The other day I bought a book called Investing for Teens for my son to learn the fundamentals of money management, budgeting and investing in the stock market.
We’ve been talking about the stock market and investing a lot in recent weeks during car rides to practice or while cleaning the kitchen together. I figured the book could help him learn and cover topics that we might not otherwise in our chats. I’m careful about not just preaching to him where he tunes me out. It’s not lost with me that investing for a teen can be far from an exciting topic, especially if you don’t explain things in ways that would matter to them. But my son’s questions tell me he’s interested. Using sports analogies is helpful since he’s a golfer, basketball player and surfer. I often reference dynastic teams with high-performance team players led by great coaches, drawing parallels to great companies filled with disciplined people. Great leadership + Great employees = Great Companies, which leads to to great stocks.
Though he’s been dollar cost averaging into VOO ETF (S&P 500 fund) via the Greenlight app for a few years now, it’s time for him to truly understand and appreciate why a portion of the money he earns and money he’s gifted (birthdays, holidays, etc.) must be invested.
In our conversations, I reinforce the following:
Time is on your side
You’re young so you’ve got many years in front of you to take advantage of compound interest and ride the ups and downs. Imagine how much will be in that account when you’re my age?
If you automate putting money away and budget around what’s left, it’s much easier to keep the habit because it literally requires no effort on your part. Set it and forget it. Your money grows while you sleep! And don’t look at your accounts too much. That’s something I’m always working on myself.
500 Stocks is more than enough
Focus on the S&P 500 for now as your learning platform. It literally has 500 of the biggest US companies with global reach across different sectors and industries to learn about and invest in; it isn’t static either. The companies in the index change over time and largely reflect what is happening in the economy. Keep investing in low cost S&P 500 funds like you’ve been doing with VOO. Use the daily UVstocks.io newsletter to find undervalued stocks that you can research further.
In addition, to your rainy day fund, set cash aside for picking stocks within the index to give you a shot at outperforming—think 90% VOO and 10% cash and individual stocks. Develop a stock picking strategy that works for you and stick to it through thick and thin. If you’re seeing your portfolio grow and you can sleep at night, then you’re onto something.
As you “level up” (as he would say) you can look at higher risk small-caps where some of the next great companies are waiting to be discovered. But with more risk comes more reward. The Russell 2000 index is a great place to look. Remember to research company leadership, culture and discipline in addition to the fundamentals and financials.
Stay in the game
You don’t need to be right 10 out of 10 times when investing in companies, just make sure you’re right 6 out of 10 times so you can stay in the game. But remember being “lucky” isn’t the same as being “right.” Do your research and understand and believe in the companies you invest in so you improve your chances of being right.
Finally, stay calm and stay the course. Keep enough cash on the sidelines and stay disciplined about spending so you’re more prepared than most to weather the storms. If you’re not sure what to do, then do nothing. The last thing you want is to panic sell at a huge loss. Always be prepared mentally, emotionally and financially as you play the long game.
“When you wipe out, all you can do is let the wave take you and stay calm until you can come up for air.” — Garrett McNamara (American Surfer)
P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.
Happy Investing,
John
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