So with a few minutes to spare between diaper changes, I jotted down a few points for him to consider down the road if he ever wants to start managing his own money.
1. Learn from the masters, but think for yourself. By all means, read Warren Buffett, Peter Lynch, Ben Graham, and the writings of other successful investors, but remember that what worked for them may not work for you. Incorporate lessons from other investors with your own experience and develop a style that you're comfortable with.
2. Be an investor in businesses, not a trader of tickers. Invest in companies in which you want to be a long-term owner of the business. You have much better odds of identifying a good company than guessing where a stock's price will be in the next few months.
3. You can only grow the money that you keep. Minimize the costs of investing (commissions, fees, and taxes) by maintaining a long-term focus and not trading too often.
4. Stay emotionally balanced. Don't let the short-term movements of your stock prices determine your mood. You're never as good or as bad of an investor as you think -- just focus on becoming a better investor each day and the long-term returns will take care of themselves.
5. Keep it simple. Complex financial products and companies with hard-to-understand operations aren't worth your time and are probably over-priced anyway. Stick to what makes sense to you and aim to simplify your process.
6. Be insatiably curious. Read anything and everything. Some of the most valuable investing lessons you'll learn won't come from investing books. Philosophy, science, art, fiction, history, etc. all have something to offer, so always look to broaden your horizons. You'll be amazed at what you can tie back into your investing approach.
7. Only make investment decisions when you're calm and relaxed. When you're stressed, your mental time horizon shrinks and you struggle to see the big picture. Go for a walk, take some deep breaths, shoot some basketball in the driveway -- whatever it takes to regain the right perspective.
8. Invest for a greater purpose. Help yourself and help others. Investing isn't an end in itself, but is a means to an end. Use any money you don't need to be a blessing to others.
9. Be patient. The benefits of compounding interest are fully realized with time and time is on your side as an individual investor. Aim to hold your stock investments for at least three years, but ideally longer than that.
10. If you want to focus on nobler pursuits, invest using index funds. If you don't want to invest in individual companies, make sure that you're at least earning the market rate of return with your long-term savings. Invest in some low-cost total market funds, add money to them each month, and then see lesson #9.
What investing lessons have you shared with your own kids, nieces, nephews, etc.? Let me know in the comments section below or on Twitter @toddwenning.
What I've been reading/watching this week (short list this week):
- How Sherlock Holmes can make you a better investor -- Millennial Invest
- How reliable are our memories? -- TED Radio Hour (Podcast)
- 2014 Financial Market Awards -- A Wealth of Common Sense
Book I'm currently reading
- Mountains Beyond Mountains by Tracy Kidder
Stay patient, stay focused.