My 18 year old HS senior has been saying that he wants to begin investing in stocks, and I was wondering what advice you might give in such a situation. He will be studying aeronautical engineering next fall, and hopes to minor in business and German. He has been researching high tech private space stocks such as (IIRC) Virgin Galactic.
I told him first to write up a list of his assets, as well as his anticipated future earnings and expenses. I believe he has maybe $4-5K, with $2K in CDs, and he should be making at least a couple grand more before he heads to college. I think he said he was interested in investing $1K.
I said he should then research 7 or so stocks he might be interested in, of which we could discuss and choose 5 he would invest in. I was thinking $100-200 in each. I told him I’d look into various options for purchasing the stocks.
I also suggested that he look for tech mutual funds in Fidelity, Vanguard, etc., and consider those to diversify. He plans on studying a year in Germany, so some international funds or European companies might be of interest.
But I’m really a terrible amateur in investing, and am far removed from a teenager with a 4-digit net worth. Any thoughts?
The one thing that really stuck with me after getting an MBA in finance is the idea of staying away from individual stocks. Historically, Small Cap & Value-Based Index and/or Mutual funds have performed better than their counterparts. They are a little more volatile, but that shouldn’t be a problem if he is young.
That isn’t a very sexy solution, but it will probably go farther in increasng his assets than single stocks. If he’s in it more for a learning experience, or fun, then tell him to swing for the fences while it isn’t quite so important.
Thanks. I agree personally, but right now he is all excited about space exploration and such. Heck, this tanker deal has even got him reading the business section of the paper. So I think he wants to buy into at least a couple of individual stocks. I was thinking to diversify somewhat, he would be better off buying 5 or so companies, instead of just one. And I did suggest that he balance out his individual stocks with mutual funds.
I think diversifying a grand would be very good experience for the lad. Toy with some penny stocks, who knows he may get lucky and take the college burden off of you and the Mrs.
I recently saw a penny stock about global health insurance for travelers - I’ll look it up on my TD-Ameritrade account and see the name and check back…
Ok it’s flagship global health. It’s a tad risky but it could be a good one to sit on.
Good on you for getting him into this - or supporting him when he’s excited. Once he makes a couple bucks he’ll be hooked.
If he’s interested in tech stocks, you may want to try something like Cisco. They’re relatively stable and what they do isn’t going to go away anytime soon.
Yeah - that’s a good idea. I always think it a good idea to put at least some of your $ into the companies that are making the widgets, instead of just the sexy end-users.
Anne - that sounds exactly like the type of fund I assumed was out there. I’ll see if he finds that on his own before suggesting it to him. I did drop the Fidelity and Vanguard names yesterday …
Phil - thanks, but this is entirely his own doing. I’m always looking for what I call double-bangers – things that apply to multiple interests, or tie diverse interests together. Given his stated interests, I think this could definitely be a positive step. My concerns are primarily to help him avoid losing his shirt, as well as not invest in a way that makes itemizing his taxes a nightmare.
His mom and I were talking to him yesterday. His mom was a tad concerned with his plan to study abroad his sophomore year, which he said was necessary to achieve all of his goals in 4-years. She would be more comfortable with mim going to Europe junior year. He wanted to make clear that he wants 4 things out of college. He wants a degree in aero eng, he wants minors in Business and German, and he wants to study a year in Germany. We asked him to remain flexible (as we will try to), and if he ends up needing 5 years to achieve all of that, it wouldn’t be the end of the world.
Damn. At his age, all I knew I wanted to do was party!
I’m going to disagree with the consensus so far. I say, research a group of stocks and then pick 1 to invest in. Purchasing a couple hundred dollars worth of a bunch of funds would kill him in fees. Mutual funds are less risky yes, but I don’t really see why less risky is the goal here. He doesn’t need the money for any short term reason and in the scheme of things it is a relatively small amount. He has the means and desire to play on the market a bit. Let him.
One more thing–most mutual funds have a minimum which may well be more than what he has to invest. So, when you look into them, take that and the fees Hawkeye mentioned into account.
It may be best to start simply by opening a brokerage account if he doesn’t already have one. Once you have that, you gain access to that companies’ customer research tools.
Fast forward - rewind. Fast Forward Rewind…yeah I had a tape deck too!
I think his odds are fairly good for investing in some solid stocks…something not to touch but to do well in.
I remember when I told my brother Google was going public and he was like, Yeah right… I bought a certain amount of Google when they presented and their trading over $400 now…down from $750 a share over last summer. I Like google stocks
I would also recommend a mutual fund over individual stocks. He needs a good growth stock mutual fund, he’s got the time to tolerate risk, so tell him to invest the $1000 in a historically high yield fund and go for it.
Ivylad and I have several mutual funds through Vanguard. The site was easy to navigate, the information on the various funds was readily available, and the fees are only $10 a year, until you reach a certain threshold, then it goes away.
Here’s some advice: the dollar is at a historical low against several world currencies. This strongly favors US companies that export to those countries, because they will sell more of their product for (weak) dollars and then as the economy bounces back their assets will be growing faster. Cisco, Boeing, and any other US company that handles billions of dollars of exports would be a good one-shot pick.
Also, conglomerates are an interesting choice – they’re diversified within a single stock. Buying GE gets you investment in aerospace, energy, healthcare, consumer finance, and entertainment.
I think he should take half and put it into an index fund. He should take the other half and buy however many shares of whatever company appeals to him most. Digging through ONE annual report at his age will be MORE than sufficient. With a minor in business, encourage an entry level accounting course early - my first accounting course was huge on reading annual reports, figuring out ratios and trying to determine at what point in a corporate lifecycle the company was (way different than merely learning debits and credits).
With luck, what will happen is he’ll realize that the mutual fund does just as well as his shares in whatever over the four years of college, and monitoring the performance of whatever company was a pain in the butt. On the other hand, just as good a result is discovering he LOVES digging through annual reports and figuring out what the current ratio of a company is and its cash flow from investing and has a skill for it - because being good at it is a real marketable skill.
I was in a very similar place when I was going off to college, and very nearly put about $4000 into a tech mutual fund. I’m glad I didn’t. Not because it almost certainly went down a lot (this was in mid 2000, but because I needed every penny of that (and more) to pay for college.
While it’s great to invest extra money in the stock market at a young age, you should be (relatively) sure that you can leave it alone for a decade or two. A teenager just going off to college probably just isn’t that certain, and investing in the stock market for the short term is a bad idea.
But, it’s just $1000, and the learning experience may well be worth the effort and the risk. Whatever he invests in, he should think strongly about an IRA. He can’t touch the earnings until much later, but it’s tax free when he retires. I’d throw it into a really broad index fund.
Roth IRA. He’ll be taking low taxed dollars and investing it in a fund that will never be taxed. He will also be able to withdraw the principle. I wish this had been available when I was that age.
Yeah, with investments of such small amounts, it’s hard to avoid getting hit with fees. Most mutual funds have a minimum of $1000, so investing in multiple things there isn’t really workable, and buying a number of stocks incurs fees with each purchase. If he wants to get started with stocks, I recommend opening a Roth IRA with Scottrade, their stock trading fees are only $7, which is the cheapest I’ve seen, and their stock screening and research tools are very nice.
If he wants to take the mutual fund route, I’ve been quite happy with Fidelity so far…even though my current porfolio value is down like 9%
