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Investing: Sometimes less is more

By Sheyna Steiner ·
Tuesday, April 15, 2014
Posted: 11 am ET

How do you think your portfolio would fare against the investment bets of middle schoolers?

Children from a middle school in Fargo, N.D. unofficially beat some older kids in a game of investing. Sixth graders from Oak Grove Lutheran School pitted their portfolios against those of investing clubs from New York University, Cornell University and the University of Pennsylvania as they competed to see which investing club would come out on top.

The middle-schoolers weren't officially part of the four-month competition between 10 college-level investment clubs hosted by Motif Investing, an online broker. Contestants got to pick up to 30 stocks and ETFs. The best performers, the McIntire Investment Institute, won $5,000 with portfolio returns of 18.5 percent. The Yale Student Investment Group landed in second place with 16.8 percent while Berkley Investment Group came in third with returns of 12.7 percent.

In their own experiment, the Oak Grove middle schoolers, Mr. Carlson's Math Minions, earned 21.6 percent returns.

"If you look at some of the college portfolios, they were pretty sophisticated. Some of them had levered up, they used inverse products, they were shorting. They were buying low liquidity stocks, small cap stocks and they were trying to beat the market," says Hardeep Walia, co-founder and CEO of Motif Investing.

"The sixth graders took a very Peter Lynch approach, investing in things they know and understand," he says. Their basket of stocks included Under Armor, Netflix, Starbucks and Amazon. The teacher, Dave Carlson, encouraged the students to think about the long-term and avoid hyper-trading, according to Walia.

There's a good lesson for everyone in this story. Keeping investment costs low, not trading a lot and focusing on the long-term can lead to very good results.

"I think there are three lessons," says Walia. "One is make sure you understand what you are doing; start with what you know."

Next, ask "What risk am I taking? And, is this investment expensive or cheap?" he says.

Sticking to basic principles is usually the way to win over time. What do you think: Do you keep your investing simple or do you try to beat the market?

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Follow me on Twitter: @SheynaSteiner.

Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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