Life Lessons
Spend each day trying to be a little wiser than you were when you woke up.
Discharge your duties faithfully and well. ~ Charlie Munger
Question: My granddaughter is turning eighteen. What should she know about investing at this stage of life?
Answer: Turning eighteen is a milestone to celebrate. Once young people hit the thrilling number of eighteen signifying that they’re officially adults, the amount of new freedom may be proportionate with new responsibilities she’ll begin to assume. Financial literacy is the foundation for many of the grown-up obligations she’ll face moving forward. Your granddaughter is fortunate to have you to share these fundamental concepts with her.
Navigating the world of investing can be daunting. Understanding key concepts provides a solid overview of the basic types of securities, investment strategies, and life lessons helping to increase new investors financial confidence.
Basics
Securities are essentially tradable assets that hold monetary value. Each type serves a purpose while carrying risks, rewards, and trading costs.
Stocks represent ownership in a company, grant investors voting rights and potential dividends as a share of company’s profits. Stocks can be volatile, offering the potential for higher returns, while also carrying the risk of capital loss.
Bonds are essentially loans made to companies or governments that offer a fixed interest rate over a set period of time. While generally less volatile than stocks, bonds offer lower potential returns and are subject to interest rate fluctuations.
Mutual Funds pool investor’s money and own a diversified portfolio of assets (stock, bonds, etc.) offering potentially lower risk and greater liquidity, but do have management fees.
Exchange-Traded Funds (ETFs) are similar to mutual funds. ETFs track a market index or sector and provide diversification with typically lower fees. ETFs provide diversification and generally have lower fees than funds. ETFs trade like stocks throughout the day offering liquidity.
Once new investors understand what the building blocks of investing are, it’s time to discuss strategies to align with risk tolerance and goals. Plans and approaches can change in response to your granddaughter’s need and goals evolve.
Value, Growth or Both?
Some investors focus on value investing, which means investing in undervalued stocks with strong fundamentals. Fundamentals are the core elements of the company itself that make the stock attractive. To succeed with this strategy, it’s important to be patient and interested in researching companies to find those hidden gems with potential for growth.
Growth investing is another strategy focused on distinct company fundamentals concerned with high growth potential. By prioritizing future earnings over current profitability, growth investing may carry higher risk but offers the chance for significant returns.
Dividend investing is for those investors looking for less growth potential, but a steadier income and capital appreciation over time. Dividend investing is a strategy to gravitate toward for someone interested in providing regular income by owning stocks that pay consistent dividends. It is important to note that dividends are not guaranteed and must be authorized by the company’s board of directors.
Looking at the bigger picture, asset allocation goes beyond stocks to diversify across different asset classes (think stocks, bonds, etc.). This approach may help mitigate risk and balance volatility while on the road to long-term growth.
Life Lessons
Helping your granddaughter understand key concepts like risk and return, diversification, and the power of time place investors on the right path. You’ve heard these sayings, and now it’s time to pass them on. Stress the importance of diversification and not putting all her eggs in one basket.
Compounding interest is the eighth wonder of the world. The earlier your granddaughter begins, the longer her money has to grow. Fear and greed are market enemies. Don’t let emotions cause impulsive decisions. Suggest she be mindful of fees, do her research, and seek professional guidance when needed. Investing is a marathon, not a sprint as she works to build an independent financial future.
Becoming a lifelong learner is beneficial in many aspects of our lives and the financial realm is no different. A potentially steep learning curve can be made more approachable when new investors have someone like a knowledgeable family member they trust to give them a head start. Your input can help her navigate the market with confidence and strive to build a confident and prosperous future. You may want to consider including adult-aged children in a call or meeting with your CERTIFIED FINANCIAL PLANNER™ Professional. Stay focused and plan accordingly.
The opinions expressed are those of the writer as of March 2, 2025, but not necessarily those of Raymond James & Associates, and subject to change at any time based on market conditions and other factors. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and investors may incur a profit or a loss. Mention of specific company names is not a recommendation to buy or sell those stocks.
Investors should carefully consider the ETF and mutual fund investment objectives, risks, charges, and expenses before investing. The prospectus contains this and other information and can be obtained from the ETF or Mutual Fund sponsor as well as from your financial advisor. The prospectus should be read carefully before investing.
Certified Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the U.S., which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements. This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email darcie.guerin@raymondjames.com Website: www.raymondjames.com/Darcie
