During the last 3 weeks, we have focused on teaching children where to save first, the various types of accounts, and the magic of compound interest. Now it’s time to help them choose investments.
If needed, start by explaining the differences between stocks and bonds. I find it helpful to explain it using a company they buy from already. If they are really into computers, I might mention a technology company.
Stock – ownership in a company
“When you bought that computer for $500, it might have cost them $300 to make. The other $200 is a profit, which the stock holders often benefit from.”
Bond – lending money to a company
“When they were getting ready to design that computer, they needed money to build it so bond holders lent them money.”
Buy what you know – Because the example below typically makes sense because they actually use the product or service, they usually also find it interesting to own and follow. This is a great education tool.
Risk Tolerance – Make sure you and they know what they are saving for and when they might need it. Develop a mix of stocks and bonds that they are comfortable with or use an online risk test, like this one.
Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.