Monday, August 15, 2016

Teach Teens To Add Rinse And Repeat To Buy And Hold

Rinsing And Repeating Through Stock Bubbles

“Dad, I heard on TV that stocks are getting overpriced. You always say ‘buy and hold.’ But what if you buy at the wrong time? You could be holding a dog of an investment for a long, long time.”

“Good question.”

The technical answer is to pursue a consistent dollar cost averaging strategy over a long timeframe.

But that’s financial nerd-speak. You need to use money lingo your kids will understand. Catchy phrases that are simple and memorable. Like “buy and hold,” which your kid clearly remembered.

So try this simple extension of the “buy and hold’ catch phrase to capture the essence of dollar cost averaging.

“You’re right. The answer isn’t just ‘buy and hold.’ It’s ‘buy, hold, rinse, and repeat.’”

“What do you mean?”

“That means you buy and hold now — no matter what people on TV are pretending to know about where the market is heading tomorrow. Then you buy again later. And again after that. And so on. If you’re repeatedly buying over time, you can’t help but buy at the right time some of the time — even through the bubbles. That’s what we’re doing with your annual Roth IRA contributions.”

“Yeah, makes sense.”

Teens probably won’t remember “dollar cost averaging,” but they might remember “buy, hold, rinse, repeat.”

If you repeat it enough.

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