Over the last few months the stock market has fallen quite a lot (This blog was written on 12 May 2022).
In my blogs, I often talk about the benefits of investing in the stock market to help children see that money can grow over the long term. I’ve even set up a free guide to help parents set up an investment account for their kids, which you can find here.
A really important part of investing in the stock market is appreciating that it is a bumpy ride.
In this blog I go through two reasons I’m happy that the stock market has fallen recently.
If you’ve not read my blog ‘How to teach kids about the stock market’, I recommend you have a look after reading this blog.
TWO reasons I’m happy the stock market has fallen
Reason ONE: Buying companies whilst they are on SALE
Each month, my wife and I automatically transfer money from our bank account to our investment account. This is both for ourselves and for our two daughters.
This money goes to a company called Vanguard which invests our money in thousands of different companies around the world on our behalf. As the stock market has fallen, it means that the companies are cheaper to buy than they were before. This means we get to own more of these different companies than before.
If you think of it like spending £10 on eggs each week. As the price of eggs falls from 50p to 40p, you now get 25 eggs rather than 20 eggs from your £10!
As we don’t plan to sell our investments any time soon (many years), therefore we aren’t worried that the value of our investments has fallen in the short term. We are pleased that we now own more of the different companies as this means we will be better off in the future when the stock market recovers.
Is there a risk the stock market won’t recover? This is a fear some people have but not me. The stock market has always recovered from the falls (or storms as my daughters call them). There have been many storms since the stock market first formed over a hundred years ago.
As long as people keep spending money, that money will go to companies and those companies are owned by those who invest their money. Unless we move into a world where people stop spending, then the stock market will continue to grow. If people do stop spending, then there are much bigger things to worry about than our investments.
Reason TWO: Another teachable moment for my daughters
I want my daughters to grow up knowing the stock market is a bumpy ride. I therefore always show them when the stock market has fallen so they have this experience.
If you think of investing like planting trees, then every now and again there are storms that break our trees. Like trees in real-life, after a storm, the trees grow back bigger and stronger.
By the time my daughters are adults, they will have seen the stock market fall many times and they will know that the best action is to simply ‘do nothing’. They already know about this from the ‘Mr Lazy’ story which is in Grandpa’s Fortune Fables (you can read that story here) but I want to see this happening in real life.
Many adults were never taught about investing as they were growing up. This means that when they start investing and experience their first market fall (storm), they get very worried and many of them panic. This means they sell their investments and lose money. Kids who experience market falls are less likely to panic when they are adults as they know it will recover over the long-term.
Successful investing is 90% about your mindset and patience. If you can teach your kids that investing is for the long-term and they should ‘do nothing’ except keep investing more each month, they will see their money grow more than most people.
For my daughters, they now have the mindset that when the stock market goes up they are happy as their money has grown. They are also happy when the stock market has fallen as they are buying more companies at a discount. This ‘win-win’ mindset means they have no fear about investing and will see their money grow over the long-term.
I reinforce this message each time there is a big fall like this. Sometimes, my daughters even want to invest more of their pocket money when the stock market has fallen!
“You only lose money in the stock market if you sell when the market falls!”
Reminder: Principles for successful investing
If you are thinking of investing for yourself and / or your kids, remember the principles for successful investing!
Long-term mindset - Investing is a bumpy road. Don’t expect to make vast money quickly and don’t get disheartened if it seems like it isn’t going your way after a short period of time. Invest your money and then leave it alone, i.e. don’t think of investing as ‘buy / sell / buy / sell’.
Don’t pick individual companies - Trying to pick which individual companies will do well or poorly is super hard. If you invest lots of money with one company and it goes bust then you can lose a lot. Instead, consider investing in a basket (‘an index’) of companies so that you get exposure to hundreds or thousands of different companies, i.e. don’t put all your eggs in one basket.
Ignore the noise - This is the hardest one. When markets go down, it can feel scary but markets always recover if you are patient. Also, if someone tells you of how they are making loads of money investing (bitcoin etc), remember that these short term ‘trends’ don’t last and sticking to investing in an index of companies over the long-term is the surest way to build significant wealth.
Keep costs low - There are lots of expensive ways to invest, i.e. people telling you they can make you a lot of money if they manage it for you. Just remember, the more you pay in fees, the less money you are keeping (try to keep costs below 1% of the amount you invest).
For more information about how to get started, please check out the FREE investment guide here
Investing in the stock market is the most sustainable way to grow wealth over the long-term.
The fact that the stock market has fallen is a reason to be happy:
ONE: Buying companies whilst they are on SALE
TWO: Another teachable moment for your kids
The more kids learn about the stock market, including how to be positive when the stock market falls in the short term, the bigger the advantage they will have in life and with their money.
“Everyone I know who invests their money says ‘I wish I had started earlier!’”
Thanks for reading!