Be Cool When You School Your Kids About Tools for Investment
Last night, my sixteen-year-old son, Zachary, asked me if it was a good idea to start investing in the stock market right now. I’m not sure how he came to ask me that question, or why he asked me but I’m glad he did.
And he’s lucky that he did.
Unbeknownst to him because it happened long before he was even a glimmer in his dad’s eye, I worked in the Wall Street area of New York City (Lower Manhattan). I worked for three stock brokerage companies, however, the majority of my employment was spent at E.F. Hutton & Company and Smith Barney Harris & Upham.
Later, I spent some time with Primerica, a Division of Citigroup, through which I obtained my California Life Agent License (for life insurance) and I took the exam for my Series 6 and 63 license.
The Series 6 and 63 licenses are often mentioned together because they are the two necessary licenses required to sell insurance policies tied to investments. While any securities professional can benefit from having a Series 6 license, this is a license specifically tailored for insurance professionals. Sales professionals need a securities sales license to do business because the vast majority of insurance/financial products are packaged with securities.
I know enough about investing, financial instruments, and the stock market to be dangerous and effective.
The App Link to Compound Interest
SIMPLIFY THE PROCESS
I told my son that it would be very smart to start investing early. I explained that time is on his side as a young man, enabling him to start investing by committing a small dollar amount regularly. I explained to him the benefits of compound interest, and why Einstein called it “The 8th wonder of the world…”
I went on to explain to him that by leveraging time and compound interest he could invest now for twenty or thirty years, stop, and then reap the rewards of time and compound interest on his money after a few decades when he’s ready to retire.
I used a buzzword that all youngsters like to hear. I told him that he could retire as a millionaire if he started investing now.
The thought seemed to resonate with him, so I went into, HOW to invest.
I explained to him that there were financial apps available on his phone right now that would allow him to transfer small amounts of money from his Chase bank account or even from Apply Pay, to an investment account.
I told him about Robinhood, Charles Schwab Corporation, E‑Trade, Acorns, Betterment, and Ally Invest. All are apps he could download right now and start his investment journey.
I told him that stock price didn’t really matter when you use apps like Robinhood because of something called “fractional shares”. I told him he could buy a fractional share of Apple or Microsoft stock even if he couldn’t afford a whole share. All he had to do was send the money in.
I intended to take away the fear and any reasons he’d come up with to say why he couldn’t invest now. Truth is, there is absolutely no reason for anyone not to invest, right now. The tools are readily available, and most are commission-free.
Competition Makes the Account Grow Richer
FRIENDLY RIVALRY BUILDS FORTUNES
I then told him the story of when my employer at a boutique public relations firm opened retirement investment accounts for all employees at TD Waterhouse. We were able to invest in real-time directly into our 401K accounts.
I told Zach that my best friend and coworker, James, considered himself a future move-and-shaker, and he started picking stocks. Like most guys, we were very competitive, so we started to compete for portfolio values. With my background on Wall St., I was led to choose stock in Microsoft, Apple, Disney, and a few other companies in the early 2000s.
I explained to Zachary that if I had kept my investment it would have septupled in value. All he had to do was look at the price of Apple stock now versus when I purchased it.
I saw his eyes light up.
I concluded by telling him that competing with a friend gave new life to the mundane process of transferring money to an investment account. Knowing that I was trying to make my portfolio perform better than average compelled me to make better choices with my financial instruments.
Investing Isn’t Gambling
THE LONG GAME
I then proceeded to deliver a quick lecture on the stupidity of gambling within the stock market. I explained to him that historically, over ninety percent of all stocks go up in value over time.
Ninety percent.
That means someone would have to be extremely very unlucky to buy a stock that didn’t increase in value.
Or, that person would have to be gambling by Day Trading.
Day Trading is the strategy of attempting to take advantage of daily gains and losses in stock price fluctuations. In other words, it’s gambling. It’s not different from trying to win a year’s salary in one hand of Poker at the casino.
Only a very small percentage of people ever win at poker. The same can be said for Day Trading. For neophytes, it’s stupid, risky, and a guaranteed heartbreak.
Investing for the long term, however, is one of the most secure and safe ways to increase the value of your financial instruments. I reiterated that most stocks gain value over time, even through stock market crashes, wars, presidential elections, and even insurrection attempts on Capitol Hill.
Most of the time, any losses can be recovered if the owner simply holds on to the stock and waits it out. I told Zach that the ups and downs of the stock market are cyclical. As proof, I told him that I lived through dozens of stock market crashes, oil strikes, gas strikes, depressions, recessions, etc.
If you hold on and wait, the situation will improve.
I reminded him that a stock purchase is an investment. You don’t follow the price of the stock as closely as you follow the direction of the company. Over time, most companies tend to stay in business because they want to do so, thus they tend to do the right thing financially.
On average, I explained that it’s safer when you plan to hold onto stock for ten to twenty years or more. There have been some stocks like railroad stocks and Shell Oil, that were purchased for pennies, and shoved into a kitchen drawer for half a century. When they were redeemed forty or fifty years later they were worth hundreds of thousands if not millions of dollars.
WHEN SAFEKEEPING ISN’T SAVING
Furthermore, I explained to my son the problem that most adults have with so-called savings accounts. A true savings account in the bank does what a passbook savings account used to do in the 70s and 80s. You put the money in and it stays in.
Nowadays, people have In-and-out accounts. They put the money in for a few days or weeks, and then they take the money out. They aren’t truly saving it. They’re just putting cash into safekeeping until they find an excuse to spend it.
With phone apps and online banking, it’s too easy to access your money. There is little to deter you from transferring all your savings into your checking account so you can buy something unnecessary with your Bank Debit card.
In Conclusion
I told Zachary that saving and investing can be fun. I reiterated that his best course of action was to do three things:
- Use existing technology via apps to start investing small amounts now
- Don’t concern yourself with stock prices because you can purchase fractional shares – pay closer attention to the company (politics, leadership, culture)
- Compete with yourself, with friends, or with the NASDAQ, AMEX, or NYSE for portfolio gains
- Delay gratification: stay in the game for the long haul, think decades later, not months.