When should people start to invest?

Schwab Pomerantz started investing with her sons when they were 12 years old.
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TRANSCRIPT

Question: When should people start to invest?

 

Carrie Schwab: I have teenage boys. I started investing with them, when they were twelve years old. So, ideally the best time is when they are teenagers.

I am big believer that those people who have been exposed to investing in an early age are going to be much more comfortable with the whole process as adults.

Ideally parents start teaching their kids when they are teenagers. Open up a custodian brokerage account. Help them choose stocks and mutual funds and watch them; to be a part of the process.

But that is not always the case, because what we found from our studies is that so many adults are not equipped to make sound financial decisions. Their parents didn’t talk about it, their schools didn’t teach them. And so they are not in a position to teach their own kids.

So the second best place to start investing, is when you become in the workforce. When you are 22 years old and you work for the corporation that offers a 401K. In fact, our studies show that that’s really when people begin to learn to invest, but then it is up to the corporation to provide financial education, literacy and encourage their employees to take advantage of this retirement vehicle.

 

Question: What approach should young people take towards investing?

 

Carrie Schwab: Because young people have more time to weather the ups and downs of the stock market, they are in a much better position to take on more risk. With little more risk, get a little more reward. And that would be a reason to take on more risk.

But again it really depend on how much you can stomach it. Can you sleep at night when there are bigger dips in the market. Because if you do have a bigger percentage of stocks in your portfolio, and we have a big down market, that your portfolio is going to react more so than say if you had less stock and more bonds.

But again, over the long term, history shows that if you take on a little more risk, you are going to get more return. But keep in mind there is a sweet spot, where if you take on a little bit too much risk, you are not going to get that much more return.

Consider at the very least, I am going to say for a young person in their 20s, I would say, and again it is very personal, at least 80% in a diversified stock portfolio for their retirement accoun, or for those account that they know they are not going to touch, and they are going to build upon over, say, the next 40 years.

 

Recorded on: March 27, 2008