3 Investment Lessons To Pass Onto Your Children

Passing investment lessons onto children is fraught with difficulty. After all, the investment landscape is always changing and the challenges faced from an economic perspective by one generation will usually be different than those encountered by the next. However, there are three general principles of investing which are likely to be just as relevant in future as they are today.

Margin of safety

Perhaps the most important aspect of investing is seeking a margin of safety. This is where a company’s shares trade at a discount to their intrinsic value. It means there is potentially less downside risk and the scope for a considerable upward rerating in future. This means the company in question could have a relatively enticing risk/reward ratio, which could boost overall returns in the long run.

Of course, predicting the future is exceptionally challenging for any investor. Inevitably companies, industries and economies will all experience difficulties at one time or another. Through buying shares with wide margins of safety, it may be possible to outperform the wider market not only in such difficult periods, but also during times of more prosperous economic performance.

Time period

In recent years, the popularity of long-term investing seems to have declined. Many investors appear to favour trading shares, rather than buying and holding them for the long term. While this can mean quick profits and a degree of excitement which may not always be present in long-term investing, it can also mean high risk and high losses.

As such, it seems prudent to pass onto the next generation details of the benefits of long-term investing. Investors such as Warren Buffett have been able to amass great fortunes simply by identifying companies with competitive advantages and holding their shares for a number of years. And with the effects of compound interest added to the mix, an annual return of 8% may be sufficient for anyone to build a large portfolio over a multi-year period.

Focusing on valuation

While valuing a company is subjective, the process of doing so can allow an investor to unearth potential opportunities to profit. Certainly, impressive earnings performance or a sound strategy may cause share prices to rise in the short run, but in the long run value investing has been shown to deliver above-average returns. Therefore, the benefits of focusing not only on the quality of a business, but also its valuation, may be a useful lesson to pass onto the next generation.

Clearly, there may be new ideas on how to value a company, while new metrics and ratios may become more popular in future. However, the idea that even the very best companies should only be bought for a fair price may mean reduced losses and higher profits for the next generation of investors.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Motley Fool Staff has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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