Picking winners and losers has become more difficult in the ongoing GameStop stock drama that so far has involved retail investors, Redditors, hedge funds, Wall Street regulators, brokerages, institutional investors, and even members of Congress.
One no-doubt-about-it winner: 10-year-old Jaydyn Carr of San Antonio, Texas, who sold his 10 shares of GameStop at a near $3,200 profit last week, as first reported by the San Antonio Express-News. Jaydyn's mom, Nina, gifted her son the stock for Kwanzaa in 2019, unaware that the shares would one day shoot through the ceiling amid an online trading frenzy.
The experience has already taught the fifth-grader an indelible lesson: "Long-term investing is important because that is how I got this money," Jaydyn told The New York Times.
The mother-son investing duo could not be reached for comment, but their example has plenty to offer parents hoping to teach their children about the stock market, says James Royal, a senior analyst at Bankrate — and not just because they turned a big profit. "You're not necessarily trying to build a ton of wealth when you're investing on your child's behalf," he says. "The real value is trying to spark that interest in investing at a young age."
Turning a $60 gift into $3,200 would be enough to get any kid hooked on stocks, but you don't need a freakish few days in the stock market to get your child interested. Starting with companies they know or that are related to their passions is smart, which is why GameStop was a good pick for an 8-year-old who liked video games.
"It's really important to use everyday things and experiences as a way to teach your kids about money," says Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. "Maybe they like sports so you buy a few shares of Nike. Stocks you pick should be relevant and age-appropriate. They probably don't care about what stock will benefit from an infrastructure bill."
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A common way to get your child started in the market is through a custodial account, an account that is considered the minor's asset but that is controlled by an adult until the minor reaches a certain age, usually between 18 and 21, depending on state laws.
You can open a custodial account at most online brokerages, some of which allow you to purchase partial shares of stock (in case you don't want to fork over $3,300 for a single share of Amazon.com) and may even allow kids to trade with the custodian's permission and supervision.
The goal early on should be to teach your child the basics of the market, says Royal. "By starting early, you can teach these lessons when it won't cost you much," he says. "Ideally, they learn that stocks go up and down, and that there's risk involved. But if you buy the right securities and analyze them correctly, they go up over time."
As your child begins to understand the risks and rewards of owning stock, you can gradually introduce the idea of spreading those risks via diversification. "Even owning four or five different stocks can illustrate that in a given day, some stocks may be up while others are down," Royal says. "From there you can start thinking about how a whole portfolio moves, and it's easier to start thinking about how an index or an index fund moves."
Without reinforcing broader lessons about long-term investment and diversification early, you run the risk of a big win on an individual stock having an outsize influence on your kid's investment outlook. "It's like going to the World Series your first year in the league, and you think, 'Wow, it's so easy.'" Royal says. "It's not easy. Having immediate success can create stumbling blocks for the prudent thing, which is thinking longer term."
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Being prudent with profits is important, too. Nina told the San Antonio Express-News that she stashed $2,200 of the profits away in Jaydyn's savings account, leaving $1,000 for her son to put back in the market.
"The strategy is a sound one," says Cheng, who adds that it's important to teach children the different roles that money can play. "Savings is your rainy-day fund — it's not very exciting, but it's there when you need it. That's different from money you're investing, which is different than money you're using for speculation."
Speculating can be exciting, especially for a kid seeing his investments go up, says Royal. "As a kid, it's easy to see gains over a week or a month and think, 'I wanna cash out that money and spend it,'" he says. "It's important to teach them that the process of investing is thinking about the longer term and participating as an owner in that business."
Jaydyn is excited about capitalizing on his success in the stock market: He's reportedly mulling the opportunity to become a part-owner in another gaming business, Roblox, when shares go public in the coming weeks.
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