Are you talking to your kids about investing? Heard of Gamestop? Bitcoin? Dogecoin? You may have heard of these investments. Your kids sure have. It’s all over social media.
The headlines focus on people making money and bringing down the big Hedge Funds. Sounds great, right? However, the news did not cover all the people that got in late (after the news hit) and subsequently lost most of their money – or the kids that are doing this without their parents even knowing.
The Difference Between Investing and Trading
Investing is about long-term holdings, patience and due diligence. This is different than speculative trading. Our investments go through a thorough review. We determine the assets’ value, cost, and long-term outcome. This is a great time to start talking to your kids about investing.
Speculative trading is a high-risk strategy. You need to know what you’re buying, why, and what your strategy is. If you are just buying because someone tells you it’s a great way to get rich, then you aren’t doing your due diligence. You are getting caught up in the FOMO (Fear of Missing Out).
There are two sides to trading. Someone is buying and someone is selling. You can’t buy a stock share unless someone is selling it to you. On the flip side, you can’t sell a stock unless someone is willing to buy it.
There are many smart and intelligent people that get caught up in the euphoria stages of trading. They get in trouble when they don’t have a strategy or when they really don’t understand how the stock market works.
If you are getting your stock tips from social media, a subscription newsletter, or your friend, we hope that you are researching it and understanding what happens if the stock loses its value (and keeping your personal information safe).
What About Cryptocurrency?
Now on cryptocurrency, it is not a security, so it is not an investment. It is a payment mechanism and store of value. The price is based not on a valuation but a demand issue. There is nothing tangible behind it. It is not regulated by anyone (yet).
There is also a dark side that comes with unregulated cryptocurrencies. Because there is no name associated with it, it can be used for illegal activities. Not that our currency isn’t used for illegal activities, but it is much harder to trace when using cryptos.
Another downside are the taxes owed when selling. The IRS views it as property not a currency and is taxed at capital gains taxes.
If you would like more information about how to have a conversation with your kids, look at https://www.schwabmoneywise.com/public/moneywise/teaching_kids.
Or if you are wanting to learn how trading works, use an app like Best Brokers Stock Market Game or MarketSim. These are apps you can get in the app stores and you can pretend to trade. And a great way to have kids test their stock market picks.
Want Help Understanding Investing Better?
Reach out to our team of experienced financial professionals. We would love to talk with you and/or your kids about how you can invest in a way that helps you work toward your financial goals.