Getting started is the hardest part!
Disclaimer – this is a copy paste from instructions to several friends who have asked how to get their kids into investing. This is not professional and or personal advice and only the steps we used and what has helped our friends too.
STEP 1 – Getting started.
The key is not to force or do it for your kids. As a parent we try to model and encourage their growth. They need skin in the game (contribute some if not all) and show a small amount of interest to make it worthwhile. We started by letting the kids put in $200 of their own money and we gifted them $300. We then loaned them $500 to bulk up the amount to $1000 so the dividends are a little more meaningful to them (approximately $40 per year). Our older two kids then continue to put an extra $1000 in when they can afford it – from their pocket money, small business and part time jobs and birthday/Christmas money. The brokerage fee through Comsec for example is $10 for up to a $1000 purchase (1%).
STEP 2. – What share should I buy?
So many have said, “I don’t know how to buy shares, so how can I do it with the kids?”. What a great opportunity for you both to learn!
We follow the Peter Thornhill approach who recommends LICs (Listed Investment Companies – A company on the stock exchange who hold a portfolio of shares) and broad based ETFs. Both our choosen LICs & ETFs have very low management fees and you don’t need to worry about market trends or individual company performance. Peter likes the old LICs. Most are over 50 years old and low MER (Management Expense Ratio) 0.14% with long term returns if around 8-10% pa.
Search them up yourself and find which one you like the best. When starting out, you and or your child would only need to select one.
For larger portfolios, I target 20% in each LIC and buy depending on weighting and NTA (Net Tangible Asset) value (premium/discount) compared to 5 year average NTA trading history. If the current NTA is way above the 5 year average we buy would buy another or an ETF.
For example in 2018 some LICs were trading at 20% discount to their long term average – we bought lots generating great returns a few years later (+21%pa). Over recent years it reversed where some of the NTAs were +25% above their NTA and we only bought ETFs that trade at their ‘exact’ value.
Check the latest NTA rates here:
STEP 3. How to buy!
For minors you will need to set up a Trust. Comsec make this very easy and it is free. Fill out the online form and also open up a trading CBA account (CDIA) which is also free with no account charges. This is the account, once you buy, the money will come out of.
STEP 4. Keep records
Track your buys, dividends for easy tax returns. We use a website to track share trades, Total Shareholder Returns (TSR), etc. called sharesight.com.
You can link it to your Comsec account for quick and live updates.
STEP 5. Consistently contribute and set financial goals
This is probably one of the most important steps. Set a goal for the amount you want by a certain time. We work on a conservative return rate of 7.5%. Once you have this worked out, contributing to your target is easy.
For example one of my sons is five years away from turning 18 and has $3k an LIC. He has calculated that he will have $1 Million by the age of 40 by doing exactly what he is doing now (on a 13 year old wage!).
Balance is everything
We encourage our kids to pay attention to their goals and work hard to achieve them. These goals include sporting, school, friends, spiritual and, yes, money. It staggers me that we spend 20-odd years at school, 40+ hours per week for 40+ years at work, but virtually spend no time on investing or learning how to do it.
Thank you for making it this far, we wish you well on your investing journey for you and your family!
Our hope is that we impart to our kids balance – with all of life’s goals – and this includes the management of money.
We would love to hear about your journey too!