The advice given young people about investing hasn’t changed much since Ben Franklin’s time. Put a little aside every week. Make it safe. Accept modest returns and watch it grow.
When I was a kid, in the early 1960’s, this meant a savings account at the Franklin National Bank branch, on Hicksville Road, in my hometown of Massapequa, N.Y. (It is now a Citigroup Inc. (NYSE:C) branch.) I got my own passbook. I may have gotten to five figures in it. Two were to the right of the decimal point.
But there was a broker near my dad’s shop, and I took to fingering his Value Line books, binders filled with charts showing stock prices that rose and fell, seemingly in regular patterns. I got my dad to buy a stock for me. It doubled. I said sell, but the broker said no. It crashed.
Now, the conventional lesson from that is keep your money in the nice, safe bank. Only, Franklin wound up going under as I left for college, the victim of a scandal you need to read to believe.
At least I got something out of my stock investment, even if it was less than I started with.
Building an Investing Thesis
For parents who want to educate their kids in stocks, the conventional wisdom is to get an index fund, or maybe give them something that interests them. You know, Walt Disney Co (NYSE:DIS) or Take Two Interactive Software Inc (NASDAQ:TTWO).
When I bought my stock, I got a handsome certificate, suitable for framing, which I gave back when I sold. They don’t have those any more. I’d rather have had the money.
The Blankenhorns in 1993.
No, if your kid is going to get into any specific stock at a young age, have him or her give you an investment thesis. Don’t just say, Dana Blankenhorn or JP Morgan Chase & Co. (NYSE:JPM) like this stock. Ask them, “why do you like it?” How does it fit into their beliefs about the economy, the world and their own future?
Then, don’t let them fall in love with it. You will do them a world of good if you can help them learn to keep some objectivity about their investments. Also, take their advice on when to sell.
Ever since I got that Franklin National passbook, change has been accelerating. Moore’s Law has made it so. Right now, you can hold a supercomputer in the palm of your hand that has access to nearly all the world’s knowledge. Our limits are now found in the questions we ask, not the answers we can access.
That’s today. What’s it going to be like when the kid grows up? Throw that one out at the dinner table, and listen carefully, because you won’t be around for all of it. The best thing you can do for a child who’s being introduced to investing is to help them learn how to observe and think for themselves in this way. Then they will be better prepared no matter how things change.
Building a Portfolio
If you want to start simple, the easiest thing to do is teach your child to believe in the future and buy an index exchange-traded fund, or ETF, such as SPDR S&P 500 ETF Trust (NYSEARCA:SPY), or the Vanguard Total Stock Market ETF (NYSEARCA:VTI), which I own, from a broker who won’t charge you much for the trade. I use (and own) Charles Schwab Corp. (NASDAQ:SCHW).
Then, let time do what it will. Let your child learn from how the market moves. Investing at 12, or 22, is quite different from investing at 62. A young investor can hang in through recessions. I know that from having survived the dot-com bust and the 2008 financial crisis.
Hanging in was the right strategy then, and for young people it’s the right strategy now. Paul Volcker was reportedly asked, as Federal Reserve chairman, whether the market was going up or down. “Madam,” he supposedly said, “prices will fluctuate.” Smart man, that Volcker.
Mostly, prices should rise. Clouds and software are better growth fuels than oil or steel were. They burn hotter, and they put a premium on human capital. Your child’s future is in their own hands and, mostly, in their own mind. They need to learn science, learn math and, most importantly, learn to think for themselves. That’s the best investment they can make, in investing and in regular life.
My Own Thesis
I have spent my life looking around corners, seeking the future. I argued in journalism school 40 years ago that the coming online world was an opportunity which, if seized, could bring riches. No one listened, but those riches came anyway. They just came to people other than publishers.
The lesson is, don’t take today for granted. All that stuff about a “balanced portfolio” is nonsense. You don’t sell Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) to buy General Electric Company (NYSE:GE) because tech is a growing piece of your pie.
Instead, teach your children to peer around corners and look for the next wave.
For instance, I believe the next wave will be biology. I believe that CRISPR gene editing is what Microsoft Corporation (NASDAQ:MSFT) BASIC was 40 years ago — a simple tool that leads toward a genetic operating system and, in time, a whole new way of looking at life.
I’m not recommending a stock here. I’m recommending a course of study. Even if your student is majoring in English or history, this is the trend that’s going to dominate their lives, much as I and my fellow Rice students in the 1970’s and 1980’s all seemed to gravitate into computing. They became programmers like my wife, executives like Jim Whitehurst, venture capitalists like John Doerr or just journalists like me.
Bill Gates, who was also born in 1955, likes to say that people overestimate what they can do in one year and underestimate what they can do in 10. That’s what your kid needs to know. Don’t talk to them just about how to invest their cash, however important that is. Talk to them about how they are going to invest their time.
In the end, time will yield the greatest return.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in VTI, MSFT and SCHW.
