Teen wants to trade stocks
Teen wants to trade stocks
My 14 year old son has been asking for a few years if he could put a small amount of money into the stock market and “trade penny stocks”. He really has no idea what he’d be doing, but he’s 14, so that’s expected.
He has a UTMA which is entirely in Vanguard LifeStrategy Moderate Growth Fund (VSMGX). I’m the custodian. It’s around $10k. His college fund is in a separate 529 that doesn’t belong to him (husband is owner, son is beneficiary).
Until recently, husband was employed by a brokerage and we were subject to FINRA disclosure of family brokerage accounts. So I gave that reason for why son can’t play in the stock market. As soon as husband switched jobs, son brought it up again.
I’m inclined to set him up with “something” that he can use to gain experience. He’s a smart kid, driven, stubborn, and he’s “experience oriented” (my mother had a phrase for this: “you have to learn everything the hard way”). Nothing I tell him or show him about timing the market is going to get past his own conceptions and what his friends have told him. Apparently, 14-year-olds have all-knowing friends (sarcasm).
So, I want him to get burned with a little bit of his own money now, when he’s legally required to have me as a custodian, instead of when he’s a young adult and can make a mess all on his own with more money and more consequences.
Questions:
- Is this a really bad idea?
- Is such trading possible inside a UTMA? Does it violate my duty as custodian? Or should I set up a regular brokerage account that belongs to me and let him use that? (Taxes differ are higher if it’s not his UTMA, our marginal is 29.4% fed+state)
- Which brokerage? Currently we have all our family investing accounts with Vanguard, but I’m not attached to staying there. I’m sure he’d be frustrated with Vanguard’s online platform (I would be too if I traded frequently). Which brokerage has the best iPhone app?
He has a UTMA which is entirely in Vanguard LifeStrategy Moderate Growth Fund (VSMGX). I’m the custodian. It’s around $10k. His college fund is in a separate 529 that doesn’t belong to him (husband is owner, son is beneficiary).
Until recently, husband was employed by a brokerage and we were subject to FINRA disclosure of family brokerage accounts. So I gave that reason for why son can’t play in the stock market. As soon as husband switched jobs, son brought it up again.
I’m inclined to set him up with “something” that he can use to gain experience. He’s a smart kid, driven, stubborn, and he’s “experience oriented” (my mother had a phrase for this: “you have to learn everything the hard way”). Nothing I tell him or show him about timing the market is going to get past his own conceptions and what his friends have told him. Apparently, 14-year-olds have all-knowing friends (sarcasm).
So, I want him to get burned with a little bit of his own money now, when he’s legally required to have me as a custodian, instead of when he’s a young adult and can make a mess all on his own with more money and more consequences.
Questions:
- Is this a really bad idea?
- Is such trading possible inside a UTMA? Does it violate my duty as custodian? Or should I set up a regular brokerage account that belongs to me and let him use that? (Taxes differ are higher if it’s not his UTMA, our marginal is 29.4% fed+state)
- Which brokerage? Currently we have all our family investing accounts with Vanguard, but I’m not attached to staying there. I’m sure he’d be frustrated with Vanguard’s online platform (I would be too if I traded frequently). Which brokerage has the best iPhone app?
Re: Teen wants to trade stocks
What if he makes a lot of money on his trades?
Re: Teen wants to trade stocks
I’m sure he’s planning on it. There’s nothing wrong with that, and he’d certainly get an education on taxes. I suspect that making a lot of money will push his confidence into overdrive, which is likely to separate him from some of that money.
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Re: Teen wants to trade stocks
Why not get him a "practice" account, and have him agree to use it for more than a very short period of time, long enough to see ups and downs.
Last I knew, Schwab had this type of arrangement.
That way, he'll become familiar with "how it all works", in terms of both "doing it" and "how fluctuations" happen: the good, the bad, and the ugly, etc.
IF he hits a big winner, he'll probably squawk... but have him hold on to see where it all leads...
Just make sure that he's sticking with the practice account for as long as he's arranged with you. I'm not sure if there is a way to restrict it to that usage only (?).
RM
Last I knew, Schwab had this type of arrangement.
That way, he'll become familiar with "how it all works", in terms of both "doing it" and "how fluctuations" happen: the good, the bad, and the ugly, etc.
IF he hits a big winner, he'll probably squawk... but have him hold on to see where it all leads...
Just make sure that he's sticking with the practice account for as long as he's arranged with you. I'm not sure if there is a way to restrict it to that usage only (?).
RM
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Re: Teen wants to trade stocks
As long as teen uses their own money, whichever way it goes, it could be a good educational experience. Might be fun to see how performance is relative to his UTMA Lifestrategy fund. Tell him he should come up with a "thesis" and discuss it on why he wants to buy/sell a particular stock.
Re: Teen wants to trade stocks
My son is of similar age and desires, so I set him up with an account 1000.00
500 in a S&P 500 that I donated and the rest was from his earned income bank account.
I told him he could have the 500 in the S&P if he beats it over a two year period.
So far he is narrowly behind.
500 in a S&P 500 that I donated and the rest was from his earned income bank account.
I told him he could have the 500 in the S&P if he beats it over a two year period.
So far he is narrowly behind.
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Re: Teen wants to trade stocks
I like this idea as it provides a way for your son to measure his success or failure.DemoEngr wrote: ↑Tue Sep 28, 2021 9:02 am My son is of similar age and desires, so I set him up with an account 1000.00
500 in a S&P 500 that I donated and the rest was from his earned income bank account.
I told him he could have the 500 in the S&P if he beats it over a two year period.
So far he is narrowly behind.
Just making money is not success. You need to beat the passive approach. Even losing money is a success if you lose less than the S&P500.
And yes, taking taxes and costs into account is fair.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Re: Teen wants to trade stocks
Fidelity has a new Youth Account feature. (I have no opinion about whether it's a good thing.)
Re: Teen wants to trade stocks
Fidelity has recently introduced a youth account for exactly what you described for ages 13-17. I got it for my 14 yr old son, and it’s worked out really well for teaching him the basics.
https://www.fidelity.com/go/youth-account/overview
He gets (mostly) free trading of fractional shares and a debit card against the cash account.
It is totally separate from his UTMA account.
https://www.fidelity.com/go/youth-account/overview
He gets (mostly) free trading of fractional shares and a debit card against the cash account.
It is totally separate from his UTMA account.
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Re: Teen wants to trade stocks
My uncle bought me a share (I suppose just one, but don't remember exactly) of Martin Marietta when I was 13. I sold it, bought something else and lost it all...lesson learned and it served me well. Better to have lost it all back then, than now.
Another option might be a few months of doing something the WSJ use to run in the '80's. They had various brokers pick stocks and put their picks against a dart thrown at the quotes. As I recall, the outcome wasn't too much different.
Another option might be a few months of doing something the WSJ use to run in the '80's. They had various brokers pick stocks and put their picks against a dart thrown at the quotes. As I recall, the outcome wasn't too much different.
Last edited by Mr. Rumples on Tue Sep 28, 2021 9:40 am, edited 1 time in total.
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Re: Teen wants to trade stocks
I think its a really bad idea. Trading penny stocks seems like a bad idea for anyone. Trading individual stocks is generally discouraged on this forum as it concentrates risk. Why would you allow or encourage behavior in a child that you wouldn't condone in an adult?
Reductio ad absurdum: My son is interested in larceny. I plan to introduce him to a gang that engages in petty theft so he can explore this activity. Perhaps he will learn some valuable lessons that will put him on the straight and narrow path. The risks are low because he may not get caught and if he is, the penalties for juvenile first offenders are mild. Any punishment meted out by the courts will serve as an illuminating life lesson. On the upside, he may make a pretty penny and its all tax free!
Question:
- Is this a really bad idea?
Reductio ad absurdum: My son is interested in larceny. I plan to introduce him to a gang that engages in petty theft so he can explore this activity. Perhaps he will learn some valuable lessons that will put him on the straight and narrow path. The risks are low because he may not get caught and if he is, the penalties for juvenile first offenders are mild. Any punishment meted out by the courts will serve as an illuminating life lesson. On the upside, he may make a pretty penny and its all tax free!
Question:
- Is this a really bad idea?
“For every complex problem, there is a solution that is clear, simple, and wrong.” - H. L. Mencken
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Re: Teen wants to trade stocks
Yes, it's a bad idea.
Tell him "No" because you're the parent, and you know better.
He can do what he wants when he's 18, and starts filing his own income taxes.
ETA: I don't think that letting him try every potentially addictive behavior that he might run across in his life in some sort of controlled or "safe" way is what you should be considering. Cocaine? Heroin? Casino gambling? Alcohol? Opioids? Marijuana? Cigarettes? Vaping? Where does this line of logic end? He's probably already addicted to one or more screens. As I see it, it's your job to talk him out of this, not encourage it in a "safe" way, because there is no safe way to trade penny stocks. You could consider assigning him some reading, and a book report on John Bogle's Little Book of Common Sense Investing.
Regards,
Last edited by retired@50 on Tue Sep 28, 2021 11:17 am, edited 2 times in total.
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Teen wants to trade stocks
So here's another thought. Let him work to earn some money (like mowing lawns) and then let him use that money to buy stocks of his choice (limited amount of money, maybe $100 or $200). I think money he works hard for will have more value than money he's been given.
Maybe you could go over the risks with him ahead of time or find a book to educate him first.
Maybe you could go over the risks with him ahead of time or find a book to educate him first.
Re: Teen wants to trade stocks
Actually, making money from day trading is the worst thing that could happen. If he loses money or makes less than index fund, aha, index funds are better, best not to trade stocks, lesson learned. But if he makes money due to luck,, then he gets an unrealistic view of how good he is at stock picking, or that stock picking isn’t that hard. This is fine when he is making $50 trades, but later when he is making 50k trades it will bite him in the derrière.
Re: Teen wants to trade stocks
I believe this is the reference. They ran this throughout the 90's, updating it every few months. This is an article from 2001.Mr. Rumples wrote: ↑Tue Sep 28, 2021 9:36 am My uncle bought me a share (I suppose just one, but don't remember exactly) of Martin Marietta when I was 13. I sold it, bought something else and lost it all...lesson learned and it served me well. Better to have lost it all back then, than now.
Another option might be a few months of doing something the WSJ use to run in the '80's. They had various brokers pick stocks and put their picks against a dart thrown at the quotes. As I recall, the outcome wasn't too much different.
https://www.wsj.com/articles/SB991681622136214659
You might get beyond the paywall if you search "Blindfolded Monkey Beats Humans With Stock Picks" in Google. That's how I originally found the article (it didn't invoke the paywall until I posted the link.)
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Re: Teen wants to trade stocks
It's hard to say.
Commonly-cited numbers say that
Try to limit the damage, and try to get him to understand that this kind of trading is luck and gambling--he isn't a genius if he wins, and he isn't a bad person if he loses--provided the size of the losses is manageable, of course.
The following quotation speaks to the situation. It's from Samuel Butler's novel, The Way of All Flesh, which he wrote in the 1880s but which he considered so controversial that he didn't dare publish it in his lifetime. This quotation supports your idea--
Commonly-cited numbers say that
So you are faced with the problem as with other possibly-risky behavior, of whether to tolerate/encourage it and possibly be the enabler of something really bad; or prohibit it, which will probably be ineffective and give it the lure of the forbidden.Approximately 1 percent of the adult population in the United States has a severe gambling problem. The most recent research estimates that 6 to 9 percent of young people and young adults experience problems related to gambling.
Try to limit the damage, and try to get him to understand that this kind of trading is luck and gambling--he isn't a genius if he wins, and he isn't a bad person if he loses--provided the size of the losses is manageable, of course.
The following quotation speaks to the situation. It's from Samuel Butler's novel, The Way of All Flesh, which he wrote in the 1880s but which he considered so controversial that he didn't dare publish it in his lifetime. This quotation supports your idea--
--but I'm not going to say that either of you is right. And Butler was talking about college age, not adolescence. Anyway, this is what Butler wrote:So, I want him to get burned with a little bit of his own money now, when he’s legally required to have me as a custodian, instead of when he’s a young adult and can make a mess all on his own with more money and more consequences.
...poverty... is a quasi-embryonic condition, through which a man had better pass if he is to hold his later developments securely, but like measles or scarlet fever he had better have it mildly and get it over early.
No man is safe from losing every penny he has in the world, unless he has had his facer. How often do I not hear middle-aged women and quiet family men say that they have no speculative tendency; they never had touched, and never would touch, any but the very soundest, best reputed investments, and as for unlimited liability, oh dear! dear! and they throw up their hands and eyes.
Whenever a person is heard to talk thus he may be recognised as the easy prey of the first adventurer who comes across him; he will commonly, indeed, wind up his discourse by saying that in spite of all his natural caution, and his well knowing how foolish speculation is, yet there are some investments which are called speculative but in reality are not so, and he will pull out of his pocket the prospectus of a Cornish gold mine. It is only on having actually lost money that one realises what an awful thing the loss of it is, and finds out how easily it is lost by those who venture out of the middle of the most beaten path.
Ernest had had his facer, as he had had his attack of poverty, young, and sufficiently badly for a sensible man to be little likely to forget it. I can fancy few pieces of good fortune greater than this as happening to any man, provided, of course, that he is not damaged irretrievably.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Teen wants to trade stocks
My son picked up his first debit card when he was old enough. I can't recall the exact age but mid teens sounds about right. He started spending more time out with friends. He started missing dinners. Fast forward 6 months. He was around the house a lot more. He seldom missed a dinner. I laughed and told him," You ran out of money, didn't you?" He had exhausted his $2k savings account. It was his first money lesson. This was before big social media.
I can see how the new retail stock trading apps can get addictive. Social media platforms push "Jonestown" positions and a neophyte might fall prey all too easily. I'd allow your son to make trades under your direct supervision. You'll need to keep the hysteria to a reasonable level. He'll need to witness the extremes without experiencing the extremes. My .02.
I can see how the new retail stock trading apps can get addictive. Social media platforms push "Jonestown" positions and a neophyte might fall prey all too easily. I'd allow your son to make trades under your direct supervision. You'll need to keep the hysteria to a reasonable level. He'll need to witness the extremes without experiencing the extremes. My .02.
Re: Teen wants to trade stocks
stupid analogy.vas wrote: ↑Tue Sep 28, 2021 9:39 am I think its a really bad idea. Trading penny stocks seems like a bad idea for anyone. Trading individual stocks is generally discouraged on this forum as it concentrates risk. Why would you allow or encourage behavior in a child that you wouldn't condone in an adult?
Reductio ad absurdum: My son is interested in larceny. I plan to introduce him to a gang that engages in petty theft so he can explore this activity. Perhaps he will learn some valuable lessons that will put him on the straight and narrow path. The risks are low because he may not get caught and if he is, the penalties for juvenile first offenders are mild. Any punishment meted out by the courts will serve as an illuminating life lesson. On the upside, he may make a pretty penny and its all tax free!
Question:
- Is this a really bad idea?
a lot of us are here because we lost money actively managing compared to the market. and most people still have some portion of individual stocks. the sooner they learn the better imo. I lost a few thousand in my early 20s that pushed me here. that money was well worth the lesson otherwise i might have done it later and the lesson could have been 10s of thousands.
as long as theyre using money they earned themselves and not my money. that way the pain is really felt when they lose weeks worth of pay in 5 minutes.
Last edited by RXfiles on Tue Sep 28, 2021 10:55 am, edited 1 time in total.
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Re: Teen wants to trade stocks
I think it's ok to let a teen try trading with a small amount of money that one can afford to lose. I think of it as a learning lesson and better to learn early with a small amount.
A young family member of mine really got into Reddit wallstreetbets earlier this year and really want to invest in meme stocks -- just when GME was all over the news. I told him I personally wouldn't but didn't try too hard to discourage him as he was really wrapped up in it. He put in a few thousand (money he could afford to lose) thinking/hoping the stock was going to the moon but it hasn't worked out that well so far. Learning hands on with a small amount can be better than being told not to do something.
A young family member of mine really got into Reddit wallstreetbets earlier this year and really want to invest in meme stocks -- just when GME was all over the news. I told him I personally wouldn't but didn't try too hard to discourage him as he was really wrapped up in it. He put in a few thousand (money he could afford to lose) thinking/hoping the stock was going to the moon but it hasn't worked out that well so far. Learning hands on with a small amount can be better than being told not to do something.
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Re: Teen wants to trade stocks
You might consider setting him up with one of the "paper" stock market games and see if he can beat an index fund. I would not let them play with real money. They can do what they please when they are adults. The social media games and apps really do encourage risk taking behavior.
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Re: Teen wants to trade stocks
Yes, investing in single stocks, especially penny stocks, is a BAD idea. But it might be a GOOD idea to let someone learn that the hard way as "the hard way" is the best way.
He can be told how and why this is a bad idea but, in order to appreciate the advice, he may have to pull the conversation out of the memory hole further down the line. Then it may stick.
Last edited by bertilak on Tue Sep 28, 2021 10:59 am, edited 1 time in total.
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Re: Teen wants to trade stocks
I vote yes.
When my children expressed interest in activities I tried to encourage them and be a part.
Sports, woodworking, choir, camping, chess... They offer lots of learning experiences and life lessons.
Now, I try to encourage my grandchildren just the same. I'm much less involved with grandchildren but I still try to be an encourager and teacher. I'd like for my grandchildren to start learning about investing.
I am assuming with a youth investment account you would be involved and have lots of teaching opportunities. It'll be lots of fun reading those Annual Reports!
Your son will learn to evaluate a company and learn about P/E and expense ratios. And he may learn about taxes.
I really like the idea to give him a low cost Index Fund as well to use as a comparison against those risky penny stocks.
John Templeton did well with penny stocks. But he was John Templeton.
When my children expressed interest in activities I tried to encourage them and be a part.
Sports, woodworking, choir, camping, chess... They offer lots of learning experiences and life lessons.
Now, I try to encourage my grandchildren just the same. I'm much less involved with grandchildren but I still try to be an encourager and teacher. I'd like for my grandchildren to start learning about investing.
I am assuming with a youth investment account you would be involved and have lots of teaching opportunities. It'll be lots of fun reading those Annual Reports!
Your son will learn to evaluate a company and learn about P/E and expense ratios. And he may learn about taxes.
I really like the idea to give him a low cost Index Fund as well to use as a comparison against those risky penny stocks.
John Templeton did well with penny stocks. But he was John Templeton.
Re: Teen wants to trade stocks
seems like a win win. only let them use money they earn. if they make a big gain than lose it all its a good lesson. if my teen makes it to where theyre making 50k trades on robinhood personally id be happy bc they made 50k and if they lost it even better lesson. but we all know the chances of that are slim to none. theyll most likely lose the money really quickly and they wont be into day tradingmhalley wrote: ↑Tue Sep 28, 2021 10:10 am Actually, making money from day trading is the worst thing that could happen. If he loses money or makes less than index fund, aha, index funds are better, best not to trade stocks, lesson learned. But if he makes money due to luck,, then he gets an unrealistic view of how good he is at stock picking, or that stock picking isn’t that hard. This is fine when he is making $50 trades, but later when he is making 50k trades it will bite him in the derrière.
Re: Teen wants to trade stocks
It may or may not be a bad idea. Teens talk about a lot of things but seldom act on all of them. I did something similar with my son when he turned 13, opened a UTMA and gave him some money to start. He bought Apple, that was one company he liked. I put equal amount in Total Market ETF. I told him market cannot go totally bust while single company can, he & I still debate about it (he is college now), as his Apple shares have quadrupled while the market has given steady growth. He believes he picked a great company at a great price. Even though he talks about buying more stocks, trading penny stocks, bitcoin and whatnot, he hasn't forced the issue. One reason could be that the UTMA is still controlled by me and he has no access to trade (he can force the issue with me but he never does).verbose wrote: ↑Tue Sep 28, 2021 8:46 am - Is this a really bad idea?
- Is such trading possible inside a UTMA? Does it violate my duty as custodian? Or should I set up a regular brokerage account that belongs to me and let him use that? (Taxes differ are higher if it’s not his UTMA, our marginal is 29.4% fed+state)
- Which brokerage? Currently we have all our family investing accounts with Vanguard, but I’m not attached to staying there. I’m sure he’d be frustrated with Vanguard’s online platform (I would be too if I traded frequently). Which brokerage has the best iPhone app?
Someday he will have access soon and he says he will trade, may be. I don't know, but he was evidence of steady growth and risk/reward for past 5 years and counting in front of him to make a determination. He also has the burden of having to outdo his Apple stock pick, which has been a great pick no questions, but replicating that with another company or even same stock will not be easy at all and will have to wait a long time. Where as you can invest in market anytime. I expect his Total Market ETF to stay there as a constant live benchmark for him forever (unless he trades that, which is unlikely), as the UTMA can be converted to a regular taxable account and the Total Market ETF is tax efficient to hold forever. So, bottomline let him do what he wants, but also setup a real live benchmark ETF to compare against over the years.
Re: Teen wants to trade stocks
I agree with what you are saying - to a limited extent only because the other half of my mind says that the kid had better learn the lesson at a young age than in his late 20s which is when I learned mineretired@50 wrote: ↑Tue Sep 28, 2021 9:55 amYes, it's a bad idea.
Tell him "No" because you're the parent, and you know better.
He can do what he wants when he's 18, and starts filing his own income taxes.
ETA: I don't think that letting him try every potentially addictive behavior that he might run across in his life in some sort of controlled or "safe" way is what you should be considering. Cocaine? Heroin? Casino gambling? Alcohol? Opioids? Marijuana? Cigarettes? Vaping? Where does this line of logic end? He's probably already addicted to one or more screens. As I see it, it's your job to talk him out of this, not encourage it in a "safe" way, because there is no safe way to trade penny stocks. You could consider assigning him some reading, and a book report on John Bogle's Little Book of Common Sense Investing.
Regards,
On the other hand, telling him "No" now might not really fly because OP used a different excuse previously. It is not fair to move goalposts on a kid though, to be honest, that might just be another learning experience as well that I learned (rather late) in my career when bosses moved goalposts.
One advantage that OP has is that she's the mom. If I were to make rules like that, I would be immediately overruled. Thankfully, DS is not into day trading; DD couldn't care less about the stock market (no, I am not thankful about this, but - it is what it is, Apple ... Tree).
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Re: Teen wants to trade stocks
Learning a lesson doesn't necessarily have to involve pain or loss of money.an_asker wrote: ↑Tue Sep 28, 2021 11:24 amI agree with what you are saying - to a limited extent only because the other half of my mind says that the kid had better learn the lesson at a young age than in his late 20s which is when I learned mineretired@50 wrote: ↑Tue Sep 28, 2021 9:55 amYes, it's a bad idea.
Tell him "No" because you're the parent, and you know better.
He can do what he wants when he's 18, and starts filing his own income taxes.
ETA: I don't think that letting him try every potentially addictive behavior that he might run across in his life in some sort of controlled or "safe" way is what you should be considering. Cocaine? Heroin? Casino gambling? Alcohol? Opioids? Marijuana? Cigarettes? Vaping? Where does this line of logic end? He's probably already addicted to one or more screens. As I see it, it's your job to talk him out of this, not encourage it in a "safe" way, because there is no safe way to trade penny stocks. You could consider assigning him some reading, and a book report on John Bogle's Little Book of Common Sense Investing.
Regards,
On the other hand, telling him "No" now might not really fly because OP used a different excuse previously. It is not fair to move goalposts on a kid though, to be honest, that might just be another learning experience as well that I learned (rather late) in my career when bosses moved goalposts.
One advantage that OP has is that she's the mom. If I were to make rules like that, I would be immediately overruled. Thankfully, DS is not into day trading; DD couldn't care less about the stock market (no, I am not thankful about this, but - it is what it is, Apple ... Tree).
Should we let junior take off a fingertip on the table saw before we teach him how to use it properly? Of course not.
I personally don't believe that every single investor has to go down the rabbit hole of investing in individual stocks before learning not to.
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Teen wants to trade stocks
Except it encourages excessive risk taking near the end of the bet if he is behind. If my kid ever wants to try this I'll make them write a report on why the company they want to buy will be a good investment. Said report will be posted here to pick apart.bertilak wrote: ↑Tue Sep 28, 2021 9:07 amI like this idea as it provides a way for your son to measure his success or failure.DemoEngr wrote: ↑Tue Sep 28, 2021 9:02 am My son is of similar age and desires, so I set him up with an account 1000.00
500 in a S&P 500 that I donated and the rest was from his earned income bank account.
I told him he could have the 500 in the S&P if he beats it over a two year period.
So far he is narrowly behind.
Just making money is not success. You need to beat the passive approach. Even losing money is a success if you lose less than the S&P500.
And yes, taking taxes and costs into account is fair.
Re: Teen wants to trade stocks
Get them access to a paper trading account, such as TD Ameritrade's Think or Swim paper money. They can set up an account and trade with fictional money. They can then see how they do.
There are other stock market simulators as well.
There are other stock market simulators as well.
Re: Teen wants to trade stocks
I learned to index invest by losing a significant amount of money on the Sequoia Fund (SEQUX) in my late teens through their risky bet on Valeant Pharma.
Tell him to go through it! Way better to learn on $1000 at 14 than $100,000 at 30.
Tell him to go through it! Way better to learn on $1000 at 14 than $100,000 at 30.
Last edited by inverter on Tue Sep 28, 2021 12:57 pm, edited 1 time in total.
Re: Teen wants to trade stocks
Are you really equating cocaine with trading stocks?retired@50 wrote: ↑Tue Sep 28, 2021 9:55 amYes, it's a bad idea.
Tell him "No" because you're the parent, and you know better.
He can do what he wants when he's 18, and starts filing his own income taxes.
ETA: I don't think that letting him try every potentially addictive behavior that he might run across in his life in some sort of controlled or "safe" way is what you should be considering. Cocaine? Heroin? Casino gambling? Alcohol? Opioids? Marijuana? Cigarettes? Vaping? Where does this line of logic end? He's probably already addicted to one or more screens. As I see it, it's your job to talk him out of this, not encourage it in a "safe" way, because there is no safe way to trade penny stocks. You could consider assigning him some reading, and a book report on John Bogle's Little Book of Common Sense Investing.
Regards,
- BrooklynInvest
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Re: Teen wants to trade stocks
Very well intentioned.
I love the idea of a paper account. He can track losses, gains, taxes, expenses ... and time spent. If done appropriately for a period (and he's still interested) fund with half S&P and half cash for him to trade? Great learning experience. Granted, there's a risk he learns the wrong lesson if he finds the next apple but that's life.
Good luck OP,
I love the idea of a paper account. He can track losses, gains, taxes, expenses ... and time spent. If done appropriately for a period (and he's still interested) fund with half S&P and half cash for him to trade? Great learning experience. Granted, there's a risk he learns the wrong lesson if he finds the next apple but that's life.
Good luck OP,
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Re: Teen wants to trade stocks
Really bizarre that some want to moralize letting teens start trading stocks. Any parent should be thrilled teens are interested in investing, even if it's the "bad" kind. Let them trade with a little money, make mistakes, etc. Give them some guidance and then let them try it out.
- vanbogle59
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Re: Teen wants to trade stocks
IIRC, Ward let the Beaver do it.
Maybe not penny stocks... But that shows how mainstream and old this question is.
I think he even put in a stop loss order.
Maybe not penny stocks... But that shows how mainstream and old this question is.
I think he even put in a stop loss order.
Re: Teen wants to trade stocks
+1 If he's saving enough money to invest, he's already ahead of the curve for most kids I assume.roth evangelist wrote: ↑Tue Sep 28, 2021 12:05 pm Really bizarre that some want to moralize letting teens start trading stocks. Any parent should be thrilled teens are interested in investing, even if it's the "bad" kind. Let them trade with a little money, make mistakes, etc. Give them some guidance and then let them try it out.
I'd much rather my kid save and invest in individual stocks than have them blow all their money on whatever kids spend it on these days. Back when I was in high school, most of my friends blew all their money on sound systems that were more expensive than the car they drove. It sounded awful because their $2000+ speakers rattled their $1000 car so bad that there were all sorts of extra random noises... Odds are much higher that an individual stock will hold value better than car speakers over the years.
- Doom&Gloom
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Re: Teen wants to trade stocks
+1vas wrote: ↑Tue Sep 28, 2021 9:39 am I think its a really bad idea. Trading penny stocks seems like a bad idea for anyone. Trading individual stocks is generally discouraged on this forum as it concentrates risk. Why would you allow or encourage behavior in a child that you wouldn't condone in an adult?
Reductio ad absurdum: My son is interested in larceny. I plan to introduce him to a gang that engages in petty theft so he can explore this activity. Perhaps he will learn some valuable lessons that will put him on the straight and narrow path. The risks are low because he may not get caught and if he is, the penalties for juvenile first offenders are mild. Any punishment meted out by the courts will serve as an illuminating life lesson. On the upside, he may make a pretty penny and its all tax free!
Question:
- Is this a really bad idea?
I would never teach, encourage, enable, nor subsidize a child of mine in any activity that I would not want them to do long term. Unless his friends who are encouraging him are already Wall Street wizards, this sounds like teenage gambling to me.
I would not push my child toward learning something the hard way as there are too many things that can go wrong. I would much prefer to encourage him into productive activities where he will experience successes. I would steer far away from encouraging him toward failure--particularly if accidental initial success is a possibility.
- retired@50
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Re: Teen wants to trade stocks
Not equating, I'm saying trading stocks is potentially addictive.
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Re: Teen wants to trade stocks
No kidding. I find myself in a bewilderment whenever I encounter someone with a different opinion.
“For every complex problem, there is a solution that is clear, simple, and wrong.” - H. L. Mencken
- Doom&Gloom
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Re: Teen wants to trade stocks
I don't find it bizarre at all, but I don't see it as moralizing either.roth evangelist wrote: ↑Tue Sep 28, 2021 12:05 pm Really bizarre that some want to moralize letting teens start trading stocks. Any parent should be thrilled teens are interested in investing, even if it's the "bad" kind. Let them trade with a little money, make mistakes, etc. Give them some guidance and then let them try it out.
This is not the advice that this forum would give an adult newbie poster here asking the same thing that this teen is. Why not? Because of the magic of being 21 years old?
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Re: Teen wants to trade stocks
I see nothing wrong with this, except maybe the penny stocks part. Maybe restrict only to SP500 stocks. And definitely have a "control" account for performance comparison - maybe throwing darts at a list or a spin-the-wheel app on a phone that a pet or younger sibling could use. This is a great age to learn important lessons, without having much to lose. But the amount to lose should be enough to make the lesson stick. Maybe a couple weeks of allowance or something like that.
- arcticpineapplecorp.
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Re: Teen wants to trade stocks
I think some of the best things are in the conversations rather than in the outcome itself. To that end have you had conversations around:verbose wrote: ↑Tue Sep 28, 2021 8:46 am My 14 year old son has been asking for a few years if he could put a small amount of money into the stock market and “trade penny stocks”. He really has no idea what he’d be doing, but he’s 14, so that’s expected.
He has a UTMA which is entirely in Vanguard LifeStrategy Moderate Growth Fund (VSMGX). I’m the custodian. It’s around $10k. His college fund is in a separate 529 that doesn’t belong to him (husband is owner, son is beneficiary).
1. how did he come to learn about penny stocks? I.E., why these and not other more established or known companies? Is he on WSB? Buying newsletters from Stock up kids? (http://www.stockupkids.com/)
2. Where is he getting his info on penny stocks? You say his friends. Are they watching someone on Youtube? If so, who and have you watched some of these videos to help him more critically think about what he's watching/hearing?
3. Does he understand that penny stocks are not the same as other stocks, in that penny stocks have a great likelihood of going bust, are very illiquid and are unregulated because they don't trade on normal markets (they're on the pink sheets)? Does he understand/appreciate these differences?
4. What is his exit strategy? Does he have one? what if he wants to exit, but he's in an illiquid stock? Has he considered this? Will he keep following the stock once he's exited to see if he did well, but not as well as he could have? (much of the reason for underperformance isn't on the buy side, it's on the sell side...selling too soon or too late).
5. Does he understand diversification and if so, how does he plan to build a diversified portfolio with penny stocks?
6. Will you compare his results to the results of his lifestrategy moderate fund?
7. Is he merely enamored with the notion of buying a stock for 1 penny and hoping it will go to $10 and he'll be rich as rich? What is the likelihood that will happen?
8. Does he understand that often penny stocks are highly manipulated because they're not as well regulated? On message boards it's not uncommon to have people pumping and dumping. Is he aware of what pumping and dumping is? Is he aware that what he's reading could be someone else's attempt to have your son pump up the stock for another's benefit?
9. What amount of money would your son be willing to lose? Is he only going to invest that amount and no more?
10. If he makes money, how much does he think he'll make and what does he plan on doing with that money?
that's my top 10. good dinnertime conversation, don't you think?
sorry, #11. When's he gonna start trading options on margin?
couldn't resist.
Last edited by arcticpineapplecorp. on Tue Sep 28, 2021 2:55 pm, edited 1 time in total.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Teen wants to trade stocks
IMHO, Robinhood is a gambling casino with a mobile app. Gambling can be an addiction. Yeah - daytrading is gambling. It can be very bad if it's with borrowed money or leverage (margin, options, home equity, etc.). Combine the gambling aspect with the scam (almost all penny stocks mentioned in forums with high activity are actually carefully orchestrated pump and dump scams / almost all due diligence posts on penny stocks are scams despite the high word count, esoteric language, and visuals)
I suppose everyone has to learn the hard way. I certainly did in my younger years during the dotcom daytrading boom. He will lose less if the bankroll is small rather than big.
I suppose everyone has to learn the hard way. I certainly did in my younger years during the dotcom daytrading boom. He will lose less if the bankroll is small rather than big.
Re: Teen wants to trade stocks
I think in a controlled environment with protections in place, it could be a learning experience.. but not with penny stocks IMO.. he's just going to get wiped out and the lesson learned there may regrettably be "don't invest."
I'm considering something when my kids get older with specific "rules" in place to nudge them towards success and demonstrate that you can make a lot of money over you life through safe investing. Something like allowing them to pick 2-3 stocks from a few different baskets of low risk stocks (pick 2-3 from this list of tech stocks, retailers, telecoms, etc). You can sell and buy as much as you want (explain trade fees) but need to stick to these baskets.
It's not ideal investing, but which kid is going to enjoy buy and hold low expense ratio ETFs?
You can then review it after some time and show what him what he could have made in VTI.
I'm considering something when my kids get older with specific "rules" in place to nudge them towards success and demonstrate that you can make a lot of money over you life through safe investing. Something like allowing them to pick 2-3 stocks from a few different baskets of low risk stocks (pick 2-3 from this list of tech stocks, retailers, telecoms, etc). You can sell and buy as much as you want (explain trade fees) but need to stick to these baskets.
It's not ideal investing, but which kid is going to enjoy buy and hold low expense ratio ETFs?
You can then review it after some time and show what him what he could have made in VTI.
50% VTI | 20% VXUS | 20% BND | 10% QQQ
Re: Teen wants to trade stocks
I both agree and disagree with this.mhalley wrote: ↑Tue Sep 28, 2021 10:10 am Actually, making money from day trading is the worst thing that could happen. ... But if he makes money due to luck,, then he gets an unrealistic view of how good he is at stock picking, or that stock picking isn’t that hard. This is fine when he is making $50 trades, but later when he is making 50k trades it will bite him in the derrière.
To extend, people whose initial experience with gambling is positive are more likely to gamble over the course of their life and become gambling addicts.
On the flip side it may not bit him in the derrière. Working in this business I do know professional traders and many of them have stories like this. Or adjacent, like trading cards and such. It is akin to your 14 year old that he wants to be in the local play because he is going to make big bucks in acting when he grows up. While actuarial science may be a surer career path than a barista (which is what most actors do) there are those who do hit the succeeded.
As you said, you may have to do this to get it out of his system.
But try to steer him right. Maybe assign him some homework. Here are 2 books. Both are good accessible books for the lay public. If he can't hack these books he is not up for day trading.
Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts by Annie Duke
Against the Gods by Peter L. Bernstein
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: Teen wants to trade stocks
Penny stocks are a snake pit of insiders taking advantage of outsiders. Keep him away from that. There are some great movies that show this from the inside. However they tend to have blue language. Wolf of Wall Street comes to mind. The fictionalized version, "Boiler Room", might be better.
ETFs on the other hand may be too tame for him. He is not going to learn any lessons here. It is decent advice if we were talking investing. I assume we are more interested in learning a life lesson.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: Teen wants to trade stocks
This is why 14 year old kids are not allowed to make decisions. When he becomes 18 and can have an investment account with his own money let him make the decision then.
- Doom&Gloom
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Re: Teen wants to trade stocks
A better path: Encourage him to get his friends to convince their parents to let them do this. He can learn the hard way vicariously.
- arcticpineapplecorp.
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Re: Teen wants to trade stocks
unfortunately:
The rational part of a teen's brain isn't fully developed and won't be until age 25 or so. In fact, recent research has found that adult and teen brains work differently.
https://www.google.com/search?client=fi ... il+mid+20s
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Teen wants to trade stocks
There's a reason minors aren't allowed to trade stocks or gamble. And some people (even some here, I suspect) can become addicted.
How about some board games instead? I don't know if there is a stock trading board game, but that might be a good substitute, until he is out of college. Monopoly and Life are two games I know of where you can rack up a fortune (at least for one night).
How about some board games instead? I don't know if there is a stock trading board game, but that might be a good substitute, until he is out of college. Monopoly and Life are two games I know of where you can rack up a fortune (at least for one night).
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Re: Teen wants to trade stocks
An adult has bills to pay, real money to invest and more to lose by investing in stocks on a whim. So I don't agree this characterization. Of course we would steer adults away from individual stocks. But if a kid want to trade some stocks, let them have it.Doom&Gloom wrote: ↑Tue Sep 28, 2021 1:40 pmI don't find it bizarre at all, but I don't see it as moralizing either.roth evangelist wrote: ↑Tue Sep 28, 2021 12:05 pm Really bizarre that some want to moralize letting teens start trading stocks. Any parent should be thrilled teens are interested in investing, even if it's the "bad" kind. Let them trade with a little money, make mistakes, etc. Give them some guidance and then let them try it out.
This is not the advice that this forum would give an adult newbie poster here asking the same thing that this teen is. Why not? Because of the magic of being 21 years old?
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Re: Teen wants to trade stocks
I respect everyone on here for their vast knowledge and experience, but I have to laugh with people comparing buying stocks to doing drugs, and committing crimes. The kid actually wants to invest, NOT waste his money on video games, expensive gear or other questionable purchases. Why are we discouraging this?
Why is buying stocks likely to lead to some sort of gambling problem, but buying mutual funds would not? What if, can you imagine the horror, instead of purchasing stocks he purchased index funds and they went up in value? It might lead to a lifetime of uncontrollable purchasing of such funds, using all of his available money to fund this uncontrollable urge to purchase them, to the detriment of his schooling, housing, food, etc?
Why is buying stocks likely to lead to some sort of gambling problem, but buying mutual funds would not? What if, can you imagine the horror, instead of purchasing stocks he purchased index funds and they went up in value? It might lead to a lifetime of uncontrollable purchasing of such funds, using all of his available money to fund this uncontrollable urge to purchase them, to the detriment of his schooling, housing, food, etc?