Episode 35: Guide to Getting Teens Started With Dividend Investing

Simply Investing Dividend Podcast Episode 35 - Guide for Teens to Start Investing

Audio only version is available here, and on all your favorite podcast players. Transcript available here.

Want to set your kids up for a lifetime of financial success? In this episode, I show you how to get your kids/teens started with dividend investing.

I break down the concept of dividend stocks and their potential to more than double your initial investment. You'll also learn the basics of teen investing, such as the type of account needed, how to open them, and where to invest. By the end of this episode, you'll have a solid understanding of how to help your teenager start investing in dividend stocks and set them up for a successful financial future. Don't miss this opportunity to empower your kids with the knowledge and tools needed for a lifetime of smart investing decisions!

I cover the following topics in this episode:

- Why should kids/teenagers invest?
- The benefits of investing early, how Jill earned $586K more than Jack
- What should you invest in?
- How a $2,775 investment in McDonald's is worth more than $34K today
- How can you invest?
- Where should you invest?

Complete Transcript


In this episode, i'm going to show you how to get your kids or teenagers started with dividend investing. Hi, my name is Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. In this episode, we're going to cover four topics. Topic number one why should your kids or teenagers start investing? Topic number two as a teenager, what should you invest in? Then we're going to cover how can you start investing. And then, lastly, we're going to cover where should you invest your money?


Let's get started with topic number one Why should your kids or teenagers start investing? And the biggest answer you're going to get if you ask that to your children is the same answer you'll get when you ask investors why do we, as investors, invest? And the number one reason is to earn money. Now, why do you want to earn money? Now? there's lots of reasons for that. You're going to have your own personal reasons for that, but as a teenager, as a youngster there's I'm going to get to the reason of why but there's a lot of additional benefits that come from starting to invest when you're young. So one of the things is, you will learn how to manage your money and you are going to get comfortable with money as you start investing, you're going to learn patience and discipline when it comes to investing. You're also going to learn how investing can grow your money over time And with additional money, you can then also help others. I know a lot of teenagers who are passionate, who are passionate about different things, whether it's the climate, whether it's helping society. So, with additional money that you're investing, you can then donate to charities, for example, and that's a way of helping others. And then, ultimately, for teenagers especially and I guess even for adults is to be able to pay for things. So, whether it's clothing, shoes, pay for an education, pay for travel, the more money you have, the more you'll be able to do any of these things, to do all of these things Essentially, at the end of the day, being able to earn money from your investments is going to give you freedom and independence over time.


Now, another reason to start investing early especially if you're a teenager and you're watching this and I hope you are for any parents that are watching this bring your kids over, bring your teenagers over and watch this episode together. So another reason to start investing early for teenagers is because of one huge benefit that you have as a teenager over any of the adults, and that biggest benefit is the benefit of time, and I always say this in all of my videos and in my courses the earlier you start, the better off you will be when it comes to investing, especially in dividend stocks. And, as a teenager, your biggest benefit is time. Because you're young, you can invest for a much longer period of time in the stock market. Now there's three things you need to be a successful investor. Number one you have to have knowledge of how to invest and what to invest in, and I'm going to cover that in today's episode. Number two money. It takes money to make money. The more money you have, the more you can invest and the more money you will make. Now, as a teenager, you're probably not going to have a lot of money when you're starting off, especially when you're young. But the biggest advantage, which I already mentioned I'm going to mention it again is time. The earlier you start, the better off you will be as an investor.


Now let me give you an example in case you might not be convinced. Why is time so important? So let's take a look at this example of starting early versus starting later. So we're going to look at an example with Jack and Jill. So Jack starts investing at the age of 25 because he's waiting until he finishes school and gets a job and starts his career, and so he's going to start investing at the age of 25. Jill started investing when she was a teenager, so she started when she was 15. And we're going to get into how much money you need to start and all that And believe me, it's not a lot. But for now let's just stick with our story here. So Jack starts when he's 25. Jill starts when she's only 15 years old. Now, in this example we're going to keep it simple. So we're going to assume the annual rate of return over the long term is 10% And that's pretty much in line with the stock market return. If you look at the entire history of the stock market in the last 75, 80 years, you'll see that overall the rate of return has been anywhere from 8.5% to 11%, so 12%. So we're going to take 10. So overall average annual rate of return 10%. So it's the same for both Jack and Jill. They're going to earn 10% over the long term.


Now Jack, because he's 25 and he's older, is able to invest $100 a month. Now Jill is only 15, she doesn't have as much money. She's going to start by investing $80 a month. Now, at the age of 65, jack will have invested over the last 40 years. So if you take $100 a month, multiply it by 40 years, you can see that Jack has invested a total amount of $48,000.


Now Jill started when she was 15, so she's investing for 50 years. So when she turns 65, she's had 50 years to invest a lot more than Jack. But she's only investing $80 a month. So if we take $80 a month, multiply it over 50 years, you can see that Jill is also investing $48,000 total. So both Jack and Jill have invested the same amount of money. The only difference is Jill started when she was 15,. Jack started when he was 25. Now can you think or guess at how much money they will have at the age of 65? Jack will end up with a total portfolio worth a little over half a million dollars, so $531,000 portfolio. So that's pretty good. But take a look at how much Jill's portfolio is going to be worth When she turns 65, her portfolio will be worth over $1.1 million dollars. That is a huge difference. In fact, the difference is almost $600,000, $586,240 to be exact. So that's over half a million dollars, and the only difference is Jill started investing when she was early. So I'm trying to emphasize this point because it makes a huge difference and the numbers are even much bigger as you progress through your career, in your 20s, in your 30s, in your 40s, and you start investing more money. The difference is going to compound And the benefit here is compound investing. I mean you're taking your money, you're investing it every month, you're reinvesting the dividends which we're going to get to in a minute, and that is how Jill ends up with $1.1 million dollars portfolio. Jack ends up with a half a million dollar portfolio. So, very important start early, the sooner the better.


The other thing I want to touch on is investing versus buying stuff or buying things, and I know as teenagers, even as adults, there's that urge to spend the money. If you have money, most people sort of the default is to go out and spend it and buy things with it. It could be a smartphone, it could be a TV, a vacation clothes, shoes, whatever you would like. So in this example, you know typical average price of smartphones these days, sort of the iPhones that are out there. You're looking at $1,200 to buy a brand new phone. And imagine if you had $1,200, and you put that and you bought a phone. Well, in eight years that phone is going to be worth zero. It might be worth maybe $100, maybe $20, but essentially it's going to drop to zero.


And that happens with everything. Happens. If you buy shoes, clothing, a television, a video games. Over time those things are going to be worth less and less and less. So now you have to make a decision. You've got money. Do you buy things with it Or do you invest it? So let's see what happens.


If you were to take the $1,200, put it into a dividend stock, in eight years your money is going to almost double. It's going to be worth a little over $2,200. On average. I've been doing this for over 25 years, probably 27 years now. Sorry, i've been doing it for a very, very long time And I can tell you from experience as the dividends come in, as the dividends start to grow and as the stock prices go up, your investment is going to be worth a lot more.


And then look at this example here. I mean, I know everybody still needs a smartphone. Probably don't have to spend $1,200 to buy one, but with your investments starting to grow and starting to give you more money, then in the future, you do have the ability to go out and buy the expensive phone if you want and you are not touching your original investment. It still continues to grow for you. So two things to remember here start early. The sooner the better, even if you're an adult watching this or a teenager. The sooner you start, the better off you're going to be, because of compounding, your money is going to be worth a lot more. Your investment is going to grow.


Number two invest in growing assets. So invest in things that are going to grow in value and that are going to generate money for you. So, for example, no surprise dividend stocks, because that's when I am a dividend investor and that's what I teach is dividend investing. So a dividend stock is a growing asset. It's a revenue generating asset versus buying things like a smartphone or the latest laptop or video games or clothing or whatever. Those are just things. I'm going to put cars in there too. They're just things and they depreciate over time, whereas dividend stocks will grow over time. So two things I want you to remember from this slide is start early. And number two invest in revenue generating assets that are going to grow.


All right, let's get to our next topic. As a teenager, what should you invest in? What I teach and you can see it up on the screen here is I want you to focus on investing in quality dividend stocks. Not just any stock, quality dividend stocks when they're priced low. So let's start with stocks.


What is a stock or a share? People will say I have shares in a company or I have stock in a company. So what does that really mean? So a share in a stock, for the purpose of this episode, means the exact exact same thing. A stock or a share represents ownership in a company. So, for example, coca-cola has billions of shares out there. If you were to buy all of them, you would own the entire company. Legally, you would own the entire company, because that's what a share or a stock is It represents ownership in a company. So I want you to think of it that way When you invest in dividend stocks.


Think of buying a little piece of a company. And that's what you're doing is you're buying a little piece of a company And, as part owner of the company, you're entitled to share in the profits of that company, and those profits come to you in the form of dividends. So that's the next word up on the screen is a dividend. So what is a dividend? I've mentioned it a couple of slides earlier on, but now we're going to get right into it. So a dividend is, like I said, the company sharing its profits with you, the shareholder. So, for example, if a company is giving a dividend of $1 per share, you own a thousand shares. You will receive $1,000 every year for as long as you own those shares and as long as the company continues to pay the dividend.


So a dividend is just a fancy name for the money coming to you as cash. The dividends get deposited directly into your trading account as cash and you can spend them if you wish, or you can reinvest them. So it's entirely up to you. And here's the icing on the cake. The dividends that you receive are regardless of what happens to the stock price. Stock prices go up and down all the time. We have market crashes, we have recessions. Things go up, things come down. But dividends and you're going to see in a couple of minutes why the dividends will keep coming to you as long as you own those shares and you don't have to do any extra work. As long as you hold on to those shares, as long as they're under your name, you will receive those dividends as a shareholder.


So now let's take a look at some real life examples. So you can see three companies on the screen here. Apple today, as of this recording, has an annual dividend of $0.96 per share. Coca-cola has a $1.84 dividend and McDonald's has a dividend of $0.068 per share. Now you might be looking at these numbers and thinking well, i can't get rich off of these numbers. This is not a lot of money. In the case of Apple, they make great products, love the iPhone, but if you take a look at their dividend, it's $0.96. Now it's $0.96 per share per year. So you have to hold on to those shares for a year just to get the $0.96. So now it doesn't seem like a lot of money, but over time it makes a huge difference.


So let me give you a real life example. So let's say you purchased 100 shares in McDonald's. We're going to stick with McDonald's in this example. So you purchased 100 shares in McDonald's back in 2005. Well, back in 2005, the dividend was $0.67 per share. So in the first year you made $67 in dividends. The dividend got increased every single year. So we're going to jump to 2010. The dividend was $2.26.


In that year, you now made $226 in dividends. So remember we started at $67. Now we're making $226. Now the dividend kept going up. In 2015, it was $3.44. Dividend kept going up and it kept going up. The dividend today, as of this recording, is $6.08 per share.


So remember, you still own the 100 shares in this example. You haven't sold any shares. You haven't bought any more. You just hold on to the 100 shares. In this year, you will make $608 in dividends.


Now, this is incredible. The dividend has gone up since 2005,. Has increased by more than 807%. So what happens? every time the dividend goes up, you make more money. There's more money in your pocket, so you start off with this much money in your pocket. Then the dividend goes up, so you make more. The dividend goes up. Every time the company increases its dividend, you are making more money. In fact, in this example, since 2005, those 100 shares that you bought back in 2005 would have given you over $6,200 in dividends.


What was your original investment? How much did you originally put in to buy those shares? Well, you can see it up on the screen right there A hundred shares and the price at the time was $27.75. So your total cost, your total investment, was $2,775. However, the company has given you over $6,200 in dividends. So that's incredible. You have more than doubled your investment just from the dividends And you still own those shares. Now, if we add up the cost of the shares today which they're trading at, i believe they're at over $282 a share. So if we add in the cost of the shares today plus the dividends received since 2005, your total investment today would be worth over $34,000. So that is incredible. You started off with $2,775 investment and today it is worth over $34,000. So that is the power of dividends.


Coca-cola sorry, mcdonald's. Coca-cola also has an impressive record. I'll get to in a second. Mcdonald's has increased dividends consecutively for the last 46 years. Now Coca-Cola, i believe, is at over 52 years of consecutive dividend increases. Think about how many market crashes we've had in the last 46 years, the last 50 years, how many market downturns we've had, but yet companies like these have continued to raise their dividend every single year And every time they raise it. That's more money for you.


Now let's finish off our last part of that sentence, which was investing in quality dividend stocks when they're priced low. So why do you wanna buy a stock when it's priced low? So stock prices go up and down all the time, and you can see it up on the screen. Here We have an example of a stock that's gone up and down. When the stock price is low historically low the shares are at $14, when it's historically high, they're at 51. There's no point in buying the stock at $51 a share, or even at $49, or at $60. Why? Because it is already high. If you buy it at that price, the chances of it going even higher in the future are slim, because the stock is already historically priced high. So that's how we wanna buy it when the stock is low, if you can buy it at $14, and then eventually, a couple of years, you can sell it at 51. So that's how you can make a profit. The other benefit as a dividend investor is when the stock price is low, i can buy more shares. So remember the dividends are paid based on the number of shares you own. So if you can buy more shares when the stock price is low, you can make more money in dividends as well. So how do you know, when you're looking at a stock, if it's a quality stock and how do you know if it's priced low? Well, to help you answer that, i've created what I call the 12 rules of simply investing. You can see all the rules up on the screen here. I'm not gonna read them out just yet. I know some of you are listening to the audio version. I will read the 12 rules, but a little later in the presentation. So for now, just know that these rules are here. Think of it as a checklist Before you invest in any company, make sure that it passes all of the 12 rules on the screen. Okay, like I said, i'm gonna come back and read those out for you a little later in the episode. But let's continue with our third topic.


As a teenager, how can you start investing? So the one thing you need to know is The concept or the type of account you need. I think it's a better way to put. It is a trading account, so it's similar to a bank account. You can put money in the bank account and you can take money out. In a trading account, you can do the same thing. You put money in the trading account. You can take money out of the trading account. The biggest difference is in the trading account, you can buy, hold and sell shares, so stocks and companies. So, generally speaking and I'm speaking with experience from in the US and Canada, i'm sure it's the same all over the world In order to open a trading account, you have to be of legal age Here it's 18, so you gotta be 18 years of age at least to be able to open up a trading account.


Now if you're a teenager, obviously you're not at that age yet, so you will not be able to open up a trading account. So here is where you're gonna need some help from your parents and I'm gonna show you how they can help you get started to invest in dividend stocks. So your parents will probably already have a trading account. If not, they're gonna go have, they're going to have to get one and open up a trading account. There's a lot of brokerage companies out there. There's the large banks that offer trading accounts. So one of your parents can go out and open up a trading account and then they'll get an account number, same as like a bank account. So you'll have an account number and it'll be under your parents' name And then they can buy and sell and hold stocks in that account, and some of them already are. Some of your parents might already be doing this. What they need to do is open up a second account and the banks they will allow that right. They'll let you open up another account. It'll have its own account number. It'll be a separate account and that's what I recommend.


If you're gonna invest for your children and you've got teenagers or kids in the home who wanna get started, open up a second account and then your kids can give you the money to invest and you will then invest that on their behalf And that will all happen in the second account. So you will deposit the money in there, then you can buy stocks, the dividends will come in and they will stay in that second account and the money will stay there and you can buy and sell stocks in that second account And then, when your child is 18 years of age or over, they can open up their own trading account and then you can transfer the stocks that are in this second account and then move it over. So that's the best way to do it and it's the best way to get your kids to start investing And keep them involved. The kids, the teenagers, you all have to stay involved. You know, sit down with your parents, figure out I'm gonna show you the 12 rules later in the slide here But the 12 rules are figure out which stocks you wanna buy, what you wanna invest in, and you can then start doing that through your parents' account.


The next question I get is how much money do I need to start investing? And you can start with as little as $100, $200, right, but I recommend start with $500 is a good place to start, but you could certainly, like I said, start at $100 or $200. When you've got enough money you're ready to invest. Then your parents can put that money in a separate trading account and then you can start buying and selling stocks there. Now, keep in mind, when you start off in the beginning, it's gonna be small, like I said, $500,. You start with that first and then, as the dividends start coming in from those stocks that you have, the amount of money that's in that account is gonna grow. And then, if you're a teenager, you're working in the summers or you have a part-time job or you've got money coming in from grandparents birthday gifts, you can take all that money, put it in the account and, with the dividends. You can now buy more stocks over time.


And the last topic here is where should you invest? And this question I get a lot from parents mostly, but from teenagers as well is where should you invest? Should you invest in other countries? Should you look at other stock markets, internationally, for example? and I'm gonna keep things very simple. I'm going to keep it very simple. When you're starting off And here's sort of the answer where to invest Start with your country that you're in. So I'm in Canada, start with Canadian stocks. If you're in the US, start with US stocks. If you're in the UK, start with UK stocks. So start with the country you are in.


Now, when you start looking at international investing, it gets a little bit more common, more complicated. You have to understand the country you're investing in, the companies that are traded on that stock exchange. There's going to be additional fees, of course, to buy stocks internationally, and then you really have to do your homework. The 12 rules work for any stock anywhere in the world. So you can certainly apply the 12 rules, but for now I would say avoid all of that. Stick with the country you are in, start locally.


Now take a look at some of the companies up on the screen here Coca-Cola operates in over 190 countries, mcdonald's over 119 countries, johnson Johnson over 60 countries. So these companies, even though they're US and Canadian companies like Royal Bank, for example, is a Canadian bank these companies operate all over the world And they have departments staffed with financial experts, accountants, business individuals whose only job is to make sure that the company maximizes its earnings all over the world. So, whether there's currency fluctuations, whether there's governmental changes, the laws change from one country to the next, the trade agreements will change sometimes. So let them let the experts deal with all of that. You don't need to worry about any of that. Just by investing in these companies, which I refer to as international companies.


So by investing on these companies, like the example I've shown you on the screen, you're already investing internationally. So don't be too concerned about looking at other stock markets in other countries. Yes, i know there's emerging markets. There's countries that are developing faster than other ones. They're growing a lot faster, but it's going to be time intensive and a lot of risk for you to go and do all that research. So the simple answer is where should you invest? Start with your country. If you're in Canada or the US. I know I have a lot of clients in these two countries. A majority of them invest both in US stocks and in Canadian stocks. That's going to give you enough diversification between those two markets and because you're investing in international countries, you are getting international exposure.


Okay, so our approach here at Simply Investing, my approach, is to help you invest safely and reliably for the long term, for long term investors. We don't think in terms of weeks, months, days. We think in terms of decades. We want to own companies that are high quality, profitable companies and we want to own them for the long term. You saw my example.


Previously in this episode. I talked about the McDonald's example $2,700 investment is now worth over $34,000. How did we get there? We invested in a company that had a long term track record of profitability and we invested safely and reliably and we were patient. So you have to be disciplined and patient to do this.


So our approach, like I showed you before, is to invest in quality dividend stocks when they're price low. And how do you know, when you're looking at a stock, if it's a quality stock and if it's price low? Well, so for that I created the 12 rules of simply investing And, like I said before, this is your checklist. A company has to pass all of the 12 rules before you invest in it. If there's one failure, skip it, move on to something else. And, for those of you who are interested, i cover this in the Simply Investing course in detail. We also give you a Google Sheet, a spreadsheet that you can fill out, and then you can apply the 12 rules to any stock anywhere in the world, and we have a self-paced course that I've developed and we take it. Take you through the 12 rules Now. For those of you that are listening to this podcast, i'm going to go through the 12 rules right now.


Rule number one do you understand how the company is making money? If you don't, skip it, move on to something else. Rule number two 20 years from now, will people still need its products and services? Right, we want to invest in companies that are going to be around for the long term. If not, skip it, move on to something else.


Rule number three does a company have a low-cost competitive advantage? Rule number four is the company recession-proof? Rule number five is the company profitable? Rule number six does the company grow the dividend? We're dividend investors. We want to see the dividend going up every year? Rule number seven can the company afford to pay a dividend? If not, skip it, move on to something else. Rule number eight is the debt less than 70%. Rule number nine avoid companies with recent dividend cuts.


Rule number ten does the company buy back its own shares? Rule number eleven is the stock priced low? So there's three things we check here. We look at the P-e ratio, we look at the current yield dividend yield compared to the average dividend yield and we look at the P-b ratio, the price-to-book value. So we're going to look at those three things to figure out if a stock is priced low. And rule number twelve has nothing to do with stocks, nothing to do with looking at financial data.


Rule number twelve says keep your emotions out of investing. So stay disciplined and patient. We are going to have stock markets that go down recessions, but you have to have the patience to ride out that downturn and then wait for the market to come back up again. Now, in the meantime, while you're just holding on to your shares, you are getting paid. The company is paying you a dividend for owning shares, and that's the great thing with dividends. Without the dividend, you're only hoping for the stock price to keep going up Forever And hope is not going to cover your expenses and the things you want to buy with money. Dividends can cover that For those of you that are interested.


Let me just finish off the last slide here on the course itself. The course comes in ten modules, so we cover investing basics, cover the twelve rules, show you how to apply the twelve rules, show you how to use a simply investing platform. I show you how to place your first stock order. Then you learn how to build and track your portfolio. Then you learn very important just as important as knowing when to buy a stock is knowing when to sell. So we cover that in that module. The next module we cover reducing your fees and risk. Especially if you're investing in ETFs, income funds or mutual funds. The fees are huge, so we're going to show you how to avoid paying those fees. And then in the next module, we talk about your action plan on how to get started. And then, the last module, we finish off by answering your most frequently asked questions.


Now, for those of you that are interested, if you want to go a lot quicker, this is a great introduction, also for any young investors is to take a look at the simply investing platform. I spent over two years building the platform, and what the platform does is it applies the rules to over 6000 companies in the US and in Canada every single day. So you can see immediately. When you log into the website, it'll show you which stocks are quality stocks, which ones are undervalued, and then which ones are overvalued, that are priced too high And maybe you need to you should avoid those if they're overvalued. And it'll show you which company passes which of the rules, and so you can immediately see. For example, rule number eight says the debt has to be less than 70%. If it's higher than 70, we'll show you what that number is and we'll show you which company fails that rule. So the platform does that for you.


For those of you listening to this podcast or watching, if you're interested, write down the coupon code. You can save 10% off of all of our products. The course, the platform. I also do one on one coaching sessions and a personal assessments. Take a look at your current investments or to get you started And especially if you are a young person teenager you just want to get started with the help of your parents. I can certainly do that one on one, and so the coupon code is save 10. S-a-v-e one zero, save 10. If you use that, you'll be able to save 10% off of all of our products and services. If you enjoyed this episode, be sure to hit the subscribe button. Hit the like button as well. We have new episodes out every week And for more information, take a look at our website, simplyinvestingcom. Thanks for watching.
Episode 34: What is Real Total Return?
Episode 36: Are You A Speculator or an Investor?

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