Let Your Money Mature with You
When we were young, most of us had a little piggy bank to store our nickels and pennies. Our parents knew that the total balance of an absolutely stuffed piggy bank wouldn’t be enough to buy much of anything, but that wasn’t the point. The piggy bank existed only to teach us the value of saving.
As we got older, we were taken to the bank to open our first savings account and learned about the power of compounding interest. I remember trying to figure out how much I would make if I didn’t spend my money for ten years… And at six percent interest, I saw it as my own miniature money tree. That was an important eureka moment.
It’s after that critical a-ha moment, though, where most parents tend to stop short. The Donald Trumps of the world continue learning their valuable money lessons throughout their youth, while the rest of us simply go outside to play.
Let’s pick up where many parents left off and see if we can maximize our kids’ future financial future and potential. Perhaps we’ll learn a lesson or two ourselves. Here are what I think should have been the sequence of investment tools to be introduced to after the savings account stage:
Once your child fully grasps the concept of interest, give him or her a bond for a “larger than life” amount for a young person. Explain how a bond works, as well as how one receives money at the end of its maturity. Teach your child about how this is a safe way to see your money grow, since the government backs it. Little Johnny will learn that good things come to those who wait, and that a balanced portfolio is important to financial success.
Mutual funds can help your child understand that there are more financial institutions out there other than banks and the government. Not only is this a nice intro to stocks, it helps the child to further understand the importance of not putting all his eggs in one basket.
As your child gets older, introduce him to stocks. Single stocks of Disney or McDonald’s can be a fun way for him to own a share of his favorite brand. It’s also a good way to teach him to hold on to a share for a long time, as well as dollar cost averaging.
When he gets his first job, this is a great time to teach your young man to put a portion of his paycheck into a Roth IRA or a 401k. Helping him to do so now will earn him much larger returns when he retires. Show him how time critical it is to begin compounding interest now, rather than later.
Once your child has grown up, what is the next investment tool he can begin to learn using? It’s a good idea for us to continue to diversify where we put our money, to protect our financial future.
Stocks, Part Deux
If you have a decent amount of disposable income, now’s the time to learn how to trade stocks actively on smaller timeframes, rather than just simply holding a couple shares of Disney stock for the next 20 years. Smaller timeframes mean immediate profits (and yes, losses). Learn to use strong money management principles, trade with discipline and a plan, and always have an entry and exit strategy. If you are deliberate and methodical in learning all the key survival skills for Wall Street, then you’ll enable yourself to become, trade by trade, more financially independent.
Once you’ve done a little day trading online, why not give stock options a chance? The concept is a little difficult for some beginners to grasp, but you’ll get more bang for your buck. Find a good school or online course that will teach the basics of options trading, as well as safe practice. Remember, whenever you trade stocks, options, or anything else, you are taking on risk, along with the reward. Never trade with more money than you can afford to lose. Always employ your stops, so that your trade doesn’t go out of control and put you in the poor house.
Trading on the foreign exchange is empowering because it is an extremely liquid market and you have so much leverage power at your disposal. Granted, overtrading with extreme leverage (such as 400:1) can be very risky and, for the general-skilled trader, is not recommended. But if you are well-trained, well-experienced, and very disciplined, such leverage enables you to trade with huge amounts of money. Here, you can make an unlimited amount of money that would make the best stock market performance pale in comparison. Caution, though! Forex is not for the feint of heart! While you can choose to be very conservative in your trading, if you forget to set your stops, you can become shirtless overnight… or even in just a few minutes.
As you near retirement, unless you’re an extremely competent trader, begin making more conservative approaches, so that you don’t end up losing all your living money within a short time. Now would be a good time to begin diversifying, once again, in safer alternatives, such as mutual funds or money markets.
Whether you are the parent of a growing child, or you are an adult who is trying to figure out what is the best way to make your money work for you in this present stage of your life, it is important to learn about money throughout the various stages of your life and to allow your money to mature as you do.
This article was written by Forex day trader, Thomas Grow. Thomas is the creator of the high-yielding “Fat Ninja FX” trading system, and a staff writer for ForexFraud.com.