I always enjoy listener feedback and questions, and we had a really good question recently from Larry on how to start investing for your children.

How to Invest for Your Children

Larry asks, “I have a 10-year old son who would like to start some investments in addition to CDs (certificates of deposits) we have for him.  Could you [talk about] investing for children?

Absolutely.  First of all, I’m so glad to hear Larry’s son is interested in investing–it’s so important to get children interested in investing their money and so many don’t take the time to learn–and sometimes parents don’t know where to begin or how to captivate their interest when talking about topics even some adults find boring!

How to Talk to Kids About Investing

I’ve always found it helpful to start a conversation with my children by talking about something they are already interested in, and then relate it to a stock and get them to understand how the real world affects stock prices in the investment world.

For example, if they love video games as most kids do, talk to them about stocks of video game companies such as Electronic Arts (ERTS), and how they make, produce, market, and sell some of the video games they play, such as the Sims, or many popular sports games under the EA Sports name.  Activision/Blizzard (ATVI) is another example of a producer and distributor of popular video games.  

Or you could talk about video game stores where they buy the games such as physical store Game Stop (GME), online store Amazon.com (AMZN), or even chains like Best Buy (BBY) or Walmart (WMT).  

It doesn’t matter what you use to pique their interests, it is just important to keep their attention and help them make the connection between things they do or enjoy every day and the companies–and stocks–behind those companies.

So the first step is to get their interest and help them see the investing world of the stock market as interesting, not boring.

From there, it gets easier to talk to them about the more complicated things, but always keep it as simple as possible and try to speak their language.

The Best Ways to Invest with Your Kids

Now in terms of actually investing for or with kids, most people do what you mentioned and either take out a Certificate of Deposit (CD) or buy 10 or 30 year Treasury bonds that mature when the child reaches adulthood (and thus have many years of interest payments over time).  Grandparents can be involved in this process, especially early on in the child’s life before they get really interested in video games, sports, or whatever.  Bonds make a practical birthday or holiday present when the child is very, very young, but may not be as exciting when the child is requesting video games and instead gets a 10 year Treasury bond for Christmas!

If your child finds a particular company very interesting, you can purchase shares in the company for him or her, provided you do your adult research to make sure the company is fundamentally strong and showing a decent chart picture.  Stocks like Apple (AAPL) tend to be very interesting to children because almost all kids have some sort of Apple gadget nowadays–whether it’s an iPhone, iPod, oriPad..  It’s easy for children to make the connection between an Apple product and their stock.

How to Get Kids to Understand Investing

When investing with your kids, make them feel part of the decision-making process as best you can, without boring them with financial statements, ratio comparisons, future earnings projections, cash flows, and competitor analysis that you need to determine which video game company or sports-related company is the best to add to the new portfolio for your child. 

It’s easy to discuss investing with your kids in terms of popular stocks, bonds, and CDs–children understand these things. Remember, you don’t have to be too conservative because the child will have his or her whole life to invest, so you don’t want to go too heavy in bonds or CDs. 

Investing Beyond Stocks and Bonds

If your child gets really interested in the investing world beyond the stock market and bond market, as some kids do, you can discuss alternate investments such as gold or silver, or even other markets that have an easily referenced, widely traded exchange-traded fund.  Monitor GLD for gold, SLV for silver, and so on.  Take a moment to listen to our prior podcasts on ETFs or alternate investments, all of which are also detailed in my new book, The Winning Investor’s Guide to Making Money in Any Market.

Ideally, you want to teach your children the value of diversification across stocks in different industry groups or sectors, along with diversification percentages between stocks, bonds, and alternative investments.  Be sure to discuss ETFs–exchange traded funds–and how those really make the investing world simple.

Quick and Dirty Tips for Investing with Kids

So here are a few quick and dirty tips for getting your son or daughter interested in the investment world and building a portfolio with them, along with teaching them valuable skills that will last a lifetime.

Tip 1:  Relate to their interests and start the discussion with activities they already enjoy to bridge the gap between the real and investment world.

Tip 2:  Keep everything simple.Try to keep the discussions light and fun and don’t bog them down with ratios, staring at charts all day, or other forms of analysis adults need to do but children find boring. 

Tip 3:  Keep the portfolio small so that your child doesn’t get confused or lose interest because he or she can’t keep up with the stocks or ETFs in the portfolio.  You want them to be interested and check certain stock prices, or perhaps gold prices, from time to time, but don’t overwhelm them with say 30 stocks, 10 ETFs, and the like.  You wouldn’t do that for your portfolio anyway!

Tip 4:  Teach the value of diversification.  Maybe allow them to choose only one video game stock, one restaurant stock, one popular product stock (such as Apple), and one children-specific stock like Disney or other company that strongly caters to children.  That teaches them about diversification and the need to evaluate stocks and choose the best alternate from a small list of candidates.

And remember that it is important to keep a portion in safe investments like CDs or Treasury bonds, despite how boring your child–and even some adults–may find them!

If your children aren’t so little any more and are ready to start investing on their own, my book, The Winning Investor’s Guide to Making Money in Any Market is a perfect place to start. I cover all of the basics, like which investment vehicles are best, and I also talk about how to make sense of what’s going on in the economy and invest accordingly. And as Publishers Weekly said, “Beginning investors will find this no-nonsense manual a helpful resource to navigating the markets.” It’s available at Amazon and other fine booksellers now and is also available as an e-book too!&

Want to become a Winning Investor? Then be sure to get your copy today – The Winning Investor’s Guide to Making Money in Any Market.

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