Questions from a friend

Questions:  I was wondering if you have some favorite web sites to get information about investing for a thirty something person.  And also for a teenager that has a part time or full time job.  In both cases, to save for retirement or even to save up for a down payment on a condo or house.

Thanks for your questions.  My advice to teens and young adults is to start an emergency fund before investing in securities.  They should gradually build a large emergency fund of dollars in the bank to use for job-loss and other big financial emergencies (see book called the Index Card in the Young Adults section of the link below).  

Teens who declare earned income to the IRS can deposit an equal amount of earnings in a custodial Roth account (see video on Hannah’s Roth account in the teens section of the link below).  It’s important for teens to learn how to open and manage an investment account such as the Roth.  In the Roth, I recommend holding a broad index stock fund for life; it will weather the ups and downs of the stock market over time (several good internet sites for teens in the link below).  

Thirty something persons need a tax-advantaged retirement account.  Employed persons should participate in their employers 401(K) plan [or similar plan] to the fullest extent above all other financial goals, with exception of building an emergency fund and getting out of debt as very top priorities; the condo and house are lower priorities.  Unemployed persons should check eligibility for SEPs, other retirement accounts, or IDAs (start with the “money basics” and sec .gov websites in the Young Adults section link)

Link: 

Copyright © 2019 Douglas R. Knight 

Family topics

Starting your family’s tradition of investing [under FAMILY TRADITIONS]

Childhood is the perfect time to learn about investing and responsible adults are the ideal teachers. The best way for parents to teach money management is by setting a good example.  Parents can reinforce their example by playing financial board games and video games as a family activity.  Assistance and supervision reinforce the development of good financial habits such as creating and using a budget.  Discussions and field trips are powerful methods for showing children how adults use bank and investment accounts.

Desired skills and knowledge of young investors:

  • Resilience and self-control
  • Reading
  • Counting money
  • Managing money
  • Shopping wisely
  • Sharing
  • Saving
  • Investing
  • Taxes
  • Debt management

Copyright © 2019 Douglas R. Knight

Reading list for young people and their families

References to books and online materials are sorted by age groups from pre-schoolers to grandparents.  URL links are printed in blue letters to provide quick access to a website. Click the computer’s mouse on those letters.

Pre-Schoolers

books

  • Dollars, by Mary Hill. Welcome Books (™): Money Matters. Danbury, 2005. Teaches children to recognize and count money. 
  • Spending and Saving, by Mary Hill. Welcome Books (™): Money Matters. Danbury, 2005. Examples of good ways to use money. 

internet reading

internet videos

Pre-Teens

books

  • The Kids’ Money Book. Earning, Saving, Spending, Investing, Donating. by Jamie Kyle McGillian, Sterling Children’s Books, New York, 2016. Author encourages children to earn and use money wisely.
  • Money $ense for Kids. by Hollis Page Harmon, Barrons, Hauppauge, 2005. An age-appropriate explanation of investing.
  • Investing Money. by Helen Thompson, Mason Crest, Broomall, 2011. A thorough and useful explanation of investing.  
  • Personal Management. Boy Scouts of America Merit Badge Series.  Brent A. Neiser, et al. 1996, 2012. A brief guide to personal finance.  

internet reading

internet videos

Teens

books

  • The Teenage Investor. How to Start Early, Invest Often, and Build Wealth. Tim Olson, McGraw-Hill, New York, 2003. This teenage author gives a complete explanation of the methods, risks, and rewards of investing in financial markets.  
  • A Gift to My Children. A Father’s Lesson for Life and Investing.  Jim Rogers. Random House, 2009. A successful investor’s good advice to teens.  
  • Dollars & Sense. A Kid’s Guide to Using- not Losing- Money. by Elaine Scott and David Clark, Charlesbridge, Watertown, 1916. A practical explanation of our financial system.  
  • Neale S. Godfrey’s Ultimate Kids’ Money Book. by Neale S. Godfrey and Randy Versogstraete. Simon & Schuster, New York, 1998. An illustrated introduction to personal finance. 
  • The New Totally Awesome Money Book for Kids. by Arthur Bochner, Rose Bochner, and Adriane Berg, Newmarket Press, 2009. For pre-teen and teenage entrepeneurs.
  • TeenVe$tor. The Practical Investment Guide for Teens and Their Parents. by Emmanuel Modu and Andrea Walker. teenvestor.com. Guidance on ways of earning an investment return.   
  • Street Wise. A Guide for Teen Investors. Janet Bamford, Bloomberg Press, Princeton, 2000. A narrow view of investing, focused on the time consuming of investing in stocks.
  • Exploring Business and Economics. Investing Your Money. Fred Barbash, Chelsea House Publishers, Philadelphia, 2001.
  • Confessions of a Scholarship Winner.  Kristina Ellis, Worthy Publishing, Brentwood, 2013. An inspiring story of a teenager’s quest for earning $50,000 in scholarships.  

internet reading

internet videos

Young Adults

books

  • The Index Card.  Why Personal Finance Doesn’t Have to be Complicated. Helaine Olen, Harold Pollack. Penguin Publishing, New York, 2013. Read my book review in http://wp.me/p1LlDo-KQ.
  • The Little Book of Common Sense Investing. John C. Bogle, John Wiley & Sons, Inc. Hoboken, 2007.  The scope of this book concerns investing wisely and cheaply in the U.S. stock market. See book review in http://wp.me/p1LlDo-qI.  
  • All About Index Funds, second edition.  Richard A. Ferri, CFA. McGraw Hill, 2007. Author describes the market indices, high-risk index funds, and low risk index funds.
  • Investing Made Simple.  Anthony L Loviscek & Randy I Anderson, Broadway Books, New York, 1992, 2003, 2004. An excellent description of investment choices accompanied by the advantages and disadvantages of those investments.  
  • Stocks for the Long Run, 3rd Ed. Jeremy J. Siegel, McGraw-Hill, New York, 2002. An authoritative textbook on investing in stocks.  
  • Investing in REITs, Real Estate Investment Trusts. 4th Edition.  Ralph L. Block, Bloomberg Press, Hoboken, 2012. A thorough explanation of the risks and returns from REITs.  
  • How to make your money last.  The Indispensable Retirement Guide. Jane Bryant Quinn, 2016, Simon & Shuster, New York. 366 pages. The author is an acclaimed financial journalist who advises people about financing and reinventing life after leaving the workforce. Here’s a link to my book review, http://wp.me/p1LlDo-JE. 

internet reading

internet videos

  • short term savings: https://youtu.be/zer96OhQdxg . Creative ways of saving for current needs during periods of fluctuating monthly income (‘income inequality’).

Parents and Teachers

books

  • Dollars & Sense for Kids, by Janet Bodnar. Kiplinger Books, Washington D.C., 1999. Advice on teaching the value and use of money to children and young adults.
  • How millennials manage money.  https://www.navient.com/assets/about/who-we-are/April_2018-Money-Under-35-Managing-Money-report.pdf . This 2017 survey offers a profile of the financial behavior of young-adult Americans.
  • The Money Tree Myth: A Parents’ Guide to Helping Kids Unravel The Mysteries of Money. Gail Vaz-Oxlade, Stoddart Publishing, Toronto, 1996. A thorough volume of advice to parents on teaching their pre-school, pre-teen, and teenage  children to manage money for a lifetime.  
  • Kids and Money. Giving Them the Savvy to Succeed Financially.  Jayne A. Pearl. Bloomberg Press, Princeton, 1999. Author interviewed parents, used experience with own child, and sought advice of consultants to write this book for parents. 
  • Smart Money Smart Kids. Raising the Next Generation to Win with Money.  Dave Ramsey and Rachel Cruze.  Lampo Press, 2014, Brentwood. Author speaks with experience about recovering from catastrophic debt and teaching children how to avoid debt.  
  • Make Your Kid a Money Genius (even if you’re not). Beth Kobliner, Simon & Schuster, New York, 2017. See my book review in the following web site, http://wp.me/p1LlDo-P8.
  • Happy Money, The Science of Smarter Spending. Elizabeth Dunn and Michael Norton. Simon & Schuster, New York, 2013. Includes good ways and benefits of sharing money, illustrated by video in https://youtu.be/c39wUIKUSk0 .
  • Earn It, Learn It. Teach Your Child the Value of Money, Work, and Time Well Spent.  Alisa T. Weinstein, Sourcebooks, Naperville, 2011. The pre-teen child earns money from their parent by choosing a task from a career profile and completing it in a timely fashion.
  • Paying for School. How to Cover Education Costs from K to Ph.D.  Robert Brokamp, The Motley Fool, Inc. 2003. Discusses ways to finance the costs of attending private schools, colleges, and graduate schools.
  • Paying for College Without Going Broke.  2018 Edition. Kalman A. Chany with Geoff Martz. Penguin Random House. The Princeton Review, 2017. Authors offer strategies for selecting colleges and paying the cost. 
  • The Financial Diaries. How American Families Cope in a World of Uncertainty.  Jonathon Morduch and Rachel Schneider. 2017, 233 pages, Princeton University Press.  Authors describe the coping mechanisms of families trapped in conditions of financial insecurity.  
  • Can the Poor Save? Saving & Asset Building in Individual Development Accounts.  Mark Schreiner & Michael Sherraden.  Transaction Publishers, 2007. Low-income persons might benefit from an individual development account (IDA). 

internet reading

internet videos

Grandparents & Third parties

internet SITES

Copyright © 2019 Douglas R. Knight 

Simple Conversations About Money

Mary Hill is an author of children’s books.  Her set entitled Money Matters is designed to teach beginners how to count and use money.  The book titles are Pennies, Nickles, Dimes, Quarters, Dollars, and Spending and Saving.  These small thin books are easy for pre-school children to read and carry.  About 18-24 pages in each book alternate between a simple sentence on the left page and a full sized illustration on the right page. The sentences are printed in large letters and illustrated with attractive photographs of real money and real people. A simple glossary is provided on the last page to facilitate understanding of the terms and pictures. 

I found 2 of her 6 books in the Children’s section of our city library.  In Dollars (ref 1), the U.S. dollar bill and dollar coin are described by appearance and cash value.  Denominations of dollar bills are illustrated for $1 through $100.  The attentive reader will quickly learn to recognize real money in contrast to play money. 

In Spending and Saving (ref. 2), author Hill explained how earned income is saved and spent.  Her pictures of adults at work show a healthy lifestyle for generating personal income.  Children learn that they can save money by giving it to a bank teller or putting it in a piggy bank.  The topic of spending money applies to choices among expensive items, such as a house, and everyday items such as groceries and school supplies. The attentive reader is exposed to several ways that adults earn money and use it wisely.

Young children who like to use computers can learn more about money at these websites:

References

  1. Dollars, by Mary Hill. Welcome Books (™): Money Matters. Danbury, 2005. 
  2. Spending and Saving, by Mary Hill. Welcome Books (™): Money Matters. Danbury, 2005. 

Copyright © 2019 Douglas R. Knight 

Why This Blog?

Everyone needs money to take care of themselves. Yet people generally mismanage their money and retire with inadequate savings.  Poverty is a miserable condition and I see no other way to completely escape it than to invest wisely.  The purpose of this blog, “Raising Young Investors”, is NOT to create a generation of tycoons but RATHER to guide young people toward financial security. I hope WE can inspire young people to make investing a lifetime habit.  The process of developing young investors is summarized in an Overview.

 Douglas R. Knight 

Saving for Unemployment

An emergency fund is used to pay 3-9 months of living expenses during unemployment. Keep it for retirement.  

Protect Yourself

Unemployment means that you aren’t paid for doing work.  People who either lose their job or retire from work are unemployed. Could you pay for living expenses during unemployment?  If not, you should start building an Emergency Fund. There are two important savings plans during life: the Emergency Fund and Retirement Account (ref. 1).  

Emergency Fund  

The emergency fund is used to pay living expenses during temporary unemployment and other unusual expenses such as big bills.  Workers should save 3-9 months worth of earned income in a secure savings account (ref. 2).  That’s a difficult task when also planning to buy expensive items such as cars and houses, or paying-off college loans.  Get a headstart in childhood by slowly saving cash in a custodial bank account.    

Retirement Account 

The retirement account is needed to pay living expenses during permanent unemployment in old age.  Contribute to your own retirement accounts as soon and often as possible (ref. 3).  Begin by opening a Roth IRA during childhood when you start reporting earned income to the Internal Revenue Service (ref. 4).  Employer-sponsored and Self-employed retirement plans should be opened at the first opportunity (ref. 5).  

About forty to fifty years of regular investing are needed to build adequate savings for retirement (ref. 3). Plan on investing in quality securities such as stock index funds and government bonds (ref 1,6).  Begin with stock index funds early in life and add the bonds late in life, finishing with a 90% investment in stock funds and 10% investment in bonds (ref. 7).  

Retirement accounts have special rules for investing money (contributions) and removing money (withdrawals).  

  • Withdrawals before age 59½ years are generally not permitted without paying a fine and taxes [check the rules for exceptions in ref. 5].  There are no fines after age 59½ years. 
  • Roth IRA. You must pay taxes on all contributions and the contribution limits are $5,500 per year [check ref. 5 for changes].  Withdrawals after age 59½ are not taxed and there are no mandatory withdrawals. 
  • Other IRAs and retirement plans. The contribution limits vary from $5,500 to $19,000 depending on the account [check ref. 5 for changes].  You don’t pay taxes on any contribution, but withdrawals are always taxed.  The government requires partial withdrawals each year after age 70½ years. 

References

1. The Index Card.  Why Personal Finance Doesn’t Have to be Complicated.  Helaine Olen, Harold Pollack. Penguin Publishing, New York, 2013.

2. Emergency Fund Calculator, MoneyUnder30 . com:  https://www.moneyunder30.com/emergency-fund-calculator.

3. Retirement Income Calculator:  https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementIncomeCalc.jsf

4. Video on compound interest in a Roth IRA: https://youtu.be/6dzpNd3megg 

5. Retirement plans:  https://www.irs.gov/retirement-plans 

6. Saving and Investing for Students, SEC resources for youth:  https://www.investor.gov/search/node/students

7. Warren E. Buffett, Chairman of the Board. Letter to the shareholders of Berkshire Hathaway, Inc., 2013. Page 20, 2/28/2014.

Copyright © 2019 Douglas R. Knight

The Turtle and the Rabbit

Walt Disney made a wonderful cartoon about a famous race between the tortoise and the hare [‘tortoise’ and “hare” are old-fashioned names for ‘turtle’ and “rabbit”]. The story began when the rabbit teased the turtle for walking slowly.  To everyone’s surprise, the turtle challenged the rabbit to a race.  Their race course was a long track that had a starting line and a finishing line.  At the start of the race, the rabbit ran fast and far ahead of the turtle.  But the careless rabbit suddenly stopped to tease the turtle some more by going to sleep along the race course instead of crossing the finishing line.  The turtle quietly passed the sleeping rabbit and won the race by crossing the finishing line in first place (ref. 1,2).

What happened?  The turtle refused to feel bullied by the rabbit and fought back by suggesting the race and then running the entire length of the race course.  The turtle was determined to finish the race and didn’t quit running.

The moral for investors: success depends on determination and patience.

References

  1. The Tortoise and the Hare, by Walt Disney. 1934.  [https://youtu.be/MeZe2qPLPh0 ]
  2. The Aesops Fables: The Hare and the Tortoise.  Library of Congress. http://www.read.gov/aesop/025.html

Copyright © 2018 Douglas R. Knight

Advice for young adults on getting started with investing

An excellent article in today’s newspaper (ref. 1) presented clear advice on how to become wealthy without paying hefty fees:

  • Begin by finding good, free financial advice in the internet.  Search for tools and advice on creating a budget, finding affordable housing, building a financial plan, and saving for retirement.
  • Build the foundations of a budget, rainy-day savings, and retirement savings.
  • Invest money you won’t need for 5 years.  
  • Begin investing as early as possible and compound your interest.  

Numerous writers and seasoned investors offer the same advice.  Find more useful information in references 2-6.  

References

  1. Ny Anna-Louise-Jackson. Make your money grow before hiring an advisor. The Columbus Dispatch, November 4, 2018, page H7.
  2. Helaine Olen and Harold Pollack. The Index Card. Why Personal Finance Doesn’t Have to Be Complicated. Penguin Random House, New York, 2016. 
  3. Do-it-yourself investing- Introduction.  Small Trades Journal, 2013.
  4. Warren Buffett’s advice to nonprofessional investors. Small Trades Journal, 2014.  
  5. My Money Five. MyMoney.gov.
  6. Overview. RaisingInvestors.blog, 2018.

Story: Saturday morning with the grandchildren

I recently shared stories about grandchildren with one of the partners in our investment club.  Her 6 years old grandson and 4 years old granddaughter visit her every Saturday morning.  Soon after arrival, the 4 year-old runs to the penny jar and puts a few coins in the piggy bank, counting their value during the process.  It’s a play activity without feelings of ownership by the child.  The 6 year-old performs chores for which he receives a salary of $2.  He originally wanted $5, but agreed to $2 after negotiations with grandmother.  In the near-future she will take them to the Dollar Store and let both of them spend a $1 anything they want.  They will make the purchase and live with their decision.  She wants them to learn shopping skills and the value of money.  Later on, their father will open a savings account for them at the local bank.  It’s the making of a family tradition.