Raising Kids to Invest

River1I first got interested in investing from watching my father.  Each day he would copy down the closing prices for his stocks from The Wall street Journal onto a sheet of graph paper.  He would then graph the prices for his stocks on another sheet of paper.  Really, he probably didn’t need to do this, especially every day, but it helped him to keep track of how his stocks were doing.I started asking him about investing when I was probably ten or eleven.  When I was twelve, I decided that I wanted to buy some shares of something with the $250 or so I had in my savings account.  He helped me select a stock using Value Line Investment Survey (a product I still use today).  We chose to invest in Tucson Electric Power, a utility that supplied the Tucson, Arizona area.  He then called his broker and bought me 15 shares at $15 each.  I was very excited.

Because it was a small order, I probably paid $30 in commissions on my $225 order.  Because I didn’t have a regular investment account, I also ended up getting the certificate for the shares in the mail, which I kept in my dresser drawer.  Looking back, I probably should have kept it in my parent’s safe deposit box, but it was neat to look at the certificate, embossed with what was probably some Greek god holding lightning bolts in his hand.  The real interesting thing was that I ended up going to college in Tucson, so the power company in which I’d held shares for all of those years became the company I paid for electricity.

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The company did really well for a while, spinning off a company called “Alamito” that also did well.  I put the shares on the dividend reinvestment which also allowed me to send in some cash periodically to buy more shares without paying a commission.   After a while, however, a scandal broke involving the company and Alimito, at which point the shares fell like a rock, probably down to about what I had paid for them six years before.  I held on until the bitter end, however, and the company did recover quite a bit and actually paid out a lot in dividends, probably more than my original purchase several times over.  Eventually they were bought out by another company and I had to surrender my shares a year or two ago.

Today my son is interested in investing as well.  He owns some shares or Home Depot that we bought for him using some money my sister gave us for that purpose.  My daughter is less interested in investing, although she is younger.  We also bought her some shares of Pacific Sunwear when she was born, but unfortunately the company went bankrupt after years of great growth.

With both of them we have also started investing in Vanguard mutual funds, using money that we have received from relatives for their birth, baptism, and so on.  I have also contributed additional money to these accounts from time-to-time, which is easy and inexpensive to do even with small amounts with a mutual fund.  One thing I like to do is to match whatever they wish to contribute.  These have actually done well, growing quite a bit from the original investment.

Because we have not sold any shares and because they are invested in index mutual funds that do not trade very often and therefore do not generate much in the way of dividends or capital gains, we have not needed to file taxes for them yet.  This may change as their accounts continue to grow.  One disadvantage is that while I would like to sell some shares and buy another fund to provide a little more diversification, doing so would probably trigger the need to file another return.  Of course, their return would be fairly simple, so I may just bite the bullet and sell some shares soon.

Another thing I wish that I had done was to buy the same fund for both of them.  I bought my son shares of the Vanguard Mid-Cap Fund, and my daughter shares of the Small-Cap Fund.  Because the Small-Cap has done a little better than the Mid-Cap, she is catching up to him even though she has been investing for less time.  Even though this is just by chance, it seems a little unfair. (Of course, his Home Depot shares have done well while her Pacific Sunware stock went bankrupt.)  This is another reason I’m thinking of selling some shares and diversifying so that they’ll have equal investments and I won’t need to worry about one doing better than the other.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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