We all learn lessons from our families, including lessons on how to invest. Unfortunately, most of the lessons I’ve learned from my family regarding investing provide insight into what not to do.
My Family Didn’t Talk about Investing
The first time I ever even heard the word “mutual fund” out of my mother’s mouth (I still haven’t heard it from my dad) was when I was in college, and my mom told me that she had opened accounts for each of my younger brothers, and that I should consider opening a mutual fund account.
My parents didn’t talk much about money in general, other than to encourage us to save and to avoid debt. And investing never came up. So I had no idea about investing, except for in a very vague way. I knew there was a stock market, and that’s about it.
The very first lesson I learned about investing from my family is that you should talk about investing with your kids. My 10-year-old son already has a better grasp of the importance of investing than I had at the age of 18. He’s already investing in a 529 for college, and as soon as he gets a job in a few years, it’s Roth IRA time.
Let your kids know about the importance of investing in wealth building, and talk about it. Get your kids involved, and let them hear constructive and age-appropriate discussions about money. They’ll have a better understanding of how money works, and start off on the right financial foot later.
Other Lessons Learned from My Family’s Mistakes
Later, I came to find out that the mutual funds opened by my parents for my brothers were actively managed. They had sales loads and charged a fee of more than 2% a year. Just looking at the way that eroded my youngest brother’s returns was enough for me to swear of managed funds once I learned about index funds.
Another important lesson I learned was about diversity. My dad’s retirement account consisted mostly of company stock. When the company tanked, so did my parents’ nest egg. It still hasn’t fully recovered. I learned that some measure of diversity is important, and that it’s especially dangerous to put all your eggs in one basket – especially if that basket is the company stock basket.
My family also made investing sound difficult, and I have since learned that it doesn’t have to be so hard. Get started as soon as possible, use dollar cost averaging, and make use of index funds, and consistency over time can be one of your greatest allies.
I love my parents, and my family. However, I wouldn’t take investing advice from my family members. While I’m not exactly a guru, I have learned, from watching their mistakes, what I can do to improve my own financial situation through the power of investing.