Kids are sponges. They remember what you tell them about saving money. They’re also like jukeboxes when it comes to singing back songs. But they might not always understand what they’re singing about—take, for example, “I made enough money to buy Miami / But I pissed it away so fast” from Jimmy Buffett’s “A Pirate Looks at 40.” Understanding some scenarios comes with age.
Imagine if you never lost money in the stock market. When kids save money, they’re not worried about the market—they’re too busy counting their cash. They count it again and again and again. Then they tell you how much they have. After a while, the dollars turn into tens, and then hundreds, and then you hear, “I have $200!”
Unfortunately, the average investor expects too much from the market. A prospective client recently told me he expects 10-12% a year to make up some ground from 2008. Taking big losses is a killer. In 2008, stocks fell by about 40%. It’ll take a 67% gain just to get you back the money you lost.
Kids are happy to simply accumulate money regardless of the market. Investors could learn a lot from them. Don’t be greedy. Imagine how you’d feel if you never lost money in the stock market. At a compounded rate of 4%, you’d double your money in 18 years. That’s about the age when your “Hearts of Gold” will need to be taught how to be smart with their money.
E.J. Smith