What is the best way to invest money for you and your children? Is it better to buy stocks, bonds or mutual funds? Considering the economic environment we find ourselves in, you may be thinking that it would be safer to hide your money under the mattress like Grandma used to do.

What is the real secret that rich people know that makes their money grow?

Everyone dreams of having a financially secure life. Personally, I don’t know anyone who really wants or plans to be poor, right? It’s just bad money habits, lack of basic money skills and not having set goals that makes and keeps people in poor financial shape. You will have a great advantage of building a substantial savings nest if you become financially savvy. All you need to do is learn and practice a few wealth building techniques. Be sure to pass them on to your children. It will make a world of difference to your children’s future if you teach them the following principles as early as possible:

THE BEST WAY TO INVEST MONEY – TECHNIQUE #1 YOU MUST THINK LONG TERM

Look at a twenty or thirty year chart of the stock market, for example, the DJIA (Dow Jones Industrial Average). You will not see the stock price go up directly nor will you see the stock price go down directly. The line on the chart zigzags up and down, which means that there are some days when you make money and others when you lose money.

From 1970 to the present, the DJIA has been on an upward trend, going from about $750.00 a share in 1970 to about $11,000.00 as I see it today. If you had invested in the DJIA in the 1970s, you would have a pretty good return on your money today, despite all the days and years of downtime in between. Historically, the stock market has been in an uptrend (about 13 percent per year over the long term). If you look at the graph, you will see corrections from time to time. These corrections are when stock prices go down, sometimes by five to twenty percent. Sometimes you will hear people say that we are in a “bear market”. This is when the stock market falls twenty or more percent. Oh!

These bear markets happen every three to four years, and long-term investors don’t lose their temper when they do. This is a normal part of investing and it is just one part of the stock market cycle. There’s no need to watch the stock market on a daily basis when you know you’ll be holding your stock for the long haul. These corrections provide an excellent opportunity to buy more of your favorite stocks at a discounted price. The more time you invest, the more all the ups and downs will even out. These ups and downs are known as “volatility,” which is another word for risk. It is safe to say that the more time you invest, the less risk you will take with your money. If your children invest from a young age, they will virtually eliminate any risk associated with investing.

Think what this could mean if you invested one dollar a day for twenty, thirty, forty, or even fifty years! Amazing when you also think about compound interest coming into play.

THE BEST WAY TO INVEST MONEY – TECHNIQUE #2 DON’T EVEN TRY TO TIME THE MARKET!

This would be the perfect way to make money: buy stocks or mutual funds when the market is at its lowest point. Sell ​​that stock or mutual fund when the market has reached its highest point. Count all your winnings. Do a happy dance… and repeat.

Unfortunately, this is very difficult to do. In fact, there are very few, if any, people who can time the market on a regular basis, so it is impractical to think that you can defy the odds. Many have tried it (me being one of them), and have lost a lot of money in the process. If you still want to try to buy low and sell high, one thing to consider is how much it will cost you to continually enter and exit the market. It costs money when you buy a stock and it costs money when you sell it. These are called “commissions” and will be paid to your broker. Many day traders end up losing a large percentage of their money because they enter and exit the market so frequently.

There is also something called “the spread” that you need to be aware of.

The person or company that allows you to buy the stocks you want is called the market maker. It will always sell you a share for more than it will buy it from you, and it will always buy a share at a lower price than it will sell it to you. The difference between the buy and sell price is how the market maker makes money from it. Some stocks have small spreads and some stocks (usually small companies) have larger spreads. As you can see, continually putting your money in and out of the market will cost you. Financial experts advise people not to control the market time. Instead, the best way to invest money is for the long term and watch your money grow.

If you can teach yourself and your children to be patient and disciplined when investing, you will achieve far superior results.

THE BEST WAY TO INVEST MONEY – TECHNIQUE #3 INVEST SMALL AMOUNTS REGULARLY AND AUTOMATICALLY

Investing the same amount of money each month is a strategy called “dollar cost averaging.” This means that you are buying when the market is down and you are also buying when the market is up. Keep investing regardless of market conditions. Of course, when the market is at its highest, your money buys you fewer shares of a mutual fund or stock. But in the same way, when the market is down, your money buys you more shares of a mutual fund or a stock. Over time, the dollar cost averaging technique tends to reduce the average cost per action. Investing automatically will help you weather all the changes and cycles of the market in the short term. You can sign up for an automatic investment plan that can automatically transfer your money from your bank account to your mutual fund or stock account. Your financial planner can help you set this up.

Paying yourself first is a fantastic technique for building wealth. Even if it’s a small percentage of your paycheck, have it automatically deducted from your bank account as soon as you get paid. You won’t see it or miss it, and you’ll be surprised how much this can add up over time.

THE BEST WAY TO INVEST MONEY – TECHNIQUE #4 KIDS SHOULD INVEST IN STOCKS

You must be thinking… but stocks are so volatile! Bonds may be the best way to invest money for my children; they are safer. As with any type of investment, there is risk. But as we’ve discussed above, the longer you hold something, the more the volatility will even out.

It is well known that stocks produce a higher return than any other asset class if we hold them for the long term. Our children have the ability to do this and it is the best way to invest money because they have the gift of time on their side. Over the past ten decades, stocks have outperformed blue chip bonds, government bonds, and Treasury bills. Over any thirty-year period in the 20th century, stocks have outperformed all other asset classes 99 times out of 100. wow! On average, stocks have created more than three times as much money as bonds over these thirty-year periods. The worst thirty-year period for stocks since World War II was from 1960 to 1990. Even then, stocks created three times as much money as bonds.

There is no doubt that the best way to invest money when it comes to your children is with stocks. Even in the worst case, they have been shown to have much higher returns in the long run.

(A great book on this topic is “Stocks for the Long Run” by Jeremy Siegel.)

Your children are in a much better position than the average investor. They have a horizon of 30, 40 or 50 years as an investor. They can ride the ups and downs of the market and still end up with your investment in the millions of thousands, even millions of dollars.