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Investing on behalf of your kids


matjone
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I don't have any kids but in addition to what Innerscorecard mentions---I think it should be something that will eventually grow into a learning experience.  I.e. after a few years he begins to understand why the money is being put into stocks and not spent on new clothes.

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This thread reminds me a good story on Finland's kids accounts  ;D.

 

To Find Insider Trading, Follow The Kids' Money

 

http://www.npr.org/2013/04/09/176579895/to-find-insider-trading-follow-the-kids-money

 

[RESEARCHERS have discovered the investment accounts of extremely young Finns tended to have surprisingly good returns. Intrigued, they looked closer at their stock market trades and came to the conclusion that some of these accounts were being used for illegal insider trading.

 

The study was undertaken by Henk Berkman of the University of Auckland, Paul D. Koch of the University of Kansas and P. Joakim Westerholm of the University of Sydney Business School. It is planned to be published in the Journal of Finance.

 

The researchers studied the activity of half a million stock market accounts between the periods of 1995 and 2010. They specifically chose Finland for their study because of the great detail held by the clearing house Euroclear Finland.

 

“We were very surprised when we first found this evidence,” Koch told the American broadcaster National Public Radio. “We were not looking for the result we found. The group from age zero to ten seemed to outperform all the others.”

 

The unusually prescient trades were not made by the children themselves; instead they were almost certainly made by their parents.

 

“Guardians are willing to trade on behalf of their children to earn these extraordinary returns,” Koch continued. “But they’re reticent to trade through their own accounts. One reason would be a fear of getting caught breaking an insider trading law.”

 

Individuals who are privy to inside information know their own investments are closely monitored. A supposed way to get around this is to trade on accounts that are not in their own names, such as accounts set up for their children.]

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Make sure to also teach saving and spending. Most people don't just fail at investing, they also don't have much to invest in the first place and spend it all on crap that doesn't really make their lives better.

+1

 

I was thinking this too...However that would be more of a long term goal.  It would be tough to put a 1 year old on a budget lol

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Yes actually it is him who has put me on a budget :)

 

I think I should have been more specific in my original question.  The problem I am running into is that the account minimums are too high for a few hundred dollars of birthday money, but it seems silly to wait until he has several thousand to start teaching him about investing.  It seems right now that I am stuck with either fronting the money for him to start a UGMA or waiting until he has more money.

 

I do plan to teach him saving and investing.  Even if I didn't  I think it would be hard to live with me for 18 years without some of it soaking in by osmosis, but we are planning to teach him to have accounts for saving, spending, and investing and putting a % of each dollar he gets into each one.

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Something he understands where the money comes from. Like Pabrai said, maybe Apple. Or Coke or Disney or Activision Blizzard. Something like that.

 

+1. He's only one so it'll be a few years before he understands anything, but young investing should be mostly about getting him interested in investing, teaching him about saving, etc. Putting the money into a brand he's interested in and wants to follow (Disney could be a good one) is more important, IMO, than some stock with a higher expected value that he'll never care about.

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The problem I am running into is that the account minimums are too high for a few hundred dollars of birthday money, but it seems silly to wait until he has several thousand to start teaching him about investing.

 

Something like a direct stock purchase? This way he can actually see the certificate, kind of a reminder of what he owns.

http://shareholder.broadridge.com/disneyinvestor

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I've been doing this with my boy since day 1 (he's 7 months old now).....in 529 college savings.  Of course he's a few years from even beginning to comprehend spending/saving/giving/investing.

 

When he does understand, I'll probably direct him like innerscorecard said, or along the lines of my investments.  But to try and have some understanding of why - even in its most basic form.

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