Teach Your Children How To Invest

How do you teach your children how to invest? After all, along your Journey to Financial Independence, you will have the honour and responsibility to transfer your knowledge and experience to them. Key topics will be how to manage money and investments, and the rookie mistakes to avoid. As usual, the sooner you teach them, the better.

Teach Your Children How to Invest – Quotes

As Investment Advisor and rabbi Naftali Horowitz commented why you need to teach your children how to invest:

“If you have a child who is spendthrift, and send it to marriage without proper education, 10 years later guess who is going to end up picking up the pieces? Usually, the parents”. 

NBA Legend Shaquille O’Neal famously posted this “brutal” gem on teaching his kids financial discipline:

I tell them all the time: We ain’t rich. I’m rich

Warren Buffett donated a vast majority of his wealth to charity, leaving his children “sufficient” for their needs:

I believe in giving my kids enough so they can do anything, but not so much that they can do nothing

Teach Your Children How to Invest, with JL Collins

However, teaching your children how to invest, by growing and managing their portfolio can be a daunting experience. A remarkable example is the one of JL Collins.  His book – The Simple Path to Wealth – grows out of a series of letters to his teenage daughter about money and investing.

Teach Your Children How to Invest, with Arthur Zeikel

Another father’s advice to learn from, if you want to teach your children how to invest,  was written by Arthur Zeikel, old-time Investment Expert (president of Merrill Lynch Asset Management) and co-author of the Guide to Intelligent Investing.

I trust you will find great value in this father’s investment recommendations.

From: Arthur Zeikel (Father)
To: Jill Anne Zeikel (Daughter)

Re: Managing Your Own Portfolio

It’s what you learn after you know it all that counts. –Earl Weaver

Personal portfolio management is not a competitive sport. It is, instead, an important individualized effort to achieve some predetermined financial goal by balancing one’s risk-tolerance level with the desire to enhance capital wealth. Good investment management practices are complex and time-consuming, requiring discipline, patience, and consistency of application. Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success and, at the same time, reduce the anxiety naturally associated with an uncertain undertaking.

I hope the following advice will help:

1. A fool and his money are soon parted

Investment capital becomes a perishable commodity if not handled properly. Be serious. Pay attention to your financial affairs. Take an active, intensive interest. If you don’t, why should anyone else?

2. There is no free lunch

Risk and return are interrelated. Set reasonable objectives using history as a guide. All returns relate to inflation. Better to be safe than sorry. Never up, never in. Most investors underestimate the stress of a high-risk portfolio on the way down.

3. Don’t put all your eggs in one basket

Diversify. Asset allocation determines the rate of return. Stocks beat bonds over time.

4. Never overreach for yield

Remember, leverage works both ways. More money has been lost searching for yield than at the point of a gun (Ray DeVoe).

5. Spend interest, never principal

Spend interest, never principal, If at all possible, take out less than comes in. Then a portfolio grows in value and lasts forever. The other way around, it can be diminished quite rapidly.

6. You cannot eat relative performance

Measure results on a total return, portfolio basis against your own objectives, not someone else’s.

7. Don’t be afraid to take a loss

Mistakes are part of the game. The cost price of a security is a matter of historical insignificance, of interest only to the IRS. Averaging down, which is different from dollar cost averaging, means the first decision was a mistake. It is a technique used to avoid admitting a mistake or to recover a loss against the odds. When in doubt, get out. The first loss is not only the best but is also usually the smallest.

8. Watch out for fads

Hula hoops and bowling alleys (among others) didn’t last. There are no permanent shortages (or oversupplies). Every trend creates its own countervailing force. Expect the unexpected.

9. Act

Act. Make decisions. No amount of information can remove all uncertainty. Have confidence in your moves. Better to be approximately right than precisely wrong.

10. Take the long view

Don’t panic under short-term transitory developments. Stick to your plan. Prevent emotion from overtaking reason. Market timing generally doesn’t work. Recognize the rhythm of events.

11. Remember the value of common sense

No system works all of the time. History is a guide, not a template.

This is all you really need to know.

Love, Dad

If you liked this article #131,  don’t miss other Financial Wisdom. Consider sign-up for my monthly newsletter and checking out my previous articles in my Archive.