Investing from a young age could lead to a lot of wealth. Read on to see what you can do to encourage your recent college grad to put their money to work.
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Many people who graduate from college are focused on one thing — paying off nagging credit card debt and managing the bills they’re responsible for. So if your recent college grad doesn’t seem all that keen on investing, that’s understandable.
But the sooner your child begins to invest, the more wealth they have the opportunity to grow. So it pays to do these things to help your recent college grad begin their investing career.
1. Give them an opportunity to free up money for investment purposes
If your child is spending down their entire paycheck month after month, they won’t have money to invest with. It’s that simple. So you’ll need to address that issue if you’re eager to have your child start building a portfolio.
This doesn’t mean you need to give your child money to invest with. But you may want to offer them the option to live at home rent-free for a period after college (or have them pay some rent, but a modest amount). During that time, they might not only manage to set aside funds to invest with, but also, build essential savings that come in handy in a financial emergency.
2. Help them navigate their brokerage account choices
Your recent college grad should have plenty of options when it comes to finding a brokerage account. But they may find the process overwhelming. You can help by showing them what features to look for.
The option to buy fractional shares, for example, is an important one, because it makes it easy to assemble a diverse mix of investments. Many brokerage accounts today offer this option, but some don’t, so that’s one feature you may want to emphasize.
Also, encourage your child to find a brokerage account they find easy to use. After all, they’re the person who will be transacting in that account on an ongoing basis.
3. Explain the importance of diversification
Your child may be inclined to load their portfolio with big-name tech stocks that get a lot of press, or with the companies they’re familiar with themselves. This isn’t necessarily a bad idea if it’s part of a broader strategy. But in general, you should talk up the importance of diversification within an investment portfolio.
You may also want to encourage your recent grad to invest in ETFs. This way, they’ll get to own a bunch of different companies with a single investment.
Starting early is key
Many people graduate from college in their early 20s. If your child is 22 years old and doesn’t plan to retire until age 67, that gives them a 45-year window to invest their money.
And if your child is on the fence about investing, you may want to remind them that the stock market has, over the past 50 years, delivered an average annual 10% return before inflation, as measured by the S&P 500 index. If your recent grad manages to invest $5,000 at age 22 in a broad mix of stocks or ETFs, by age 67, they could be sitting on $364,000 if their portfolio averages a 10% return during that time. And it’s really hard to argue with a whopping gain like that.
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