Saturday, November 7, 2015

Conversation with Son - Part 1



One if the original reasons for the blog is for me to learn the DGI investment process and to come up with a long term strategy which I can one day pass on to my son - portfolio and all.


I also wanted to start teaching him the basics of investing. Since he is only 8, this is a little difficult.


Several weeks ago, I introduced him on the importance of saving, and then investing what you save. For example, I told him that you can buy small pieces of McDonald's, and over time, MCD will pay you back a small amount each time (as dividends). If you wait long enough, the dividends can be more than the original investments.


He understood the the savings part - he is already saving his pocket money, birthday money etc. But I wasn't so sure about the investing part. Anyway, he soon went back to his Minecraft game. (I am not sure why all the kids are playing this game!) At least it was a start.


Last weekend, he asked me what companies are good investments. I was a bit surprised by his interest.  Also, it was a tough question. (If I knew the answer, then things would be very simple).


My response was to go for familiar companies that will be there in the long term - 20 to 40 years from now. Of course, I can't go into details of earnings growth etc.. Even the idea of long term is difficult to grasp eg a month is a long time for an eight year old.


So, for familiar companies, I asked him to think about brands he is familiar with. He instantly  mentioned Apple (AAPL) and Microsoft. Apple because of the iPhones, iPads and all the apple products he is using. Microsoft (MSFT) wasn't really a surprise because of Minecraft.


I also asked him to think about the brands he sees everyday in Walmart (WMT), Target etc. He thought hard a bit, but then brands like Kraft and Heinz (KHC) come out very easily for him. Cheese and condiments. Procter and Gamble (PG) for shampoo and Johnson and Johnson (JNJ) for kiddy medicine. He also mentioned Coke (KO) and all the snacks from Pepsi (PEP).


So, it was a fun conversation. I am glad - I never discussed things like this when I was a kid with my dad.


My son is now asking me to start investing his savings! Okay - I need to set up the custodial investment account now…


D4s

Long MCD, KO, JNJ, PG, WMT

10 comments:

  1. Div4Son,

    My parents never, ever talked about investing or even saving. They never ever invested a cent of their money and they are now in their 60s

    If I followed down their path, then it would be a hopeless future. Like Barack Obama said a fews years ago, "The world has changed and we must change with it". It was not directed at investing but it sure does apply as jobs are no longer secure like they were 30 years ago.

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    1. PIP,
      I completely agree with you. You have to change with the times. However, based on the population as a whole, I think investors are a minority. And folks starting their kids in investing is an even smaller minority. It is difficult to think generation wealth when most of us are trying to survive week to week so I feel blessed that I can do this.
      D4s

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  2. That's really cool that you had a conversation with your son on investing. It's great that he is already showing interests on this topic. I plan to get my son involved when he gets older (he's only 2 right now). I wish my parents involved me on investing when I was younger.

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    Replies
    1. Tawcan,
      It's because of my son that I started to actively track my investments (okay DGI is semi passive). I would have just worked and retired living off my 401k in a few years from now.
      At the beginning of last year, I started thinking on the importance of time. If I started very young, then the more you get out of your investments.
      So yes, it was good that he is interested. I plan to have more conversations especially when I set up his account. Slowly, I want him to run it himself. Let's see how it will go.
      Good luck with getting your son involved.
      D4s

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  3. Awesome! I love these teaching articles...do share more if you have stories. A small step at a time for kids. I think you did great there - letting him come back to you with more questions and also that long term may be hard to comprehend for them.

    Goes to show the power of brand recognition when they outright say things like Apple, Microsoft, Kraft etc.

    R2R

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    1. R2R,
      I plan to share more of these conversations. But it's a slow thing that I need to work on. The attention span of kids is always a challenge.
      In terms of brand recognition, it's is amazing what marketing can do. Obviously, it's working for them.
      D4s

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  4. That is a very valuable conversation to have. It makes it so much easier that he can relate investing to companies he sees everyday like Apple

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    1. Dan,
      I agree. Just go for the companies you recognize. Small steps at a time - just like investing.
      D4s

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  5. Awesome article! That must be really cool for you to get your son interested so young. I remember discussing compound interest with my dad when I was just slightly older than your son. Afterwards I sat down with a piece of paper and a calculator and wrote out a few years worth of values to show the effects of compounding. I remember being excited but also sad that I wouldn't have a significant income for quite a few years!!

    Have fun with those custodial accounts!

    Scott

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    Replies
    1. Thanks Scott for your comments. We haven't discussed compounding yet but that's something I will introduce. You were so lucky. My parents didn't discuss anything like that with me.
      For the custodial account, setting it up seems to be easy. It is just the tax stuff I need to read up on.
      D4s

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