by Selena Maranjian ([email protected])
Wednesday, September 3, 1997
Are you convinced that your kids should start investing? Or that you should be investing for them? Either way, you might be imagining parking some money in the stock of a few companies or in some mutual fund and then forgetting about it. Please think again, though. There's a lot more to it than that. To be a good Foolish investor, you should take the time to learn about your choices, so that you can make good ones. By hanging out in Fooldom, you'll soon learn that we think the best place to invest any money for the long term is in the stock market, and we also think there's a lot of value in learning how to evaluate companies.
Can you really get your kids interested in this stuff? You bet. Most kids are interested in money and in how they can position themselves to get some more of it. That serves as a good initial motivation. But once they get their feet wet, they're quite likely to discover that they enjoy it. And before plunking your or your kids' hard-earned money into stocks, its a very good idea to play and experiment with investing. With that in mind, here are some activities you and your kids can do together.
--- Build a mock portfolio. Have your kids look around them and make a list of the companies that interest them most. They can get ideas by looking in their closets, in their classrooms, in the mall, on TV, etc. Some companies they might want to follow include Disney, McDonald's, Apple, Microsoft, General Electric, Kodak, Ben & Jerry's, AT&T, Time Warner, Nike, Coca-Cola, PepsiCo, Toys R Us, Chrysler, Ford, General Motors, Citibank, Reebok, The Gap, Sears, KMart, and so on. Let them list 10-20 companies on a sheet of paper and after looking up each in the newspaper or online, write the ticker symbol next to each one. Also write the date at the top of the paper and the current stock price for each of the companies. Every day, week or month, you can check the prices again together, see how the companies are doing, and record the latest prices. Fools focus on long-term performance, so day-to-day or month-to-month stock price movements aren't terribly important to us, but it can still be very interesting to see how stock prices move.
--- Follow your group of stocks together. Along with updating the prices periodically, you can scan newspapers and magazines for stories about the companies you're interested in. Is McDonald's promoting 55-cent burgers? Will this help the company by bringing in more sales, or will it hurt, by decreasing the total profit? And how did the stock market react when it heard of this announcement? Did the stock go up or down?
--- Do some math as you follow your stocks. Pretend that you bought X shares of a company's stock. How much did it cost you? (You can include broker commission costs, if you want to be more precise.) What are the shares worth now, a few months later? How much money have you made? What percent return is that? (Hint: Here's how you do the math to figure the percentage. If the stock went from $50 to $60 per share, take 60 and divide by 50. You'll get 1.20. Subtract 1 (always 1) and you get 0.20. Multiply by 100 and you get 20. The answer is 20%.)
--- Consider school subjects other than math as you explore stocks. Investing can relate to most subjects in school and can give kids a bit of a new perspective on their studies. There's obviously math involved, since they multiply share prices by how many shares they want to buy and perform other calculations with numbers from annual reports. There's history, too, as they examine how a company like AT&T or Ford got to where it is now. Science? Sure -- knowing or learning a little science is important when you try and understand what some of today's high tech or healthcare companies are doing. English? Well, there's a bit of reading involved in researching stocks, and it's always a good idea to write out exactly why you are buying a particular stock and why the company seems so promising.
--- Start actually investing. Once you've become comfortable with the idea of investing in stocks using the many resources at The Motley Fool or at your local library, you might want to buy some shares. Likewise, your child(ren) might also want to begin. How can a young person actually do so? There are a number of ways. Of course, you can open a joint brokerage account, with you acting as "custodian," but you don't always have to even go this far. You can informally "sell" some of your own shares to your child. For example, if you own 200 shares of McDonald's (which is selling for about $50 per share), you can sell two shares to your child for $100. Alternatively, if you're about to buy 100 shares of Exxon and your child wants to buy a share or two herself, you can just place the order together -- and order 101 or 102 shares through your broker. Not everyone knows this, but you don't have to buy round numbers of shares -- "odd lots" are okay. If you do these things, you'll want to keep a good record of which shares belong to whom. Once your child turns 18, she can open her own account at a brokerage and you can transfer her shares to it. (For other ideas on investing with your children, see Investment Accounts for Young People.)
There's a lot more to investing, of course, and a lot more that you can do with kids to explore the stock market together. It should prove rewarding to both parent and child alike. If you have any questions about investing, come learn more about it in our area, or ask questions directly in our Ask a Foolish Question message folder. In the meantime, Fool on!
Next Week: Teaching the Value of $1
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