Now that we have two kids, the stakes are a little higher in the parenting department. Lately, I’ve been reading the book Peaceful Parent, Happy Kids. While feeding our newborn son at 2am or trying to fall back to sleep, I started thinking about how parenting advice also applies to investing.
Take care of yourself first
As a parent, this one is much easier said that done. We want the best for our children and are willing to make huge sacrifices for them. However, one area that shouldn’t be sacrificed is self-care. Parents need to remember to nurture themselves in small ways throughout the day: reading a book with a glass of wine after the kids are in bed, going for a run, and making time for date night. And let’s not forget sleep! This helps you be more present and patient with your kids. When your cup starts to run low, you may become resentful and unable to meet their needs. Personally, I just started attending Stroller Strides, a mommy and me exercise class, and I already feel physically and mentally stronger.
As for investing and planning for the future, every little bit counts and adds up over time. While saving for your child’s college education is extremely generous, it’s more important for parents to have an emergency fund in place and save for their own retirement first. There’s no guarantee your child will go to college, but I’m pretty sure you’ll want to retire one day. Plus, students have several options in paying for their college education: student loans, work-study programs, scholarships, or community college and then 4-year school, etc.
Keep it Simple
Kids don’t need the latest gadgets or lots of toys that make obnoxious sounds. They also don’t need every item listed on the baby registry guide at Target or Buy Buy Baby to thrive. What they really need are your love and attention, a safe place to live, food, warm clothes, diapers and wipes, and security. Get outside! Go to the park and run around. Go to the library and pick up a stack of books to read together. And don’t forget to put down your phone when playing with your kids. Spending time with them is so much more important than the latest Facebook updates.
Likewise, keep it simple when it comes to investing. Think about investing in low-cost index funds through Betterment or Vanguard. Set up automatic transfers and get back to spending time with your family. Of course check in occasionally to make sure your asset allocations aren’t drifting off course.
It’s not going to be perfect
When it comes to parenting, you’re never going to be perfect (so says the recovering perfectionist). As I said above, your kids just want your love and presence. And guess what? Your toddler or teenager isn’t going to be perfect either. Raising kids is messy: in a spilled milk and emotional sort of way. Give yourself the grace to be imperfect and accept their imperfections. I recently tucked this card into the picture frame on my dresser to remind me that I’m doing great, even when I might think otherwise.
There are thousands of investment options in the marketplace, so there may be several funds that are good enough for you. Instead of stressing about picking the perfect portfolio, your job is just to pick one with the asset allocation that feels right to you. Sophia Bera also reminds young investors that at this stage, asset accumulation is more important than asset allocation. And to make things a little easier, you don’t need each individual account to match your target asset allocation. What matters is that the TOTAL across all accounts matches your desired asset allocation.
Past performance is no guarantee of future results
If kids came with a prospectus, I’m pretty sure it would include the standard disclosure: “Past performance is no guarantee of future results.” There will be highs and lows while raising your kids, sometimes in the same day. Additionally, every child is different, so what worked with one probably won’t work with another. Each little person comes with their own personalities, gifts, and needs. It’s our job as parents to treat them uniquely, not equally. For example, our daughter slept in our room in the bassinet of a pack and play for 3 or 4 months. On the other hand, we moved our son to a separate room at 6 weeks with white noise playing in the background since he’s such a loud sleeper. Now everyone sleeps better.
Historically, the stock market has an annual return of roughly 7 – 8%. Of course there have been bull markets with fantastic gains, as well as bear markets with significant declines. And the returns of individual funds may or may not match the market’s returns, so it’s important to understand your investments. Fortunately, you can decrease your investment risk without decreasing your expected returns by diversifying your portfolio, or putting a little bit of money into several investments. You can easily do this by investing in an index fund that matches the entire market (like the S&P 500). If you have a little invested in every company, if one goes bankrupt, it won’t sink your whole portfolio. Additionally, investing in low-cost funds will ensure that more of your investment’s returns stay in your pockets.
Parenting is a 24/7/365 job. While huge gestures like a birthday party are memorable, the constant reminders to your children that you love them are just as important. Eating breakfast or dinner together as a family. Being there to tuck them in at night. Going to their soccer games or recitals. Even 15 minutes of quality, one-on-one time every day will compound into a loving relationship.
Dollar cost averaging, or investing a set dollar amount on a regular schedule, (like through your 401(k) at work) is a great way to build your portfolio. You get to buy more shares when the price is lower and fewer shares when the price is higher. That means you’ll be buying the “average” cost of a fund over the long run. By starting early and investing a little bit at a time, your portfolio’s returns have a greater opportunity to compound more over time.
Stay the course and keep a level head
There will be days when your kids push every last button and you want to blow up. As a parent, it’s your responsibility to keep a level head and manage your emotions. Somebody needs to be an adult since you certainly can’t expect your kids to be one. By doing this, you show your kids that feelings and emotions aren’t scary and that they can be managed over time.
When the market starts fluctuating, it’s also important to keep a level head. Some investors will be tempted to buy when the market is up and sell everything when prices start to fall. But the best thing to do is stay calm and stick to your financial plan. And if you really do want to invest more, remember to buy low and sell high!
It’s a marathon, not a sprint
Remember how I said parenting won’t be perfect? It’s OK if you made a mistake and yelled at your toddler for drawing on the wall. Tomorrow is another day and you’ll have plenty of other opportunities set a good example. You have until they go off to college (or sometimes longer) to set a strong foundation. Plus, if some of these words of advice are new to you, it’s never too late to start fresh or heal a broken relationship.
As for investing, don’t worry about the small blips in the market. If you’re saving for retirement, your time horizon may be 20 or 30 years out! If you’re saving for college, that’s up to 18 years of letting your money work for itself! Stay the course with your financial plan, stay in the market, and stick with low-cost index funds.