Teaching kids to invest sounds complex, but it really isn’t. I think it’s all about developing the habit of putting some of your income aside for investment. The easiest way to do that is to buy an index fund, like the Vanguard S&P 500 ETF (ticker symbol VOO). Open an account with Interactive Brokers if you don’t have one. You can use separate sub-accounts for your kids. If you use my referral code, we both get some freebies.
Why teach kids to invest? Because inflation will eat their savings otherwise. I covered that here.
Bomad’s “repeat transactions” are a great help too. My daughter gets an allowance of £6. She has a repeat transaction set up to save £1.50 weekly for Bitcoin:
When she reaches £50, I buy her £50 worth of Bitcoin. Currently one VOO share costs $550, but you can buy it in fractions. I suggest setting a goal of $55 to buy one-tenth of a VOO share. So something like this:
In writing this post, I happened to notice something which I think is a bad idea. See my daughter Michelle’s Bomad accounts below. Her allowance gets paid into the “Spendinggg” account (purposely misspelt, though I'm not sure why):
If she gets any extra money, we normally just credit it to Spendinggg too. So by default, all her money is allocated to spending! I’m going to suggest that we add a “Main” account. I’ll set Bomad to pay the allowance into there, and then we can create repeat transactions to move the money into the other accounts.
Regular readers of this blog will know that I previously suggested that kids buy stocks in companies that they recognise (Roblox, McDonalds, Nintendo, Disney, etc - see this blog post). My thinking has shifted since, mainly due to our recent experience with Roblox. Let me explain.
Previously my daughter's entire portfolio was Roblox stock. I happened to come across this report by a well-known short-seller (someone who publishes bad news about companies and hopes to profit from declines in the share price). The report was quite scathing. I suggested to Michelle that she sell half her Roblox, just in case the company imploded. She agreed. Here’s when we sold:
As you can see, the price went significantly up a few weeks later 🤣
This really isn’t the kind of thing I want to expose her to. Most kids don’t want to pick stocks. What we actually want to teach them is the HABIT of investing, so why complicate it? Rather get them to invest into something like an index fund. A shout out to my friend Sung for helping me come to this realization.
Another mistake I made was to not help her reinvest immediately after she sold. The cash just lay in her brokerage account for a few weeks. I should have gotten her to buy the index fund straight away. The “Trump bump” lifted the prices of everything before I got around to it:
This week I eventually helped her reinvest. She’s away at boarding school, so I had to do it over the phone. Since she’s only 10, I haven’t given her direct access to her brokerage account. But I was able to share my phone screen and she watched as I bought an Uber share for her.
Her portfolio is bit more balanced now:
What? An UBER share? What happened to index investing, you ask? Well, my response, dear reader, is that you should do as I say, not as I do 😉
Seriously though, I think this might have been a mistake. My business partner is quite bullish on Uber, so I offered her the choice between that and VUSA (similar to VOO because VOO is not available in the UK). I must admit that I probably steered her toward Uber. That just shows you how hard it is to make yourself do something dull and boring, like invest in an index fund!
When she’s an adult someday, she probably won’t have access to high-quality advice about which stocks to pick (and who’s to say my current advice is high-quality either!). So I think I might be setting her up for failure by picking individual stocks for her.
Furthermore, it was definitely apparent that she wasn’t interested in stock picking. I told her VUSA was the safe choice, but if she had a bit more appetite for risk, she could buy Uber. She didn’t really seem to care. While I was showing her the buying process, she started telling me about what she’d been doing that day!
Let me make the commitment here and now: the next time she has money to invest, I’ll encourage her to buy an index fund 😇
On the positive side, she did spontaneously decide to transfer the last fifty cents into her Bitcoin saving goal account to bring it to £50:
I then bought £50 worth of Bitcoin for her, and deducted it from her Bomad account. The balance is now zero and she’s saving up for the next £50 chunk.
I think the slow process of adding £1.50 to this account weekly has demonstrated to her the power of habit. I feel pretty good about that, so I've asked her to get me this book for Christmas:
