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When Tim Maurer’s two teenagers burst into his home office last week, excitedly talking about how a bunch of kids had taken on Wall Street, the Charleston, South Carolina, certified financial planner knew it presented a great opportunity to teach his boys about investing.
Lecturing doesn’t usually work, Maurer said. Therefore, it’s important to be flexible so you can take advantage when kids show an interest.
“When kids come to you and they are clearly curious, that is the best time to give them the education you would hope to instill in a speech and a lecture,” said Maurer, wealth advisor and director of personal finance for Buckingham Strategic Wealth and BAM Alliance.
Short selling is a strategy in which investors borrow shares of a stock at a certain price in expectations that the market value will fall below that level when it’s time to pay for the borrowed shares.
Investing can be fun. Let’s learn it the right way.
director of educational outreach at Next Gen Personal Finance
Shares of the electronics retailer surged 400% last week, while the movie theater chain jumped nearly 300%. Silver has also become a target, rallying to an eight-year high on Monday. Those investments, along with other shorted names that jumped last week, are now falling back down.
GameStop’s tumble emphasizes the danger of piling into the next hot thing.
“It is kind of a hard-knock lesson,” said Ed Grocholski, senior vice president of Junior Achievement USA. “Most speculative bubbles burst fairly quickly.”
Instead, young investors first need to learn about diversification, and allocating your portfolio in line with your timeline, goals and risk appetite, said Yanely Espinal, director of educational outreach at non-profit Next Gen Personal Finance.
“They are jumping straight to the riskiest point, without any of those foundational levels underneath it,” said Espinal, a member of the CNBC Invest in You Financial Wellness Council.
Here is what to do to ensure your teens understand what’s happening and don’t hop onto the next hot speculative trade.
Look at your portfolio
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Make sure you have your own investments in order — that you are diversified and allocated properly for your needs.
“Parents need to lead by example,” said Maurer, a member of the CNBC Financial Advisor Council. “That is always going to be what our kids pick up on.”
Emotions can rule over you as an investor, especially during the short term.
Look at the cognitive biases in play right now — the fear of missing out and the herd mentality driving the trade, when it should be the quality of the investment, Espinal said.
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If your kid is showing an interest in stocks, it may be a good opportunity to create a small, diversified portfolio for them, Maurer suggested.
“It could help kids understand investing in a way that is helpful, not in a way that is more prone to the salacious run of the market.”