Here is my exact guide on investing for & with your kids

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And now for our programming….

Coming to you live from the 7th-grade boys’ basketball court. We haven’t pulled off a W yet this season, but they are working hard and man are we getting close. So we talked a bit about why women don’t naturally feel inclined to invest or feel comfortable making long-term financial decisions in this article. In my humble opinion, it comes down to the lack of education in conventional schooling and the societal and cultural stigmas that don’t allow for open discussions about money, especially among women. So are we going to sit back & let history repeat itself and let our children fall into the same fear-money-bear-trap that we may find ourselves in, even today? Or are we going to do something about it? Like buckle up, put on our leather jacket, and red lipstick, hop on our Harley Davidsons, rev our motors, and take this into our own hands. You with me?

I know you like the sounds of this grand plan & you are feeling pretty bada$$ in our kick-butt-take-names mode, but you may be thinking: how do I invest for and teach my kids about investing, if I don’t know about investing myself? Remember in my last post when I told you that owning-your-own-money is not that hard? Since the market is saturated with tools & experts to help you, you do not have to forge these waters alone my friend. We do not have to create wheels out of railroad ties, there are systems already in place to make this dummy-proof, and maybe even make us look like a total rockstar to our kids, plus get them engaged & interested in managing their own money at a young age. Kids understand the general concept of money at age 3 and by age 7 they already have money habits. So this is kind of important. Never fear, with a few key pearls, you can invest for your kids & teach them how, now (even if you don’t know how)!

Investing for your kids

  • Open a 529 plan. This is a tax-advantaged savings plan for your kid’s education. You may know this & you may have one or one for each kid, but if you don’t, this is a great way to invest for your kids now. Here is some great info on what to look for & considerations you want to make depending on your kids’ education goals. An ESA is another option you may want to explore.
  • Create a custodial account. This is an account in your child’s name that you have control over as long as they are a minor. This is a great place to deposit money in any increment as it comes your or their way and then invest those funds to get the magical compounding interest phenomenon working for them. Some ideas on where this money can come from:
  • Your baby is potty trained (HALLELUJAH!), first buy yourself a celebratory no-more-changing-dirty-diapers-gift, then put that monthly allowance into his/her custodial account
  • Your toddler starts kindergarten at the public school, (FREEDOM!) put the daycare costs in the account
  • The braces come off, put the orthodontist budget in the investing account
  • Grandparents who never know what to get them for holidays or birthdays, or keep buying them the same ol’ cat sweatshirt, have them put a few bucks in the investing account, or even have them pick & buy a specific stock or ETF
  • When you pay your child allowance 1 out of every 4 payments goes in
  • Your teen starts a paper route, or a soft drink delivery service, or a sports camp for kids, or babysits… 1 out of every 4 paychecks goes in the account

There are a few ideas to get you started. Now, what do you invest in once you have the 529 or the custodial account opened?

  • 529. It is likely that you will want the account to grow seeing as though college tuitions cost more than most US homes these days. If you want growth you will want to look for funds that are comprised mostly of stocks. Speak with a financial professional and/or do your homework but select a diverse array of mutual funds. Here are some examples: small cap, emerging markets, small/ mid/or large-cap core, etc. Don’t be afraid of a risk profile that is stated to be “moderately aggressive” or “aggressive” that just means that the fund is designed for growth, which means it contains stocks (vs. more conservative investments like bonds), and there is risk associated with investing in stocks. A good way to think about it is, in general, the higher the risk, the higher the potential reward. Of course, you will want to run all of this by a professional who is trained to help you with these (confusing) terms.
  • Custodial accounts. You will have a wider variety of options for a custodial account and if you are willing to try your hand at stock picking this may be a good place to do it. If you do want to try your hand at stock picking, make sure to do your research, and set a threshold for which you will re-evaluate or sell. Most beginner stock pickers sell the winners & keep the losers, but you are smarter than that, so make sure you sell your losers. The goal is to buy low & sell high, baby! Peter Lynch has a number of books with some great fundamental strategies for stock picking.
  • At Grinnell Capital, we created a model inspired by clients who wanted to initiate custodial accounts that don’t meet our flagship’s minimum, our Ignition model. It mimics our flagship model by capturing macroeconomic sector trends through an all-ETF (exchange-traded-funds or in plain English, a compilation of a number of stocks in a particular theme or sector) portfolio. The idea is that there is less risk (than a stock portfolio) but potentially less upside. For young investors, it can make for a friendly investing profile. To learn more click here or send us a note [email protected]

Investing with your kids

  • Open an account they can access & they can invest in themselves. There are many fintech companies these days that do just that. Greenlight, Revolut, Go Henry, Step Mobile, and more! Even big firms like Schwab, Chase, and Fidelity have custodial platforms that are friendly for kids. They all have different features and benefits so pick the one that works best for you & your kids.

Personally, our kids each have an account, well the oldest 2 do. Their chores & payments are managed in the account & weekly allowance deposits are automatically made relative to how many chores they completed. They like this since we never have cash and always seem to forget to pay them their allowance (oops!). We like it because they actually do their chores. They can divide their money into spending, saving, & investing. When they decide to purchase a stock or ETF with the investment dollars, they can research it right on the platform & place the trade themselves. There are all sorts of educational games they can play on the platform as well, sneaking them education about money & investing while they think they are playing vids. This has gotten them very engaged & interested in the stock market, much more so than when my husband tries to spoon-feed them investment ideas, which goes over as well as pureed peaches did when they were 6 months old.

Frank & Milan talking stocks

It is NEVER too late!

My husband was a long-time institutional advisor to hedge fund, pension fund, and mutual fund portfolio managers for three of the major Wall Street firms, and is now a portfolio manager himself (& the founder of Grinnell Capital which serves as my employer too). He was never exposed to the stock market or investing as a child, or teen, or even as a young adult. In fact, the first he heard of the stock market was when a broker came to speak to his class about investing as he was graduating from his doctorate program. He was star-struck and in love at “hello”(lucky for me, not with the broker… rather the stock market itself), and long story short, (for the long one we need a beer in hand of course), he aborted mission on his intended career path & dove into the stock market head first. The rest is history.

Even if your children are not destined for a career in finance, getting them interested in understanding the values around money, the discipline to save, the basics of investing (the fact that they can OWN a piece of companies they use and love when they purchase stocks), and the foundations of compounding interest (the idea that their money can grow without them working for it) is invaluable. These are all teachings they will take with them forever and will certainly at a minimum, empower them to own-their-own-money! And look at you smarty pants, you just taught your kids some of the most valuable life/money lessons without being a stock market or investing expert!!! BOOM!

If you want to talk about potty training, mean girls on the playground, or the woes of competition in teenage sports, reach out! No, but really, if you want more ideas on creative ways to invest for and with your kids, I’d love to talk shop, give me a shout!

XX,

D

Dana Grinnell