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Kids and Money: Strong Swimmers Drown (Simple vs. complex investing)

The other day, I asked my eldest daughter:

“Do you think more strong swimmers or weak swimmers drown each year?”

I appreciate that this isn’t a very uplifting question to ask, but please bear with me as it links to an important lesson about kids, money, and investing.

After thinking for a bit, my daughter said, "Weak swimmers" (although she was cautious as the answer seemed too obvious).

She was right to be cautious as it’s the wrong answer.

More strong swimmers drown each year.

Granted, if there were a situation where a weak swimmer and a strong swimmer got into trouble swimming in deep water, you’d be right to say that the stronger swimmer is more likely to survive.

However, the important piece of context from this scenario is that the swimmers were both in deep water. In reality, weak swimmers would rarely ever be swimming in deep water.

More strong swimmers drown each year as they are confident in their abilities and therefore more frequently swim in deep or choppy waters that could lead to the risk of drowning.

On the other hand, weak swimmers would stick to the much safer shallow waters.

deep vs shallow waters

What does this have to do with kids and money?

The other week, I was speaking to a good friend, and they were asking me about how I invest. They were super surprised to hear that I simply transferred money each month into a low-cost index fund (a fund that invests in thousands of companies around the world). I mentioned that I rarely look at how well the stock market is doing and never buy shares in individual companies or cryptocurrencies.

Their view was that since I had worked in the investment industry for many years and had been investing for many years, I’d be doing something a lot more interesting, complex, and different.

My friend hadn’t worked in the investment industry but had done some research (mostly on the likes of Reddit and social media) and was doing more complex investing than me.

They were very confused. They felt I was missing out as I wasn’t using my investing knowledge and experience to earn more money.

I told them that I use a simple strategy because I have worked in the investment industry, and have the experience, and the knowledge. I know that the simple strategy is a more likely way to help me build my wealth over the long term.

This takes us back to the Strong Swimmer vs. Weak Swimmer. As people learn more about investing (become stronger swimmers) they start venturing into deeper waters (complex strategies) and can end up worse off (drowning) than those who stick to the shallow waters (simple strategy).

Strong Swimmers Drown

The evidence shows that while it is possible to get high returns in the short term when you adopt a complex investment strategy (for example, investing in individual companies or buying and selling stocks frequently), it is very hard to maintain these high returns over the long term.

In fact, over the long term, those who invest simply do better than most people who decide to adopt a complex way of investing.

This is very hard for many rich, smart, and well-read individuals to accept. Their mindset is:

“I’m a strong swimmer, why would I swim in the shallow waters?!”

The answer to this question is that you are less likely to drown and still get to where you want to get to.

[Only 18% of investment funds which adopted a complex (active) strategy outperformed the simple strategy (index/passive) over a 10-year period. see more here]

ONLINE COURSE: Teach your kids the skills they need to become wealthy here

Key Money Lesson For Your Kids

I hope you are teaching your kids to look after their money and start investing.

The purpose of this blog is to make sure they don’t get overconfident with their money and investments. This overconfidence could lead to them being worse off than sticking to the simple strategy (strong swimmers drown).

If you haven’t started talking to your kids about investing (and want to know more about the ‘simple’ strategy that I’ve alluded to), then please read my blog ‘Your Kids 10-Year Investment Plan’ to get started.

Note: This content is educational only. I’m not linked to any financial company or product.

If your kids feel they are smart and well-read and should be doing something different with their money compared to others, get them to focus this desire on finding different ways to earn money (e.g., starting their own mini-business) rather than complex ways to grow the money.

To Invest or Not to Invest

You might be thinking that this swimming analogy should be extended to question whether or not to invest at all. As investing is riskier than keeping money in the bank, shouldn’t you keep the money in the bank to avoid drowning?

For this, I’d recommend you think of investing as ‘swimming’ and saving money in a bank as ‘walking’. To become wealthy, the truth is that you and your kids have to cross a river. Unfortunately, you can’t walk across the river. You have to swim (invest)!

Essentially, it’s very hard to become wealthy by saving money in a bank.

Extending this river analogy, if someone offers you a ride across the river in their speed boat (i.e., get rich quick) – this is probably a scam, and you are more likely to drown than make it to the other side of the river. Teach your kids how to spot a scam here.

Coming Soon … Investing in the Stock Market vs. Real Estate

In this blog, I have focused on simple vs complex ways of investing in the stock market. Next week, I look to answer the question ‘Which is better, Investing in the Stock Market or Real Estate?’.

Make sure you subscribe as the answer to that question could change your kids' financial future in a big way!

Thanks for reading!


P.S., The 'Mr Lazy's Trees' story in my book, Grandpa's Fortune Fables, helps your kids learn that investing simply is generally the best way. Grab them a copy so they can start learning to grow their money. Available on Amazon.

Best money book for age 8


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