How can my grandson turn $100 into $1,000 like his friend did in the stock market?[ Edited ]
My grandson who is 16 years old has a friend who invested in the stock markets with $100 and by the end of the year it was $1000. He wants to do the same. How do we set up an account with him. We adopted him a few years ago and have a bank account with him. Since I'm 66 I will be collecting Social Security this year and he also will be getting some funds till he becomes 18 years old.
I LOVE the idea of introducing your 16 year old grandson to the world of investing! With the growth potential inherent in market-based investing and his young age, he’s got the opportunity to accumulate some serious cash for his long-term future.
Having said that, I really think our first step here is to adjust your grandson’s expectations of how the markets work. What he’s witnessed so far is the equivalent of his friend walking into a casino, putting one quarter a slot machine, and hitting the jackpot. Sure, he won THIS time but that doesn’t mean he will every time. The truth is, your grandson’s friend did more gambling than investing and his success was probably due more to luck than anything. Just as every contribution to a slot machine won’t return riches to the owner, neither will every stock. Your grandson’s friend could have just as easily watched his $100 turn into $10. Sometimes you win, and sometimes you lose. That’s just the way slot machines and individual stocks work.
An Alternative Approach
That’s not to say that your grandson should stay away from investing. As a matter fact, if he’s got a long time horizon before he plans to use the money (at least 5 years, preferably 10 years or longer if he’s using stock-based investments) and he invests in a diversified portfolio, then investing can be a great approach for him to take. Again though, it’s not about trying to hit the jackpot – we all know what that often leads to. Instead, it’s about taking calculated risks with his money in an attempt to earn more on it than he would if he kept it in more safe and secure vehicles.
Finally, because your grandson isn’t yet old enough to open accounts and invest on his own, you’re best approach here might be to open a Uniformed Gifts/Transfers to Minors account for him with you as custodian. Once he turns the age of majority in your state he’ll be able to do whatever he wants with the money but this would give you an account to help him with in the interim. For help with establishing this type of account as well as some guidance on prudent investing strategies for your grandson to explore, I encourage you to contact our team of Financial Advisors here at USAA. They can be reached at 800-771-9960.
Thanks so much for your question. I hope these thoughts are helpful and I wish you and your grandson all the best!