Everyone is a genius in a rising market

By Slow Dad - January 06, 2017

In 2016 my 4 year old son, using the simplest low cost portfolio imaginable, outperformed 92.5% of the UK’s active fund managers. How did you do?

My 4 year old son achieved 32% annual return

The other day I received a notification from the brokerage that hosts my children’s ISA accounts. They had received their end of year dividend payments.

I’ve been attempting to teach my boys about money and personal finance from an early age. By getting them involved in regular saving and investment I am hoping to bake in good financial habits, so that they become part of what they view as normal rather than becoming the hard won lessons most of us learn later in life.

Everyone is a genius in a rising market
Everyone is a genius in a rising market
I had explained that owning a renewable income stream was better than owning a exhaustibly finite bucket of wealth.

I had explained how buying shares in a company meant becoming an owner of that company, with each shareholder owning a small piece of every company asset.

I had explained about that good investments earn an investor more than they cost to hold.

I had explained about opportunity costs, that buying a lot of one thing meant you could not buy a lot of something else, whereas buying a little of each meant it was possible to have some of both.

I had explained the concept of consumption versus investing, and how it was impossible to have your cake and eat it too.

I had explained about diversification, that it was less risky to hold a little piece of many companies rather than larger pieces of just a few.

The I asked them what companies they knew about, and which ones they thought did a good job.

My four year old loves these horrible noisy battery guzzling toys made by a Hong Kong based company V-Tech. He is also partial to Hot Wheels cars and anything from the Disney Cars movie, both of which Mattel manufactures.

My ten year old is rapidly becoming a teenager, very into Microsoft’s Xbox One and Apple iPads. However he is becoming more aware of the companies that he has experienced enjoyable interactions with, so was interested in Singapore Airlines and Walt Disney and Pizza Hut (owned by Yum Brands).

Together we discussed various ways it would be possible for them to buy a piece of the companies they like. Eventually we settled upon the Vanguard FTSE All-World UCITS ETF (VWRL), which is a low cost global index tracker fund.

Anyway I dutifully logged in to the brokerage website to check out what the notification was about, and when I saw their portfolio values I nearly fell off my chair!

My 4 year old son's share portfolio achieved a 27% gain over 2016
My 4 year old son's share portfolio achieved a 27% gain over 2016
The value of their holdings were up 27% for the year (the blue line on the chart) and when factoring in the dividends received their annual return was actually around 32%.

In his first year of investing my 4 year old son, operating the simplest low cost portfolios imaginable, managed to kick the collective backsides of 92.5% of the UK’s active fund managers.

When was the last time anybody’s share portfolio returned a greater than 30% return? I doubt I’ve ever managed to achieve that.

Granted about 20% of that increase was the result of the collapse in value of the British Pound (the green line on the chart), but we might as well take the win now before we start complaining about all that imported inflation pushing up our grocery prices in 2017.

So what?

Everyone looks like a genius in a rising market. How did your portfolio do?

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