Investing For Your Toddler
AdventureDad | November 11
Is your toddler invested in the financial markets? If the answer is no this might be a good time to get started. The drop in the stock market might be painful but it’s the best thing that ever happened to your toddler or newborn. Start putting in some money now and continue on a regular basis, chances are very high returns will be nice in 15-20 years.
I exited the markets last year with a little luck but now want to make sure my kids money are well invested. The crisis is probably far from over but now when markets are down 35-60% from the top it’s a good time to put some of that (little) toddler money back into the market. My financial plan for the kids (2 and 5 years old) is extremely simple and boring. I put aside a little money each month which goes straight into their accounts. Over here, each person with a child receives $150/month per child until 18 years of age from the government. The money can be used for dad’s beer fund, clothing, toys, or anything you want to. We put this money aside so the kids will have a little buffer as they get older.
Picking stocks is something very few in the world are good at, the best long term investment for kids IMHO is an index fund of some kind. Something that follows the general market. Pick one with a good reputation and make sure expenses are low. This makes little difference during a year or two but a large difference during 20 years.
Investing on a regular basis is crucial, that way investments are made when the market is high and when it tanks. I try not to time the markets, except last year when 5% in the bank seemed like a nice risk reward. By the way, should children be invested in the stock market? Is it the best thing in the long run?
Looking historically, the stock market has given the best return in the long run. This might not be true in the future though, it will go up and down but hopefully be higher in 20 years. I’m counting on 5% a year for my kids which will make our small monthly investment grow into just over $50 000 per child when the kids turn 18. This is something my parents did when I was young, I was given the money (a bit less though) at age 15 and asked to use them wisely with little oversight. I would like my kids to use the money for travel, perhaps a car, some hobby, or something else they choose. I’ve found that investing without seeing the money is the best solution for most. A deduction from the paycheck or fixed monthly transfer into some account leads to less temptation to do other things with the money.
It’s impossible to pick the bottom, count on the market going down quite a bit more but keep putting in small amounts on a regular basis. Remember, Nasdaq went from 5000 to roughly 1200 in a fairly short time. The 30-40 percent drop from the top might just be the start of a larger drop.
When do you know when markets are close to a top or bottom? After 15 years as a senior currency trader I’ve learned a simple thing or two:
1. Too Good To Be True:
When everyone keep saying how easy it is to buy an extra house and sell it in two years with 50% profit you know we’re heading for a crash (last few years). Or friends in Florida mention how easy it is to buy and sell condos in Miami with no risk (2006-2007). Or people start day trading saying it’s so easy to make money in the markets (2000-ish). Or when VC firms are throwing money at upstart companies with no business plan or revenue model (2000).
2. Advice From Weird Sources:
When my hair dresser in NYC started giving me stock tips and saying how easy it is to trade Nasdaq stocks I knew the top was near. When my dentist said the same thing later in the week I went all cash. Markets crashed shortly thereafter (2000). Waitresses with stock tips are also a great reverse indicator. This people all tend to get excited about markets near the top of bottom.
3. Consistent Opinions:
When everyone is saying the same thing you know the turn is near. When EVERYONE is saying DOW at 20000 you better watch out. I used to ask traders at work some mornings what they though of the market today. Days when they all replied USD/JPY/EUR or whatever going the same way I always took a position the opposite way. It never failed me. When everyone is saying house prices can’t go down you better watch out. Likewise, when everyone is saying the current financial crisis will lead to DOW collapsing the turn is near. Listen to what the herd is doing but don’t follow blindly.
And don’t forget, be careful trusting any analyst. Most analysts have a terrible track record. They might be right at times but also wrong many times. Truth is, it’s very difficult to predict markets and that’s why so few are successful at it. Analysts also often don’t invest according to their opinions and lie their asses off to help the company. Just Google what has been said about AIG, Lehman, Bear Stearns, etc. this year. And lets not mention what was said during the last dot com crash. A few are very smart and good at what they do, most have a reputation in the markets which make a serial killer look good. They rank slightly above lawyers, which means just above dirty diapers.
Good luck with your toddler and his/her money.
