It is that time of year when thousands of matriculants are writing their final exams and will soon have to enter the world of personal choice regarding what to study or where to work. It is also that time of year when parents have to consider what Christmas presents to buy their children. At JWR we understand that an 18-year-old does not want to get advice about their financial future, especially from their parents. They consider themselves to be bullet-proof and they are confident that they will be the best at whatever they do. But there are some very basic truths which they can take to heart if they wish to ensure a very solid foundation on which to build their future financial lives.
With this in mind, I approached my girlfriend’s son last Christmas and told him my present to him would not be something cool, but something valuable. I told him I would invest an amount of R20 000 in any share he chose and after twelve months he could have any profit earned. To cut a long story short, I bought him shares in a pharmaceutical company in the USA and when the rand dropped to almost R20/$ in April and the company profited from Covid, I sold the shares at a R5 000 profit.
It is important to note, however, that the gift I wanted to give him was not the fact that trading in shares could be very profitable, because more often than not it can be very destructive. The valuable lesson he had to learn was to respect the power of investing. For many people it is very easy to make a lot of money and even easier to spend it all on their lifestyle. As a parent, you cannot expect a teenager to appreciate the fact that making a lot of money by working hard is not necessarily going to guarantee them a financially independent future. They have to understand that they must ensure that the money they earn, continue to earn them even more money while they are just getting on with their lives.
When I matriculated, my parents gave me only two pieces of financial advice, both of which proved to be invaluable in my life so far. The first one was to pay off any debt I had to incur to buy big-ticket items like a car and a house as soon as possible and to remain debt-free after that, unless it was tax-deductible. And the second piece of advice was to start investing early in life to benefit from the effect of compound interest, or getting a return on returns.
These days there are many ways for a young person to start their investment portfolio. If you want more ideas or information, you are welcome to ask your financial advisor at JWR.
