifically for buying your first stock.

Before you begin setting aside funds to invest, make sure you’re actively paying down debt and setting aside money for an emergency fund. The S&P 500 has returned 7% annually on average since 1928, after adjusting for inflation. If you owe money on a credit card or loan with an interest rate over 7%, it would actually be more beneficial to pay that off first and then start transferring money into your investment fund.

After you’ve reached your emergency fund goal, start setting aside money to invest. A great way to do this is by saving a set amount of your income in scheduled increments. Try starting with 5% of your paycheck and increase contributions as you become more comfortable. Consider setting up a direct deposit to a separate high-interest savings account so you won’t be tempted to spend this money.

Now you’re probably wondering — how much should I save before I start investing?

Some newer online investing platforms allow novice investors to buy fractional shares rather than whole shares. Fractional shares are simply smaller portions of a total share. That means you can start investing with much less than you would need at a traditional brokerage firm. Check out some of these companies if you want to start investing with as little as $5.

Check with your broker to see what their commissions are and how much it takes to make an initial investment. $100 is typically a good price point to begin when purchasing your first stock or exchange-traded fund (ETF) as many cost less than that. In contrast, a typical index or mutual fund may have an initial buy-in of more than $1,000 to get started.

Choose and fund a brokerage account.

The stock market is a highly regulated industry with stocks trading on major exchanges like the New York Stock Exchange and the Nasdaq. When you plan to buy your first stock, you’ll need to use a brokerage firm in order to complete your purchase. There are many online discount brokers that allow first-time investors to buy stocks without a lot of upfront costs.

Choosing a brokerage firm can come down to many variables, but the primary one new investors look for is cost. Online discount brokers have made it easier for new investors to participate. Typical commissions — that’s how much they charge you every time you make a buy or sell stocks — run between $5 and $10 at firms such as TD Ameritrade and TradeKing.

Newer firms such as Acorns and Stash are allowing new investors to start with as little as $5 right from their phones, allowing them to buy fractional shares.

Research companies to buy.

There are over 6,200 publicly traded companies listed on the New York Stock Exchange and Nasdaq, which can seem extremely intimidating to first-time investors. Basic research methods can narrow down your list tremendously, helping you find your first stock faster. This can be done through your broker’s online portal or with free sites like Yahoo Finance and Google Finance.

An easy way to get started is to think about items you use on a daily basis or companies you frequently patronize. Simply looking at who makes your cellphone, the type of car you drive, or whom you bank with can present potential companies when buying your first stock.

Once you have a list, use your broker to find and read over quarterly and annual financial reports of those companies. Just as you would personally want consistent positive cash flow (more income than expenses), you want to make sure a company you plan to own does too.

Buying individual stocks can be time consuming and stressful, particularly for new investors. Consider low-cost exchange-traded funds (ETFs), index funds, or other mutual funds to alleviate some of the search process and provide great diversification at the same time. In addition to diversification, you also want a fund that has a low expense ratio, fund manager stability, and an overall consistent positive performance. Strive for a fund that averages over 3% growth annually to combat inflation.

Fidelity and Vanguard are leading the industry in regards to low-cost index and mutual fund options.

Decide how many shares you want to buy.

Once you’ve narrowed down your list to one stock you want to buy, you’ll need to decide how many shares of that stock you want to own. One share represents a single unit of ownership within a company. The more shares you buy, the bigger the percentage of the company you own. Don’t think you have to buy a lot initially. Start small, and grow your holdings.

A great method to use is dollar-cost averaging (DCA). This is when you buy a block of shares based on how much money you have, not how many shares you want. This technique is popular because it makes sure investors purchase more stocks when the value of a stock is low and fewer stocks when the value of a stock is high. For example, if you have $200, you can buy 20 shares at $10 each. When you save up another $200, and shares have appreciated to $18 each, you can now only buy 11 shares. Since you spent a total of $398 on 31 shares, your average purchase price is $12.84. That’s how DCA works.

As mentioned in Step 3, newer firms are allowing new investors to buy partial shares because they are buying based on price, not quantity.

Place your order.

There are two major types of orders when buying your first stock: market order and limit order. A market order allows you to buy shares at current market value, while a limit order allows you to buy shares at a specific target price.

Market orders are typically the method new investors use as limit orders are primarily used for short-term investing.

Welcome to the club!

You’re officially a stockholder. In a perfect world, your stock will always increase in price, but the stock market isn’t perfect. Remind yourself that you’re in it for the long term and that the annual average is on your side.

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