It’s a new year and why not give your children a gift they really deserve in 2022, writes Peter Watson.
The gift: a mutual fund that invests in a broadly diversified portfolio of stocks around the world.
Why is this important? It is not money, but rather the educational experience of owning an investment.
The key is allowing your child to watch their investment fluctuate in value. Investment statements should also be given to your child.
The most important opportunity to learn is when the value of their investment declines.
They need to understand that some years of losing are just part of the game. This knowledge will be helpful when they are an adult.
One of the most significant risks of investing is human behaviour. People are thrilled to buy investments when the market is doing well. Then when the markets go down in value and you have lost money, many investors sell.
Over the past decades in both Canada and the United States research has been done to evaluate investor success. The stock markets do well, unfortunately investors do not.
The problem is expectations. If you don’t fully understand and expect that some years stock values will decline, then when that happens it is very easy to panic and sell.
After selling those investors sit on the side lines and watch the markets go on to fully recover but they do not participate in those gains.
It’s all about managing expectations.
That is your gift as a parent to your children.
Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments – www.watsoninvestments.com
