Every two years I write about a portfolio that my two teenagers constructed when they were just tweens, and here’s the link to the original article. We are revisiting that portfolio one last time and sharing the performance. The total returns as of January 31, 2016 are 108% over 5 years or 15.85% yoy returns and you can see here how their money grew from $25,000 to $52,000 plus.

Let’s compare this to the hedge fund world that devours 2% fees and 20% of profits. The average hedge fund blows up before it even makes the 5 year mark and the ones that survive have a paltry average hovering around 2.65% yoy returns. Clearly the chump is anyone investing with hedge fund managers.  In fact the wealthiest investors are fleeing the private wealth industry looking for value investing in the arms of pedestrian, low fee robo-advisors.

While it’s great blog fodder to compare, there are some teachable moments from these five years that I’d like to share with other teenagers and adults who are self-directed investors.

  • We chose a strategy and stuck with it through the highs and lows, keeping speculation to a low roar and using dividends and some gains to rebalance their portfolio.
  • We spent far more time discussing the state of their bedrooms than the state of their portfolio.  Once the strategy was set, around 15-20 minutes a year was spent discussing their investments.
  • At the beginning my kids use to look to me to lead discussions. Now they tell me to leave the room so they can decide what to do with “their money”. This is the best way to use an advisor - tactically, so own your decisions. If emotional hang-ups about money limit your ownership of financial decisions, find a therapist before you seek out a financial advisor.
  • Their total fees for this entire exercise that yielded 15.85% yoy annualized returns came to a little under US$100 or .0019 (.19%) in total. You do not need to blow a wad on expensive advisors or funds to make money. Obviously.
  • The two sharpest moves related to this portfolio:
    • When my daughter chose Costco over Walmart for reasons of "ethics", namely Costco does not sell guns (and frankly he's the only CEO in America I'd trust to look after my children).
    • My son, researching and recommending we buy Dr. Pepper and Nike. Buy what you understand and check the financials.
  • The two funniest comments:
    • “I can’t believe anyone gets paid to do this for a living.”
    • “Do we seriously have to spend all this money on college?”

As my teens near college their investment “time horizon” gets shorter, so they will cash out the initial US$25,000 investment, while letting the rest continue to invest. And it is on this exact issue of college I will wrap up this newsletter.

Parents spend an astounding amount of time, energy and money trying to finagle their children into Ivy league schools. Parents want bragging rights; parents are Tiger Mother-ed by peers into a myopic competitive frenzy; and parents actually believe the only way to create wealth any more is via the Ivy league network.

It is no wonder the rate of freshmen suicides escalate every year, and it’s no wonder Ivy league schools are changing their admissions policies (I can just about hear Tiger Mothers the world over wondering what is meant by a meaningful experience..).  Reality is that there will always only be so many seats at an Ivy league school.  Yet anyone on earth can learn to invest their own money. So I’m going to let you in on a perspective.  The most financially secure people I’ve seen in 25 years fall into these categories:

  • People who inherit wealth and who understand how to invest their money
  • People who built businesses from the ground up
  • People from broad walks of life who have steady incomes, including teachers and librarians, who know how to invest their own money

Some of the most highly educated among us, those who hold “esteemed” jobs, often work longer hours and have lower net worth than public university graduates who handle their own investments. Thus the keys to the financial kingdom are true financial literacy and in having multiple income streams, your job being just one of them.

After 10 years of work, no one cares if you went to an Ivy league school. It’s what you do in those 10 years after college that matter most.  If you are not inheriting dynastic wealth, develop knowledge, contacts and skills that make you indispensable, and then learn as early as you can to invest your own money.

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