The classic way of teaching kids about investing is all wrong. Sure, owning a share of Disney (or some other favorite company) makes investing familiar and interesting. But it’s a dumb investment strategy.
The smart investment strategy is to buy your kid a low cost, broad market index fund. But that’s pretty abstract and boring.
That’s why I’ve suggested setting up a competition between a familiar stock and an all-market index fund to get the best of both worlds — like my son’s competition between CMG and VTI.
But a dad named Allyn offers a simpler way to keep investing lessons fun and smart. Here’s what he did with his daughter:
“Just a month or so ago she started with her first ‘investment’ in FDIS (with her own money and a ‘matching grant’ from her parents) as it holds pieces of the few companies she knows by name and likes (most notably Disney and Apple).”
Brilliant! Buy an ETF containing a basket of familiar stocks instead of betting on a single favorite stock.
The top 10 holdings in FDIS right now are: Amazon, Comcast, Home Depot, Walt Disney, McDonalds, Priceline, Starbucks, Time Warner, Nike, and Lowes. Most of those are names your kid can relate to. And, the expense ratio of FDIS is nice and low at 0.084%. Diversified. Low cost. All great investing messages for your kid to absorb.
If your kid has a specific interest, you might be able to find a decent targeted ETF to match. Gaming enthusiast? Maybe GAMR. It’s smarter than just picking one gaming stock. But be careful. The more narrow, the more risky. Keep an eye on the expense ratio too.
So, pick an ETF instead of a single stock to teach your kid about investing. You get familiarity and diversification all in one neat little package.
That makes your child’s introduction to investing both fun and smart.
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