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Tuesday, March 22, 2022

The First Steps To Investing

Note: This is a refresh of a post that originally was published on 05/21/2008 when my children were 10 and 7. As Paul Harvey would say, "Here is the rest of the story..." 

I am not a licensed professional and I don't know your specific situation, so I can't tell you how to invest. However, you can listen in on the advice I gave my children as they were growing up.
  1. Emergency Fund: Before you invest a penny anywhere, you need to set aside a minimum of $1,000 in a high yield money market account with check writing privileges. Dad is not always going to be around when trouble strikes. Have a plan to add to this account each month until it reaches 4-6 months of your living expenses.
  2. Index Funds: After your emergency fund reaches $1,000, you can divert a portion of your savings to a good solid index fund that will serve as your foundation. I suggest the Vanguard S&P 500 ETF (VOO). This will provide you a benchmark for future investments. If you can't beat this fund over time, close out the investment and put your money in the index fund.
  3. Income Fund: Once your index fund reaches $5,000, it is time to start diversify some. I had my children also start buying Schwab U.S. Dividend Equity ETF (SCHD) for long-term income growth.
  4. Dividend Income Investing: After accumulating $5,000 in 1 and 2. above, you may be ready to take on some additional risk and (hopefully) enjoy some higher rewards! Here I would suggest buying some blue-chip dividend stocks. You use the tools provided on Dividend Growth Stocks. You need to invest more slowly in this area than the previous four because up to now someone else was managing your money. You are likely to make some mistakes (I still do) and lose some money. Nurtured properly, dividend investing can ensure a bright future.
Kids, there are no guarantees in life and what happened in the past probably will not happen the same way in the future. What I have presented to you above, has worked for me over the years. If you follow this advice, it will likely work for you going forward.

Now go out and make your Dad proud!
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Final Note: Both of my children started investing in their teens. My daughter, now in her 20's, is married and living 750 miles from dad. She used a portion of the money in her investment account as a down payment on her first house. My son was a bigger saver than his sister and had accumulated more than her when his untimely death occurred in 2018. 

"Train up a child in the way he should go: and when he is old, he will not depart from it." 
- Proverbs 22:6

Full Disclosure: At the time of this writing, I owned shares of VOO, SCHD,

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