As some may know, my wife and I recently welcomed our second daughter into our family in early April. It has been a special time and I was fortunate to have some time off to bond with my new daughter and help the family function (at least we call it that!) with a toddler running wild and a recovering wife. While the post-birth whirlwind was circling at gale force speeds and we tried to function off no sleep, a series of different doctors came through the hospital room for myriad reasons to check on mom and baby. Between doctors, nurses, pediatricians and lactation consultants, remembering everyone’s name is impossible, but there was one meeting I was anxiously awaiting during each birth.
Being a Financial Planner, I cannot help but want to set up my child’s Custodial Brokerage account as soon as humanly possible. As soon as the woman walked in the door with only paperwork and no scrubs, I knew it was my time to shine. This was the meeting where we filled out Hazel’s information for the birth certificate which enables us to receive her social security card a few weeks later. Once I have her social security number, I am then able set up an investment account for her. I fully endorse the saying “time in the market versus timing the market” so getting some money invested as early as possible has always been top of mind for me. Maybe I take that too literally…
The power of compounding is really fascinating. If you wait a day, month, year to invest, you are not missing out on returns today, but instead on the compounding returns later on in life! Think of a snowball rolling down a hill. It starts out small and accumulations add to the snowball’s total size. But once it is bigger, each successive push and rotation accumulates more and more snow at an alarming rate. I would prefer to get some money invested for my children as soon as humanly possible, so I filled out that form as fast as I could.
As I mentioned, the social security cards take a few weeks to get delivered by mail, so watching the market fluctuate in a sleep deprived state was conflicting. I personally want the markets to go up, always, but for my kids’ sake, I did not want to invest at a market high. Behavioral Finance 101? I just wanted to get the account opened and invest immediately. From Hazel’s birth on April 3rd to when I was able to invest (April 26th), the S&P 500 is down about -8.0%. With a long-term historical return of about 8.0%, I got lucky and “added” a whole years’ worth of compounding by not being able to invest as soon as she was born. Incidentally, my first child was born as the pandemic was breaking out in early March 2020. The returns of the S&P 500 during the first two weeks of Maxine’s life were -18.5%, which gave her account an even better “head start” if you will.
I am still a bit sleep deprived, so bear with me while I try and make a point out of this, but I think this timing just happened to be purely luck for me. Is it helpful for their future? Yes. Would I do things differently if the market had been up 8% or 18% instead of down? Hopefully not! Investing is really about patience and mitigating risk. This risk of missing out on good returns over a lifetime far outweighs the painful periods of bad returns we inevitably will experience – like this year so far.
Some call me lucky, but a friend pointed out – maybe me having children puts a curse on the markets for a short period of time! If I have another child, I will be sure to try and let everyone know when that is…
