Wednesday, June 15, 2016

Prepare Kids For The Emotional Roller Coaster Of Stock Volatility

Today’s fantastic family finance article is:

Roller coaster Ups and Downs

Here are two stock stories to share with your teen.

Story number one:
Joey buys $500 of a stock. Just 3 months later, the stock is down 53%. Disgusted, he sells the stock and winds up with just under $250 in his pocket. Ouch.

Story number two:
Jenny buys $500 of a stock. 4 years later, the stock is up 275% and worth about $1,875. Sweet.

Who picked the better stock?

Duh! Jenny did, right?

Actually, they both did.

How’s that possible?

Two stock stories, one stock. They both bought Facebook in May 2012. Joey panicked early and bailed. Jenny kept her cool and hung on for the ride.

As Tom Gardner of The Motley Fool points out in today’s podcast (about 13 minutes in): “All of your stocks will fall more than 50 percent at some point.” Even the most awesome ones, like Amazon, Starbucks, and Berkshire Hathaway which weathered drops of 60%, 83%, and 50%. That’s because stocks are volatile investments. Their value can change rapidly and unpredictably. Expect it. Ride it out.

A stock drop is a lot less scary when you know it’s coming. Teach your teens to stay buckled (and diversified), and they’ll be fine.

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