There is a right way to discuss finance around the dinner table… and a wrong way
29/04/2022
Affinity Insights – Issue 19, June 2022
26/05/2022
Imagine what your investment portfolio would look like today if you started investing when you were in your twenties? After all, when it comes to investing, time is your greatest friend.
When it comes to investing, the earlier you start, the larger your nest egg will likely be. So, the best time to get involved in the stock market is when you are young. But how do you begin teaching your children the lessons they need to learn?
By doing these five things:
1. Show them your portfolio
The stock market can be confusing, with lots of complicated strategies and jargon to get your head around. Cut through the noise by showing your kids your portfolio. Use it to explain how different holdings, such as, shares, bonds, and exchange-traded funds (ETFs) work. Talk about how to choose investments based on your financial goals, time horizon, and risk tolerance. Then show them how your wealth has grown over the years, through accumulation and compounding returns, as this will get them excited about putting their own money to work.
2. Teach them investing is not a get-rich-quick-scheme
You want your children to invest wisely. So, the most valuable lesson you can pass on is that investing is not about making quick money. Rather, they should focus on long-term returns that can help them build real wealth, while avoiding speculative investments that sound too good to be true.
Use real-life examples, such as, the GameStop saga to illustrate this point. GameStop was a struggling brick-and-mortar video game retailer whose shares were artificially inflated by social media forums such as, Reddit’s Wall Street Bets. Then contrast that example by sharing stories of successful investors such as, Warren Buffett.
3. Talk their language
Many young adults are interested in cryptocurrencies. And while there is nothing inherently wrong with alternative investments, they are often riskier and more volatile than more traditional asset classes. Talk to your children about the importance of only risking money they can afford to lose.
4. Do not gloss over the risks
While one of the best ways to build wealth over time is to invest, it is not without risks. So, it is critical your children understand that shares do not just go up but can be volatile (especially in the short term). Talk to them about the importance of having eggs in multiple baskets, and never taking on more risk than they can handle. By discussing the risks, your children should be better prepared if their portfolio loses value in the future.
5. Keep the conversation going
Persuasion takes time. So, do not make this a ‘one and done’ exercise. Instead, keep speaking with your children about investing. But remember to be a collaborator, not a lecturer. That means allowing them to make their own mistakes that they can learn from as well.
If you would like to have a confidential discussion about your family wealth, speak to Affinity Private Advisors today by calling 1300 769 304, emailing enquiries@affinityprivate.com.au or filling in this online form.
The information contained in this article is current as at 23/05/2022. Any advice or information contained in this report is limited to General Advice for Wholesale clients only.
The information, opinions, estimates and forecasts contained are current at the time of this document and are subject to change without prior notification. This information is not considered a recommendation to purchase, sell or hold any financial product. The information in this document does not take account of your objectives, financial situation or needs. Before acting on this information recipients should consider whether it is appropriate to their situation. We recommend obtaining personal financial, legal and taxation advice before making any financial investment decision. To the extent permitted by law, Affinity Private Advisors does not accept responsibility for errors or misstatements of any nature, irrespective of how these may arise, nor will it be liable for any loss or damage suffered as a result of any reliance on the information included in this document. Past performance is not a reliable indicator of future performance.
This report is based on information obtained from sources believed to be reliable, we do not make any representation or warranty that it is accurate, complete or up to date. Any opinions contained herein are reasonably held at the time of completion and are subject to change without notice.
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