Rules for Kid Investing
1) Keep it fun – At this point you are just trying to get their excitement level up!
2) Let them ‘own’ it by using their money. Let them feel the power of being truly invested and an owner in the economy not merely just a consumer/participant. This means letting them use money they earn and not just always contributing for them.
3) Let them choose companies that they are excited about and recognize – even better if they turn out to be a good investment but it’s OK if not. See #4 – you will not let them ruin their portfolio with a bad pick.
4) Keep the majority 75+% in S&P 500 Low Cost Index ETF. And no single stock over 1% of their total portfolio. You want diversification after all and you are just letting them choose a basket of companies that they are interested in to increase their excitement level. Keep the 3/4 in the S&P 500 which has proven returns!
5) Continually invest – you will never reap the incredible rewards previously discussed if you do not actively continue to contribute, invest and let your money compound. You cannot invest once and then stop. This is letting your money work for you, instead of working for your money!
Investing with Kids – The Launch
We started giving their allowance or ‘paycheck’ on a weekly basis based on how old they are. Read more about how this money is split up after receiving!
The portion for saving is handed over each week where it is then ‘deposited’ (really this cash is kept at the house and given back to mom & money from our bank account is deposited into M1 Finance).
Every week we can ‘do investing’ (as my 3 almost 4-year old) likes to call it. We can check their accounts, see how their investments are performing and add additional companies that will automatically take place with the next contribution.
Just scroll through the list of companies on M1 Finance (I present my phone up on the TV with the M1 Finance app for the kids to see more easily). They will stop you when they see a logo of a company they recognize and are excited about.
“Sunny” – “Sony?” – “Yeah Sony!”
Just click the plus on anything that excites them, remember, this is for them to get excited about. Who cares if it’s a lousy pick, at most you are going to put a big fat 1% into that slice. Other than their picks, you are going to put the remainder into something like VOO – the Vanguard S&P 500 fund with a very low .04% expense ratio. This means that for every thousand dollars $1,000 – .40 cents gets taken out annually to pay Vanguard.
In fact, because you can place pies within pies you could set 99% of your child’s portfolio to something diversified like the above, or build your own properly diversified “total market” allocation and then with the remaining 1% slice, add a pie that includes all of their picks and make the total 100%. This ensures that all of their choices together could only impact a total of 1% of their total portfolio.
Want to know more?
How early you start contributing and compounding has an enormous impact on your total returns. There is no better time to start than right now. It will be the easiest and best thing you have ever done for you and your child!