Starting an investment habit early in life could make a meaningful difference. Here’s how to help your graduate start investing.
It’s cap-and-gown season, and your child or grandchild may be getting ready to receive a high school or college diploma. Wondering what to give as a present? Graduations can be the perfect opportunity to give the gift of stock. Good investing habits started early can help provide a base for building lifelong wealth and financial security.
Try connecting a stock to products or interests that your kids or grandkids already know. Consider the technology that your graduate is using now. Most young adults are familiar with companies that produce personal computers, cell phones and portable music devises and athletic and fashion focused companies. There are plenty more. The idea is to introduce investing by relating stocks to something your young adult already knows, which might help to connect the dots and increase their engagement in the investing process.
Once they have a gift of stock in hand, help your young person watch how a stock price can go up and down over time. Track the stock price every three or six months. Pick up the phone and call, and send charts to show your graduate the trends. Follow the news. You can discuss earnings events, new products, or other factors that are driving the stock price higher or lower.
Starting an investment habit early in life can make a meaningful difference in portfolio values. Inspiring a young graduate with a gift of stock may encourage them to begin investing on their own. Investing at a younger age can allow their money to do more work for them.
"If an individual invests $3,000 at the end of each year starting when she's 20 years old, she will have accumulated almost $680,000, assuming a 6% annual growth rate and no tax, by age 66. If she waits until age 35 and starts investing $3,000 annually, she'll accumulate only about $254,000. And if she waits until age 45 to start investing, she’ll accumulate only about $120,000 by the time she's 66 years old," says Ann Minnium, founder of Concierge Financial Planning.
"Starting to save early is critical. Just as a seed requires a gestation period before it grows, so too does an investment portfolio. The earlier one begins the gestation process, the more money he or she will have in the long run," Minnium says.
Don't worry about the size of the stock gift. Even just one share of stock can offer a meaningful investing lesson. The education that comes along with tracking a stock and its movement can be far more valuable than the underlying dollar amount. Plus, it's a good excuse to stay in touch with your graduate!