Financial Independence

The World of Investing - A Perfect Graduation Gift

Graduation: A time of celebration and... well, GIFTS! Whether it's high school or college graduation, it's an opportunity to express your immense pride in your child or grandchild's hard work and dedication. But, in this ever-changing world, what are kids even into these days? Do you opt for a new laptop or phone? How about a BRAND NEW car? Well, maybe that's a bit much... Alright, you give up, and just go with good ol' reliable cash. They're sure to appreciate that.

The challenge with those ideas stems from our societal notion of what constitutes a gift. When we think of gifts, we often envision tangible items that can be seen and felt. Of course, items like that are acceptable for birthdays and holidays, but graduation is a special kind of moment that only happens once. They are about to be thrown into the real world for the first time (or go have fun in college), and the options we listed above will not matter long-term. Therefore, why not consider a gift that has lasting value? Introduce them to the world of investing, where their age provides the potential for long-term growth and financial empowerment.

We can see the moment now: your kid/grandkid tearing open the present (they are expecting car keys) only to find a piece of paper describing how to open a Roth IRA account. They stare at you blankly with a half-crooked smile and say, "Thanks..."

We know... our gift idea doesn't sound great on paper, but hear us out. Let's consider an example of compounding. Stripping it down to the basics and ignoring fees, taxes, market conditions, etc. Imagine an individual investing $2,000 every year at varying ages until they are 65 years old. Each year, their investment grows at 7%.

compound wanderer

From the chart, it's clear that the earlier you start investing, the more money you will have in the future. For instance, the investor who started at age 18 will have $697,956 by the time they are 65 years old. Another way to think about it is this: over 47 (65-18) years, they will have put a total of $94,000 ($2,000*47) into their account. The other $603,956 is from compounded returns!

When the investor starts at age 55, they only accumulate $29,291 after 10 years. They would have contributed a total of $20,000 and only received $9,291 in returns. 

This simple example illustrates the value of venturing into the world of investing at a young age. Yes, your kid/grandkid will be confused when they open your gift, but they will be thanking you at some time down the road. We also would like to note that personal financial education is not a required course in all high school curriculums, so you might have to spend some time teaching basic concepts.

Here is a short list of gift ideas to consider:

1. A Savings Account 

We hope your kid/grandkid already has a savings account, but if not, this is the first place you should start! Help them set up an account and explain the importance of having "emergency savings" or savings geared toward achieving a future purchase like a house. Now that that is all squared away, time for the actual gift: challenge them to make monthly contributions to their savings account, and for every contribution they make you will match it (or a portion of it) up until they save a certain amount.

This is a great way to reinforce the importance of having/building savings rather than blowing their whole paycheck on whatever impulse purchase they thought was necessary. (If you're considering this idea, research your eligibility for gift tax).

2. Gift Stocks

For this gift, you would need to begin by helping your kid/grandkid open up a brokerage account. Now, we realize that trading can seem daunting, especially to young people who know nothing about it and are tight on cash already. It is important to explain that it doesn't get any less daunting with age. In fact, starting while they are young is the best time to do it. The fact that they have "nothing" to lose allows them to make riskier investments and more importantly, make MISTAKES. That is how you learn, and they will have plenty of time to recover from any losses. If they are still cautious about making their first investment, introduce them to paper trading so they can build some confidence.

Now, back to the gift. You can gift them individual stocks or shares in ETFs through a broker or by yourself online. This is a way to pique their interest and jumpstart their portfolio. As an added measure, you can gift them shares in some of their favorite companies, whatever they may be.

3. Help Open an IRA Account

An Individual Retirement Account (IRA) is a tax-advantaged investment vehicle specifically designed to help individuals save and grow funds for retirement. It allows individuals to contribute a portion of their income into the account, where it can be invested in a range of financial instruments such as stocks, bonds, and mutual funds. The contributions may be tax-deductible, and the earnings within the account can grow tax-free or tax-deferred until withdrawals are made in retirement, providing individuals with a means to build a nest egg for their post-work years.

With this option, we recommend speaking to a financial advisor to learn more about  your potential options and what will work best for your kid/grandkid. Regardless, an IRA is a great place to start saving for retirement and you can fund it or make contributions as a gift.

4. A Wanderer Financial Membership

Last, but certainly not least, how about a Wanderer Financial subscription? This could be perfectly paired with the gifting stocks option. We will streamline their process to becoming proficient traders and help them avoid the simple mistakes they would make while going at it solo. After all... how's that saying go? "Give a man a fish, and he'll wonder what to do with a slimy, scaly creature. Teach a man to fish, and he'll struggle with tangled lines, squirming worms, and probably end up with an empty net." Nope, definitely not that, but I think you get our point.

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Nuku-Hiva Anchorage

Living, trading, and running a business from a boat is pretty amazing. Just ten years ago the idea of doing all of this would have seemed impossible. While technically it may have been doable, it would have been a near constant headache, mostly due to internet connectivity.

These days, almost nothing stands in the way of a mobile lifestyle, whether retired, or working, or some mixture of both. In just the past year or so I've gone from Bonaire to Aruba on our boat, to across the US via motorhome, and am now on our new boat in the Marquesas after sailing from Mexico. Life is different in every location, but work and trading remain the same. The world is wide open to us vagabonds.

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