Am I an Idiot for Offering this Investing Deal to my Brother?
I believe investing can significantly improve quality of life. I want my family to benefit from investing, not just me individually.

Problem: My brother doesn't invest. He's too scared of losing money.

Over the long term I think it's much riskier to not invest at all. I want to get my brother into investing, because over the next 30 years, our whole family will be better off if he does.

Solution: I offered my brother a deal to eliminate his risk and transfer that risk to me.

The deal: My brother puts $8k into the market. One year from now, if the value of his investment is less than $8k, I will give him the difference. If his investment is more than $8k, he keeps the gain— up to double his initial investment. If the investment more than doubles, I keep anything past the doubling.

I doubt his investments will double, so I'm not really doing it for my own upside (but if it did more than double, hey, I feel like I deserve some upside, no? 😅).

The main reason to do this is to give my brother no excuse for getting invested in the market. He can't lose, so it's better for him to put his money to work then let it sit in a bank account collecting dust.

On my end, I'm taking on a lot more risk, but I have set aside some money in the event his investments go down. In my mind, that is a fee worth paying in order to get my brother engaged in the markets and investing... hopefully for the long term.

So what do y'all think? Am I an Idiot for Offering this Investing Deal to my Brother?

Would you ever consider doing something similar?

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Pat's avatar
Well if you offered it to him I wouldn’t post about it Bc you probably aren’t licensed to earn performance compensation. But yes, I think that’s a good deal for you both. But also a bit shortsighted. Pay him or the portfolio? If there is a market correction, does he pay you back? Why only one year?
Andy Buchanan's avatar
Title change: *Will this get me in trouble with the IRS? 😆🙃
Andy Buchanan's avatar
@patwallen I was going to pay him directly, but maybe I we could set up a trust and I could pay that?
Andy Buchanan's avatar
@patwallen If there's a market correction he doesn't have to pay me back. But maybe I'm misunderstanding the question?

Only one year because at the end of the year I hope he will be more comfortable investing and then we can 'take the training wheels off'.
Pat's avatar
@andybuchanan I mean imagine at month 11 it’s worth 4K. At month 13 it’s worth 12k. Your brother nets 100% gains?
Andy Buchanan's avatar
Great point that the timing could really mess with things. @patwallen

But the timing could also go in my favor. It could triple right at month 12, netting me $8k, and then at month 13 it could drop to $4k, losing my brother 50% of his money.

At the end of the day this "deal" isn't perfect, but it's designed to get him into investing. I'd rather him be in the markets, talking with me, then ignoring them completely.
Josh Rozin's avatar
2 things off the top of my head:
  1. Removing the risk will have an education impact. For me, I really learn from my losing trades. One way to circumvent that is for him to keep a journal of why he entered/exited positions.
  1. I think he should reap the benefits of having a portfolio that doubles. On the other hand, this is possibly a great idea where he will take less risky positions due to him not wanting his money to double.
Andy Buchanan's avatar
True- removing the risk will decrease the educational impact. But not investing at all removes all the educational impact 😄
Andy Buchanan's avatar
@josh I like the journal idea. Documenting your investing moves helps solidify the educational impact.
Andy Buchanan's avatar
I also thought about setting it up where I benefit if the portfolio goes up and he only benefits if the portfolio doubles. But then he would be incentivized to Yolo it all on things that could double and I would be the one who would lose money if the portfolio went to zero 🤦🏼
Aaron Kettl's avatar
I recommend using it as a coaching opportunity for you, and hopefully your brother can learn how to manage a portfolio with low risk. Teach him to fish, don’t do all the fishing for him.
Andy Buchanan's avatar
I like this a lot, thanks @aaronkettl. I'm looking for that balance where I'm teaching him to fish but not fishing for him.
Aaron Kettl's avatar
@andybuchanan awesome! Document how you pick stocks based on your scorecard, and how you setup a portfolio to minimize risk. Then get him to place a trade. That’s the best way to feel the transaction and get him invested in the process. You got it!
Aaron Kettl's avatar
@andybuchanan I had another thought. Ask him to look around at the products and services he uses every day and believes in. Does he shop at $TGT or $COST or shop online at $AMZN ? Or does he use $MSFT or $AAPL products? Or does he go to $HD or paint with $SHW or build a deck with $TREX ? These are all great large cap stocks that are steady growth investments and they’re all continuing to innovate in different ways.
Andy Buchanan's avatar
That's a great idea @aaronkettl. Familiarity with the product is a good place to start. I'll present it this way and see what he comes up with! I'll let you know what he says- Thanks!
Gaurav Kotak @ Fincredible's avatar
I offered a similar deal to my sister. I cover the downside. Only difference is I never capture any upside. The only 'catch' is she needs to be able to any given point tell me at least some of the stocks she owns in her portfolio, and then I explain why I chose that stock to invest in. To @aaronkettl's point, trying to teach her to fish. And no you're not an idiot it's probably a fair deal but more importantly youre a good husband and bil. Can't put an ROI to that :)

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