EarlyBird Webinar: 5 Questions Every Parent Should Ask Before Investing

On Tuesday, January 31, EarlyBird held the first installment of the new monthly webinar series. On the last Tuesday of every month, the team will host a 30-minute interactive webinar with the goal of bringing the community together, sharing knowledge, and helping everyone involved feel energized and charged up for the rest of their week. Community building between everyone in the EarlyBird family is a main priority for the team this year, from brand new parents just starting to invest, to grandparents with years of experience. EarlyBird knows we all share the goal of building a better financial future for the next generation, and the team hopes these webinars will facilitate connections and bring assurance and clarity in the face of the uncertainty in the financial market right now. 

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(Financial) Knowledge Is Power

Before diving into this month’s topic, EarlyBird CEO Jordan Wexler went through some financial background. American families right now are generally set up for some major challenges over the five to ten years. The biggest reason that we believe in EarlyBird is that 66% of American adults consider themselves financially illiterate. Unfortunately, there's always been a stigma around money and finance, but that has begun to change in recent years. We are now at a point where there's so much information available to us, and it’s critically important to both take advantage of and share it with our kids. 

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Beyond using EarlyBird to start investing in your kids, it is so important to model good financial behaviors for your child and secure your own financial future. Our children are sponges: they react to what they see, and they also listen deeply to what we share. We recommend starting conversations about money early with your kids. Don’t be afraid to jump in! What is money? Why is it important? What is investing? What are we investing in? There are lots of tools to support your own financial health that EarlyBird likes and some that we have partnered with in different ways:

• Wealthfront and Betterment: great tools for beginning an investment journey, has a lot of fixed management portfolios
• Robinhood: a self-directed investing platform
• Zeta: a tool for couples to balance budgets and expenses
• Mint: allows the user to consolidate your bank accounts to oversee balances in one place

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Now that we’re thinking about our finances and goals, let’s dive into this month’s webinar topic, “5 Questions Every Parent Should Ask When Starting To Invest.” The questions covered are:

1. What is the difference between a custodial investment account and a 529 plan?
2. What is dollar cost averaging? Why is it important? How can I ensure I’m doing it correctly?
3. How do I diversify my portfolio in my different assets, from a holistic perspective?
4. How can I maximize the power of compound interest and minimize taxes where possible?
5. What are the most important things to be aware of during this time of potential recession/bear market?

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Custodial Investment Accounts and 529 Plans

These are two critically important investment vehicles in your larger portfolio, one is not necessarily better than the other. As a parent, think about the future and your priorities for your children. 

• Do you think that higher education is vital, and want to save towards that expense? A 529 plan is likely a good place to start, in that case. These plans vary state by state, and generally are packaged, so the investor has very little flexibility. The money that goes into these accounts can only be spent on higher education, but it will be fully tax exempt.

• A custodial investment account is a great option for parents who want complete financial flexibility - an investment account you can open for your baby that will become their primary brokerage account. When your child is old enough, they will take control of the balance and be able to use it towards anything they want: college, traveling, a home, or maybe a wedding! This is the kind of account that you create through EarlyBird.

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Dollar Cost Averaging

• This is a pretty simple concept, but taking advantage of it can lead to much larger returns on your investments. For example: if you invest $8,000 in January, over the course of the next 8 months the market will fluctuate, with the price of your stock going up and down. Over the course of these months, the fluctuation will ultimately lead to a net $0 return. Dollar cost averaging states that if you invest a specific amount each week or month you will have bought on the up and the down and ultimately averaged out so over the same 8-month period you will see a 4% return on the same investment amount. This concept basically emphasizes the importance of consistent, long-term investing.

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Diversifying Your Portfolio

• Diversification is the idea that instead of going all in on one idea or one investment or investment strategy, you look at investing holistically, at where are how you can put your money to work. No one can predict what will “win” in the next 20 years, and spreading out your assets gives you more chances to hit. ETFs, or exchange traded funds, are baskets of funds or stocks that allow you to invest in a specific industry or area and make returns on the entire group of stocks rather than relying on a single company, which can be volatile. Bonds are another great option for diversification for those who have a lower risk tolerance. Bonds have a lot less fluctuation, but also less return. The investment accounts mentioned above are also tools for diversification, as well as things like real estate and private markets. The bottom line is: if your money is sitting in the bank, it’s not working for you. It’s important to explore all the investment options out there.

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Maximizing the Power of Compound Interest

• Time is the most important factor when it comes to considering how and when to invest. The earlier you start, the more you will have in the future! If you invested $20 a month starting at day one for your child, how much do you think they would get when they were 18? 60? 70? At 18 years old, they would have about $12,000. At 60 years old, you're looking at almost $1,000,000. That means that if you started investing for your child today at just $20 a month and you stayed consistent, by the age of 70, they would have almost $2.5 million to be able to retire on.

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What To Be Aware Of During a Bear Market

• A bear market is defined as a 20% dip in the market, and it is actually a common occurrence, since the market goes up and down over time (although there is an average gain of 8-10%). So although we saw a large decrease in 2022, historical trends tell us that it will return to a bull market (gain at least 20%) and investors will see continuous gains. Thinking back to dollar cost averaging - if you stay consistent and keep your fears in check, you will see a good return on investment over time. 

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