Jan 14, 2021
A parent’s complete guide to investing for kids
Some people go their entire lives without investing a dime. Others make it their livelihood. The thing is, it’s not talked about enough — especially with kids. Whether you’re an investor yourself or you shudder at the thought of the stock market, we’re here to tell you that your kids can invest with your guidance. So can you. And together, we can debunk the myths and navigate this crazy world of stocks, tickers and everything in between.
Welcome to your complete guide to investing for kids.
What is investing?
Let’s get right into it. Investing is a way you can grow your money over time, to build wealth and earn more income. With Greenlight’s investment accounts for kids, your kids can invest in the stock market with stocks and exchange-traded funds (ETFs).
When you buy a stock, you become an owner of that company. When you buy a share of an ETF, you’re invested in a collection of investments, depending on which funds you choose.
Because there is an element of risk to investing, some wonder why invest when you can save instead. Saving is important, especially for a rainy day, but investing can help you build wealth. That’s because historically, investing in the stock market has made money over time.
Visualize. Think about gardening. You could plant one seed, grow one tall and beautiful flower and admire it every day. Or, you could plant hundreds of seeds, try different fertilizers, test out different weather conditions and eventually (hopefully) grow a big garden.
Why invest now?
You may think your kids aren't ready to learn about investing yet. Or maybe, you think they don’t need to.
"Talk to them about what their dreams are.” —Tim Sheehan, Greenlight’s CEO
Talk about their goals. Maybe they have a dream car in mind or they plan to go to college. When they start investing years before, they have the chance to grow their money so they really can reach for what they want. Investing can help them reach those goals.
Let’s talk about the magic of time. Show, don't tell, your kids that time is everything — especially in the world of investing. Thanks to a thing called compound growth, the proof is in the pudding, and one day, they’ll be really happy they started at a young age.
How can kids invest?
Before Greenlight, it wasn’t always easy (or possible!) for parents to send money to their kids instantly. Now, parents are sending money with one tap while their kids set budgets, give to charities, set savings goals and earn more with chores.
Then, Greenlight Max came along — with an investing app for kids — so they can keep all of their money in one place. And when it’s the right time for your kids to make an investment, they just use their app to research stocks, invest an amount of their choice and track progress over time.
Do it! With the Greenlight app, your kids can explore companies and learn about the world of investing. Meanwhile, you can approve their trades. Dream team!
What kind of investor will they be?
When you create an investor profile in your Greenlight app, we ask a few questions. Your kids (or maybe even you!) may be wondering why we ask these things. It’s because we’re trying to determine what kind of investor they will be — and we’ll give them a recommended investing package.
Every investor has goals. For example, some parents simply want their kids to learn about investing in a safe environment. Other parents may really want their kids to begin to build a nest egg — with the hopes that investing young may help them pay for college, buy a house or even retire early!
Then there’s timing. Short-term and long-term. Are your kids investing over the next 3-5 years or are they looking to invest for much longer, like 20 or 30 years? This determines what kind of investments are the best options for your kids.
What is risk?
Risk is one of the hardest investing fundamentals for kids to understand. Up until this point, they probably thought risk was bad! In the world of investing, risk has a different meaning. So let’s get comfortable with it.
High risk means that there will be more ups and downs. In other words, there’s a greater chance you could lose your investment. BUT, there’s also a greater chance you could make a very high return on your investment. That’s because the world changes all the time, so the stock market does too. Despite the ups and downs, the path has historically been upward…over time. AKA, long-term. If you’re comfortable with that, you may go for a higher risk investment.
Low risk is the opposite. There’s less of a chance you could lose money, but there’s also less of a chance you’ll make a high return on your investment. We usually think of low risk as a more safe and stable investment — and because of this, it’s usually recommended for the short-term.
Give it a try. Risk is scary when you have a lot to lose. Luckily, your kids are learning at a young age in a safe environment. They can use their Greenlight app to learn the ropes without getting stuck in an investing pickle.
What about diversification?
Investing in only one company can be risky. If that company has a tough year, you could lose some of your money. But if you’re invested in another company that does well, it can even out. Diversification means investing in different things so that your money is spread out over many companies (or other investments).
Diversifying lowers risk and can keep your investments safer.
How should we invest?
Just like stocks take time to progress, it takes time to learn the ropes of investing. That’s why it’s so important to research companies and explore options before diving in. Morningstar is an investing research tool trusted and loved by many — and now, it’s right in your Greenlight app.
When kids start investing, it’s important that they do their research. In the Greenlight app, kids can research stocks and ETFs with Morningstar ratings and analysis. This helps families understand if a company or fund could be worth more research.
The benefit of long-term investing
Historically, investing in the stock market has made money over the time. Over years and decades, the stock market has gone up. But it’s not a straight line. Stock prices move up and down all the time. If the price of a stock or ETF that you own is higher than the price you paid, you’ll see a gain for that investment. If the price is lower than the price you paid, you’ll see a loss.
Investing for the long-term helps outlast the volatility of individual stocks or the stock market in the short-term. Volatility describes how widely a stock’s price fluctuates over a period of time. A certain amount of fluctuation is normal.
Knowing about these normal changes can help you be more comfortable with them. Remember, that investing in the stock market is all about the long term. And patience actually pays.
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