Financial Lessons and Investing Basics for Kids

Risk at Eight Instead of Fifty-Eight

Take a Flyer

One of the greatest things about investing with your kids is the ability to “take a flyer.” Not every stock that you build their portfolio with needs to be a tried-and-true blue chip with a 100-year history behind it. No, when you’re eight years old you get to dream a bit, and can afford to go for the home run now and then. Kids, because of their age, can easily afford a few risks in their investment portfolio.

Not always, mind you. There’s no reason to buy up fifty penny stocks and just hope one of them hits the big time at some point in the next ten or twenty years. That would be stupid. But, when there is a stock that captures a kid’s imagination—even if it doesn’t have a strong earnings history or a high probability of reaching profitability—an eight-year-old can afford to take a chance on a couple of those.

Investing in the Future

When I sat down with my kids last week to look for another stock to buy with the last of their cash account, the subject of space came up. Maybe because we’d just watched Star Wars together for the first time, maybe because we spend a lot of nights before bed looking up at the stars and discussing the very real possibility that they could go to the moon someday.

VSS Unity in its Feathered Configuration

Whatever the case, when I mentioned the stock SPCE to them, they were all over it. We took a look at the Virgin Galactic website, which is pretty cool. And we discussed Richard Branson, and what an incredibly successful guy he has been through the years with many of the risks he has taken in business. We talked about how it could be important to be a popular company leader that people really like and gravitate towards—how that could mean that more people would be willing to trust in the company and want to be a part of it. We discussed who would likely be the first customers flying into space—the very rich—and how businesses often start out being very expensive, but how prices eventually come down so more and more people can buy/participate. There’s lots of interesting topics to talk about with this stock.

So, while I wouldn’t recommend SPCE as a stock that a middle-aged adult should have 5 or 10% of their portfolio wrapped up in, I certainly don’t see any reason an eight-year-old can’t accept some risks such as this. Remember, investing with your young kids should be as much about engaging them and making it interesting as it should be about annual returns. The returns will happen on their own, as long as you nurture their financial education well, so that they continue to be involved. For now it will be about you, the adult, being consistent, both in socking the money away in their account, and in sitting down with them to discuss their portfolio—what’s happening in the world and in their stocks.

And wouldn’t you know it, SPCE jumped 30% for my kids in just the first seven days. Maybe this stock really will take them to the moon.