Kids First Investment Account

[phsmith1616]

I try not to focus on regrets too much but when it comes to making sure my kids don't make the same mistakes as I did, investing and investing early the right way, is one of my biggest. I'm interested to hear about some of your experiences with this and some ideas. A bit of information about us is,

- We live in Canada
- They both started working this year for the first time(14 and 15 year old's).
- I've told them both they are saving 25% of what they earn while they are living with us.
- TFSA isn't an option until they are 18. RRSP's won't be right for them until they start earning more and need some tax savings.
- I am pretty sure i can set up a trust account for them, but i believe that any gains could have tax implications for me?

Is there a right way to set this up?

- I want to teach them about the markets and so i do plan on purchasing shares at first. I'm hoping to make it a bit interesting for them, at least eventually. My ultimate goal is that by the time they are done school and have real jobs, they don't believe in quick/easy money and can see through all the BS out there.

Thanks in advance!

[SOL]

I don't know much about the Canadian tax system. However, they must offer something similar to a Roth IRA. So what you want to do is consider opening a custodial Roth IRA, so this way in case they get smart ideas of spending their bling when they hit 18 or 21, they can't touch it. However, if you don't want to deal with the tax issues, then a custodial IRA might do, though the other one you get to compound your money tax-free

https://www.canada.ca/en/revenue-agency ... h-ira.html

There are advantages of opening a trust account, this article about trust account

https://www.stash.com/learn/trust-accou ... l-account/

This one talks about the mistakes people make when they open trust accounts

https://www.investopedia.com/articles/i ... -child.asp

The most important lessons you can teach them are as follows

1) make sure they read and understand Aesops Fables thoroughly. If necessary test them on it
2) Teach them how to live at least two standards below their means by example as opposed to via theory
3) Teach them that the idea is to retire as young as possible because real retirement is to have the ability to stop what you don't like to do and start doing what you love to do. Sitting on the porch is for donkeys


Some other Tax-related information for Traders in general or reducing your tax burden

Technically Yodean you could fall under the category of a hybrid day trader. I am not sure if you need to make a certain number of trades a day or if the following guidelines for US traders would apply

You maintain sufficient trading volume — at least four trades per day, 15 per week or 60 per month.
You earn a substantial amount of your income from trading.
You trade on a regular and recurring basis.
You execute a trade on at least 75% of available trading days during the year.
Your average holding period for securities is less than 31 days.
You demonstrate the intention to run a trading business as your principal means of earning a living.
You are set up as a business.

https://www.magnifymoney.com/investing/ ... ing-taxes/

[harryg]

Sol's links are useful - for tax implications, especially if considering a trust, you should really seek specialist advice.

It's a good idea to start young, learning about compounding isn't a good substitute for seeing it in action. An early straightforward book that I read was called Making Money Made Simple, by Noel Whittaker (Australian). He explained basics such as the difference between earning more and spending less, the importance of discipline, power of compounding (time + rate), the "Rule of 72" and so on. There is a relevant "Letter to a School Leaver" in that book which might be worth looking up.

They might find the stylised spreadsheet below inspiring - Susan saves 55,000 less than Simon but ends up with 570,000 more. There are probably better-worked examples online.



Regarding frequent trading, in the UK frequent traders often try to classify themselves as "employed" (rather than the usual Capital Gains treatment), because then they can deduct all kinds of costs like any other business. HMRC (IRS) doesn't like that for the main reason that the vast majority of frequent day-traders make huge losses which they then attempt to offset against their "real" (other) income

[Yodean]

Technically Yodean you could fall under the category of a hybrid day trader.

Yeh, 2021 is the first year - coincidentally, I just met with my accountant yesterday morning - that I will be classified as an "active investor" within an incorporated entity. My accountant's pretty decent and experienced - somewhat conservative, but not overly uptight, and allows for some "fudging," as long as we speak in "code," at times.

Lolol.

It's not too bad, relatively speaking - basically, the first $500k CDN of profits is currently taxed at 14% or so (the Small Business Deduction). Profits for someone in the "active investor" category includes all net realized gains, dividends, etc. from investing/trading. But one may also write off tons of expenses (like TIT subscription fees, lol, trading fees, a portion of your rent, internet-cellphone fees, a portion of your vehicular-parking expenses, a portion of your "office" supplies/equipment including computers and the like, even some travel - ostensibly for "research" purposes - and some dinners out - i.e. for discussing investments with others).

After the first $500k CDN of net income, I think the tax rate goes up to 26% or so. Of course, when you take the money out of the corporation, you'll be taxed again, so the idea is to write off as many expenses as possible while still being able to survive a potential audit, while also taking out as little money out of the corporation as possible, usually in the form of dividends.

It's a challenging time for a lot of us, according to my accountant. Many of us enjoyed large realized gains from 2021, for which we now owe significant taxes, but now we have to pay all those taxes after suffering a 20% to 40% (paper) loss in our net worth, given recent market drawdowns.

I call it a type of "Doom Loop": if you win and realize gains, you get taxed to death, while if you lose in the markets, you just lose.

No escape in this War on your Wealth.

But the fight must go on.

[Yodean]

I try not to focus on regrets too much but when it comes to making sure my kids don't make the same mistakes as I did, investing and investing early the right way, is one of my biggest. I'm interested to hear about some of your experiences with this and some ideas. A bit of information about us is,

My spouse and I are childfree by choice, but if we had young ones, I'd prolly emphasize some version of the following. It's not from a guy I follow on Twitter normally, but somehow it showed up in one of my threads. Not too shabby, and apart from some slight quibbling here and there, largely reflects my views on money:

*****


Sahil Bloom
@SahilBloom
·
Jun 26
Financial Wealth

This is the most commonly understood type of wealth.

It's generally what people mean when they say someone is wealthy.

Financial wealth is all about money—the money or financial assets that an individual has accumulated.
Sahil Bloom
@SahilBloom
·
Jun 26
Financial wealth is an alluring measuring stick for success.

Why?

You can boil down someone's existence into a single number—their net worth.

Net Worth = Value of All Assets - Value of All Liabilities

For those with a competitive streak, net worth offers a simple scoreboard.
Sahil Bloom
@SahilBloom
·
Jun 26
Most people assume that financial wealth creates happiness.

I used to see people with money and assume everything in their life must be amazing.

I was wrong.

Money is scientifically correlated with happiness—but only up to a baseline level of life that's lower than you think.
Sahil Bloom
@SahilBloom
·
Jun 26
Once above this baseline, incremental financial wealth does not create incremental happiness.

So if your goal is happiness:

(1) Focus on getting above this baseline
(2) Focus on other drivers of happiness

Which brings us to our other types of wealth...
Sahil Bloom
@SahilBloom
·
Jun 26
Social Wealth

Social wealth is about our connection to others in our respective worlds—our relationships.

The combined BREADTH and DEPTH of our connectivity to those around us governs our social wealth.

True social wealth requires depth—a few unbreakable social bonds.
Sahil Bloom
@SahilBloom
·
Jun 26
Some people seek to accumulate social wealth via their financial wealth—through acquiring social status.

They buy status via memberships to exclusive clubs or organizations, hosting events, etc.

This is a road to nowhere—because money can buy breadth, but not depth.
Sahil Bloom
@SahilBloom
·
Jun 26
Social wealth is built through the cultivation of meaningful relationships.

Spend time building a T-shaped web of connectivity—broad and deep.

Build an army of mentors, friends, and evangelists.

Cultivate deep relationships, but also embrace the power of weak ties.
Sahil Bloom
@SahilBloom
·
Jun 26
Physical Wealth

Physical wealth is about your health, fitness, and vitality.

It is perhaps the most critical—and under-appreciated—type of wealth.

Without physical wealth, it is effectively impossible to experience and enjoy the benefits of any of the other types of wealth.
Sahil Bloom
@SahilBloom
·
Jun 26
Physical health is built through the long-term compounding of daily actions.

There are 3 broad buckets:

• Exercise—daily movement
• Nutrition—mostly real foods
• Sleep—good sleep habits

It's never too late to start building—or restoring—physical wealth.

Health is wealth.
Sahil Bloom
@SahilBloom
·
Jun 26
Mental Wealth

Mental wealth is about mental health, mental fitness, and an ability to wrestle with the tangible and intangible questions in life.

It may include (but isn't limited to):

• Mental Health
• Knowledge / Wisdom
• Mindfulness
• Spirituality / Faith
Sahil Bloom
@SahilBloom
·
Jun 26
Mental health is often overlooked—particularly by those in the pursuit of world-changing endeavors—but it is SO important.

Talk to someone, ask others for help, and take actions to improve your mental health on a daily basis.

Never sacrifice mental health for any reason.

Sahil Bloom
@SahilBloom
·
Jun 26
Mental wealth also includes the long-term accumulation of knowledge and wisdom.

I think of this as "mental fitness”—the flexing of your brain as a muscle and the continued growth of that muscle over time.

It's the most important muscle to flex daily!

Read, write, talk, learn.
Sahil Bloom
@SahilBloom
·
Jun 26
Mental wealth also covers an ability to wrestle with the intangible or unanswerable questions in life.

Generally achieved through:

Mindfulness—an awareness of ones self built through meditation, breathing, or other practice.

Spirituality and faith—formal or informal.
Sahil Bloom
@SahilBloom
·
Jun 26
Time Wealth

Time wealth is about the freedom to choose:

• How to spend your time
• Who to spend it with
• Where to spend it
• When to trade it for other types of wealth

Time wealth is also about an appreciation for the precious nature of time—of its value and importance.
Sahil Bloom
@SahilBloom
·
Jun 26
When you're young, you are a "time billionaire”—rich with time.

Too many people fail to realize the value of this precious asset until it is gone.

Treat time as your ultimate currency—it’s all you have and you can never get it back.
Sahil Bloom
@SahilBloom
·
Jun 26
Time is cruel.

You’ll love it with all of your being, but the reality is that time doesn’t care about you.

It is the ultimate unrequited love.

By accepting our time as finite, we are able to live.
Sahil Bloom
@SahilBloom
·
Jun 26
NEVER let the pursuit of financial wealth rob you of your time wealth.

This is a dangerous trap that far too many people fall into.

Learn to use financial wealth as a tool—to increase your freedom to choose.
Sahil Bloom
@SahilBloom
·
Jun 26
To summarize, there are 5 types of wealth:

• Financial (money)
• Social (relationships)
• Physical (health)
• Mental (health, spirituality)
• Time (freedom)

The pursuit of financial wealth can rob you of the others.

Don't let that happen.

[phsmith1616]

Sol's links are useful - for tax implications, especially if considering a trust, you should really seek specialist advice.

It's a good idea to start young, learning about compounding isn't a good substitute for seeing it in action. An early straightforward book that I read was called Making Money Made Simple, by Noel Whittaker (Australian). He explained basics such as the difference between earning more and spending less, the importance of discipline, power of compounding (time + rate), the "Rule of 72" and so on. There is a relevant "Letter to a School Leaver" in that book which might be worth looking up.

They might find the stylised spreadsheet below inspiring - Susan saves 55,000 less than Simon but ends up with 570,000 more. There are probably better-worked examples online.



Regarding frequent trading, in the UK frequent traders often try to classify themselves as "employed" (rather than the usual Capital Gains treatment), because then they can deduct all kinds of costs like any other business. HMRC (IRS) doesn't like that for the main reason that the vast majority of frequent day-traders make huge losses which they then attempt to offset against their "real" (other) income

Thanks Harryg. I do have this book in the house somewhere. I'll dig it up and make them read it. I might print this spreadsheet out for them and stick it to their wall as well. lol

[Budge]

Technically Yodean you could fall under the category of a hybrid day trader.

Yeh, 2021 is the first year - coincidentally, I just met with my accountant yesterday morning - that I will be classified as an "active investor" within an incorporated entity. My accountant's pretty decent and experienced - somewhat conservative, but not overly uptight, and allows for some "fudging," as long as we speak in "code," at times.

Lolol.

It's not too bad, relatively speaking - basically, the first $500k CDN of profits is currently taxed at 14% or so (the Small Business Deduction). Profits for someone in the "active investor" category includes all net realized gains, dividends, etc. from investing/trading. But one may also write off tons of expenses (like TIT subscription fees, lol, trading fees, a portion of your rent, internet-cellphone fees, a portion of your vehicular-parking expenses, a portion of your "office" supplies/equipment including computers and the like, even some travel - ostensibly for "research" purposes - and some dinners out - i.e. for discussing investments with others).

After the first $500k CDN of net income, I think the tax rate goes up to 26% or so. Of course, when you take the money out of the corporation, you'll be taxed again, so the idea is to write off as many expenses as possible while still being able to survive a potential audit, while also taking out as little money out of the corporation as possible, usually in the form of dividends.

It's a challenging time for a lot of us, according to my accountant. Many of us enjoyed large realized gains from 2021, for which we now owe significant taxes, but now we have to pay all those taxes after suffering a 20% to 40% (paper) loss in our net worth, given recent market drawdowns.

I call it a type of "Doom Loop": if you win and realize gains, you get taxed to death, while if you lose in the markets, you just lose.

No escape in this War on your Wealth.

But the fight must go on.

My 2 cents on taxes:

Don't know what your system is like up there but down here in Amerika it's complex and opaque, deliberately so. One reason for this is to scare the denizens of this benighted republic into going to the "experts" to get their taxes done. The professionals (I use the term advisedly having been one) know their arses could be on the line if they screw up therefore many will be as conservative as can be and may leave large sums of their clients' money on the table as a result.

Here's the thing, this monstrous tax code is not black and white, there's a huge grey area in the middle. And, just as with investing, you match your style to the risk you want to take and how well you want to sleep at night, so with taxes. If you use a professional don't rely on them to work in your best interest unless you've carried out some vetting and aligned relative risk tolerances.

Of course, this will all change when our crypto currencies are introduced. They'll know where every last cent comes from and goes. Dystopian tyranny cometh.

[phsmith1616]

I try not to focus on regrets too much but when it comes to making sure my kids don't make the same mistakes as I did, investing and investing early the right way, is one of my biggest. I'm interested to hear about some of your experiences with this and some ideas. A bit of information about us is,

My spouse and I are childfree by choice, but if we had young ones, I'd prolly emphasize some version of the following. It's not from a guy I follow on Twitter normally, but somehow it showed up in one of my threads. Not too shabby, and apart from some slight quibbling here and there, largely reflects my views on money:


Sahil Bloom
@SahilBloom
·
Jun 26
To summarize, there are 5 types of wealth:

• Financial (money)
• Social (relationships)
• Physical (health)
• Mental (health, spirituality)
• Time (freedom)

The pursuit of financial wealth can rob you of the others.

Don't let that happen.
[/color][/i][/b]

Very wise words which i will definitely try to pass on to my kids. A lot here for myself as well. I've got the social wealth handled. Now for the rest.

Thanks Yodean

[phsmith1616]

I don't know much about the Canadian tax system. However, they must offer something similar to a Roth IRA. So what you want to do is consider opening a custodial Roth IRA, so this way in case they get smart ideas of spending their bling when they hit 18 or 21, they can't touch it. However, if you don't want to deal with the tax issues, then a custodial IRA might do, though the other one you get to compound your money tax-free

https://www.canada.ca/en/revenue-agency ... h-ira.html

There are advantages of opening a trust account, this article about trust account

https://www.stash.com/learn/trust-accou ... l-account/

This one talks about the mistakes people make when they open trust accounts

https://www.investopedia.com/articles/i ... -child.asp

The most important lessons you can teach them are as follows

1) make sure they read and understand Aesops Fables thoroughly. If necessary test them on it
2) Teach them how to live at least two standards below their means by example as opposed to via theory
3) Teach them that the idea is to retire as young as possible because real retirement is to have the ability to stop what you don't like to do and start doing what you love to do. Sitting on the porch is for donkeys


Some other Tax-related information for Traders in general or reducing your tax burden

Technically Yodean you could fall under the category of a hybrid day trader. I am not sure if you need to make a certain number of trades a day or if the following guidelines for US traders would apply

You maintain sufficient trading volume — at least four trades per day, 15 per week or 60 per month.
You earn a substantial amount of your income from trading.
You trade on a regular and recurring basis.
You execute a trade on at least 75% of available trading days during the year.
Your average holding period for securities is less than 31 days.
You demonstrate the intention to run a trading business as your principal means of earning a living.
You are set up as a business.

https://www.magnifymoney.com/investing/ ... ing-taxes/

A Roth IRA is similar to a TFSA but they can't open an account until they are 18. I plan on having them take full advantage of a TFSA asap. For now I want them to see how it all works. Go through ups and downs and understand the difference between trading and investing. Time is definitely on their side.

My goal is that by the time they turn 18 and have access to their money, that i have taught them enough to know not to touch it until they have enough to maintain themselves and continue to grow their wealth. If they do make the mistake that so many make, then atleast they do it when they are young and only have a small amount of money, not in their 30s, when the lesson is potentially huge.

1) make sure they read and understand Aesops Fables thoroughly. If necessary test them on it
2) Teach them how to live at least two standards below their means by example as opposed to via theory
3) Teach them that the idea is to retire as young as possible because real retirement is to have the ability to stop what you don't like to do and start doing what you love to do. Sitting on the porch is for donkeys

I have always worked on #2 for myself and them. I've ordered Aesops Fables today! #3...I will work on myself as well.

Thank you for the wise advice SOL!

[scott]

Of course, this will all change when our crypto currencies are introduced. They'll know where every last cent comes from and goes. Dystopian tyranny cometh.

Cryptos? Nah Budge, I'll trade ya two chickens, and two bottles of my best for your piglet.
Nyet? Okay he's a wee piglet anyway. Change my spark plugs for a chicken then?

[Yodean]

My goal is that by the time they turn 18 and have access to their money, that i have taught them enough to know not to touch it until they have enough to maintain themselves and continue to grow their wealth.

One thing to consider - just to offer a bit of a contrarian's perspective - is that it might be best not to let your offspring know that you are saving some money that they will later be able to access as adults.

If they know they have a bit of a financial safety net, they are likely to work less hard, and perhaps be a little complacent - i.e. it might weaken them.

Growing up a child of immigrant parents, I was promised absolutely nothing - the whole "you must work twice as hard to get half as much as the natives" was ingrained into me an an early age, a dominant motto and ethos - and that pressure was, on the whole, beneficial, I would like to think.

Whatever modicum of mainstream "success" I have enjoyed to this point, I prolly owe in large part to this mindset.

Back in my days of residency, there was this idea that medical training was essentially the process of trying to turn coal into diamonds.

How do you try to accomplish that? Through extreme pressure.

The more specialized branches of the military all follow this philosophy, for the most part.

No safety nets - sink or swim, do or die. Extend a helping hand only when one is truly needed.

[Budge]

Of course, this will all change when our crypto currencies are introduced. They'll know where every last cent comes from and goes. Dystopian tyranny cometh.

Cryptos? Nah Budge, I'll trade ya two chickens, and two bottles of my best for your piglet.
Nyet? Okay he's a wee piglet anyway. Change my spark plugs for a chicken then?

Yep, that's what'll happen. Just be careful how you do it. Lots more govt goons searching and confiscating.

[Yodean]

Lots more govt goons searching and confiscating.

Nah, they won't be goons ... it'll be some A.I. program keeping tabs on yer taxes.

[scott]

Lots more govt goons searching and confiscating.

Nah, they won't be goons ... it'll be some A.I. program keeping tabs on yer taxes.

Getting a bit off-topic here but, back in the day, Soviet Russia tried taxing apple trees; people cried, people cut them down. AI could track every apple, without goons, ostensibly. Russians would still find a way

[phsmith1616]

My goal is that by the time they turn 18 and have access to their money, that i have taught them enough to know not to touch it until they have enough to maintain themselves and continue to grow their wealth.

One thing to consider - just to offer a bit of a contrarian's perspective - is that it might be best not to let your offspring know that you are saving some money that they will later be able to access as adults.

If they know they have a bit of a financial safety net, they are likely to work less hard, and perhaps be a little complacent - i.e. it might weaken them.

Growing up a child of immigrant parents, I was promised absolutely nothing - the whole "you must work twice as hard to get half as much as the natives" was ingrained into me an an early age, a dominant motto and ethos - and that pressure was, on the whole, beneficial, I would like to think.

Whatever modicum of mainstream "success" I have enjoyed to this point, I prolly owe in large part to this mindset.

Back in my days of residency, there was this idea that medical training was essentially the process of trying to turn coal into diamonds.

How do you try to accomplish that? Through extreme pressure.

The more specialized branches of the military all follow this philosophy, for the most part.

No safety nets - sink or swim, do or die. Extend a helping hand only when one is truly needed.

I do agree with what you said. But this will be their own money they are saving. The money I set aside for them, is a secret. I want them to learn money is a tool and how to use it early. What better way than to use your own?