6 Investment Lessons That Your Kids Should Learn
August 19, 2020 (Investorideas.com Newswire) If you have not taught your kids anything about investments, then you should consider doing so. As soon as children become knowledgeable about essential financial and money concepts, it is vital to equip them with investment tips that will last a lifetime.
Children understand various concepts at different times; however, you can start teaching them fundamental investment rules at an early age. For instance, you can teach them the concepts of risk and reward using examples that are relatable to them.
The earlier they understand the lessons, the easier it will be for them to invest in the future. Here are the investment lessons that you should start teaching your kids as soon as possible.
Investing Money Is a Risky Affair
The main reason for investing is to make money. However, it would help if you let your children understand that they can sometimes lose the money. Several essay writers have indicated that losing money while investing may be inevitable.
It may be difficult to predict how much an individual may lose. However, it is essential to follow the past trends of certain asset classes and mutual funds to get a rough idea of what may happen.
Having a diversified investment means that you possess a variety of assets that are bound to earn returns. Teach your children that diversification is essential because various assets react differently to the same economic happenings; hence the returns will vary.
It is also essential to explain that they may not reap the benefits of diversification each year. It may take several years for them to start enjoying the benefits and get their return on investment.
Patience Is Key When Dealing with Investments
Let your kids understand that investments may start yielding results after several years. It may be tempting to start living above your means after making numerous investments; however, it is worthy to note that is not wise to spend what you do not have.
Teach them the importance of maintaining lower levels of expenditure, and not overspending on unnecessary things, while hoping that the returns from the investments made will cover up for any deficits.
Knowledge Is Power in the Investment World
Your kids must learn that knowledge is power in the investment world. A knowledgeable person always makes informed decisions than one who is not or who relies on past information. Some new trends and events are bound to affect the return on investments or the regulations relating to particular asset classes.
A person who is willing to learn is always on the lookout for such trends to understand what impact they have on investments. Teach your kids that it is okay to ask for help if they are unable to understand the implication of specific trends and regulations on their investments. They should never think that seeking help makes them less smart.
Insignificant Compound Interest Rate Differences Make a Big Difference
Kids should learn about compound interest as soon as they can comprehend. You can teach them to always be on the lookout for investment options that promise a higher rate, even if the difference is one percent.
For example, if a person invests $10,000 for 20 years with an estimated interest rate of 10% per annum, the investor will most likely walk away with $67,275 after the period if all market forces remain constant. Another person investing an equal amount for the same period but with an interest rate of 9% per annum is likely to receive $56,044 at the end of the period.
The one percent difference may seem insignificant initially; however, after calculating the possible returns, you will note that it makes a big difference.
Low-Risk Investments Are Okay if They Are Risk Averse
Teach your children that there is no problem in being risk-averse. There are people with a high-risk appetite, while others want a steady source of income with a return on investment that is almost assured.
If they want a low-risk investment, then they can learn about bonds and how they work. They will still be able to get returns, even though they will be lower than the high-risk ones.
Children always strive to stick to the teachings they get. If your kid can understand about investments when young, there is a possibility that they will make sound investment decisions when the time to invest comes. If they ask specific investment questions that you are unsure about, consult an expert to relay accurate information to them.
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