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Kids Investing—Explaining ETFs

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Financial Lessons and Investing Basics for Kids

Investing In Your Interests

When I started out investing with my kids our first order of business was to buy stock in companies that they know and like. I think it's an important step to get them interested, and keep them engaged. Kids aren't going to be interested in buying, let's say PSA (that's Public Storage, the orange garage storage units you see while driving down the highway), for instance, no matter how good the investment might be.

But eventually we began to run out of companies. Kids—especially those like mine that live on a boat, with no television and no trips to the mall—tend not to have a very wide net when it comes to companies they find interesting. However, that doesn't mean kids don't know and care about other things.

Case in point, my kids care about climate change. They have spent their whole life with solar panels over their heads. On our boats and RVs they are a fact of life. They understand how solar works, and its importance as an alternative energy. They get that on our boat we can charge our batteries in one of two ways—either the sun creates the energy, or a smelly, loud gasoline generator creates it. It's not hard for them to decide which they prefer.

But they don't know solar companies. They couldn't name a solar panel maker, or tell you who the largest installer of solar is. So how can they invest in solar without knowing any of that? Enter stage right, the ETF.

What is an ETF?

An ETF—Exchange Traded Fund—is simply a type of security that tracks an index, sector, commodity, or other asset, but is itself traded on a stock exchange just like a regular stock.

What does that mean?

Well, let's say you are really into cars. All sorts of cars. You like race cars, and pickup trucks, and electric cars, and you even like those big vans that people use for camping. You don't have any specific favorite. All you know is cars are cool, and unless someone invents a jetpack you can use to get around, cars are probably going to be around for a long time. So how can you just buy a whole bunch of different cars?

This is where the ETF comes in. The Car ETF already bought stock in all the car companies. They mixed all of that stock up into a big pie, and now you can buy a piece of that pie. Inside that piece of pie are all the cool cars you like.

They have ETFs for just about everything these days. TAN trades solar companies. SOCL trades social media companies. UFO trades space companies. The list goes on and on. If you are interested in something, just google it along with ETF, and you are almost sure to find an ETF for it.

Car ETF

When you think you've found an ETF that suits your interest, it is important to take one more step before you buy, and that is making sure that the name of the ETF lines up with its actual holdings. This is simple to do, as there are countless sites on the internet that can tell you what an ETF's most recent holdings are. ETF.com is just one of those. Below is an example showing the holdings of SOCL, a social media ETF. You can see all the names you would expect to see, as well as the percentage of their overall holdings they have in that stock.

ETF Holdings

Once you've chosen your ETF, you can go to your broker and buy it. You do this in exactly the same way that you would to buy any stock. Enter the ticker symbol of the ETF, choose how many shares you want to buy, enter a price to buy at, and you are finished. When you are ready to sell, the process is also the same as with stock.

My kids bought TAN and LIT. TAN is an ETF that focuses on the solar sector, while LIT is focused on lithium mining companies. Lithium is, of course, what they use to make batteries. With those two purchases they invested in the same power system that runs our computers, cameras, fans, and navigation equipment onboard our boat. So, while the companies that TAN and LIT invest in would not have held any particular interest to my kids, the solar and battery sectors have real life everyday meaning to them, and are things that they find interesting.

At this age, keeping the kids interested in investing is really what it is all about.

RECAP

  • An ETF is a basket of securities that trade on an exchange, just like a stock.
  • ETF share prices fluctuate all day, again, just like a stock.
  • ETFs can contain all types of investments. Find one that suits your interests.
  • Trade ETFs just like you do an individual stock.

Keep Up With the Wanderer Crew No Matter Where We Are

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I've been trading and traveling my entire adult life. I'm currently trading from my boat in the Caribbean. Over the years this has gotten easier and easier to do. Drop the anchor, tether your phone to your laptop, browse some charts, and trade. At Wanderer we first began investing in Bitcoin in 2017 when it was worth $2,500. Fortunately, we recognized its potential, unfortunately, we didn't realize it even earlier. Today it is worth about $50,000, and we believe it is here to stay. Bitcoin will have its ups and downs along the way, but years from now we expect it will be much higher, and we'll still be bopping around in the islands.

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