How to Invest Your Money as a Teenager
You gain a huge monetary benefit as you mature by investing when you’re still a teenager. You can take advantage of compound interest more and obtain youth tax benefits than most investors since you have a longer time to save money for retirement and begin investing.
Not to add, developing your investing skills while still in your adolescent years can help you later in life when you can invest larger quantities of money.
Even though learning how to start investing as a teenager can be challenging, it is possible. But assistance is necessary. You’ll need a responsible adult to assist you in setting up and managing your accounts first.
Let’s examine how to invest while still a teen. Everything you’ll need will be covered in this comprehensive primer, including how to get started, the kinds of investments that teens should think about, and the best investments for teenagers.
Investing for Teens
What Is the Age Requirement to Invest in Stocks?
Before you start contacting the investment bankers we’ve evaluated here at Investor Junkie, keep in mind that there is one major issue with being a teen investor: you must be at least 18 to begin trading in stocks.
Many investment apps appear designed for teenagers (hello, Robinhood), but you must be 18 to join. This restriction is a legal obligation unique to the investment business, and there’s no way around it, certainly not immediately.
What Teenagers Should Be Aware of Before Investing
In light of Alexander Kearns’ unfortunate and untimely death, it’s critical to underline that investing entails psychological and financial risks. However, you can significantly improve your prospects of long-term success if you go cautiously, pay attention to advice, and make just modest investments at a time.
Here are five strategies to help you improve your odds of winning the financial “game.”
Understand the Requirements
The age requirement to engage in stocks and real estate varies by state and can be either 18 or 21.
- Stock Market – You need to create a “brokerage account” before you may invest money in the stock market. In this account, you make deposits with an authorized broker, who will then trade on your behalf. The typical age requirement to open a bank account is 18. To invest like an adult, you can open a custodial brokerage account alongside your parents!
- Real Estate – Similar to this, most of the paperwork needed to own property in real estate requires that you be 18 years old.
Speak With Your Parents
You should be open and honest with your parents about your investment objectives, even if you are already 18 years old. They probably have a retirement fund and have seen economic peaks and troughs, so they probably have knowledge of money management and investment that you don’t.
They’ll also likely be grateful that you initially turned to them for advice and assistance. The greatest feature is that your parents might be willing to put you in touch with their financial consultant directly. Grandfathering into your parents’ advisory firm is a great method to benefit from an established connection.
Receive Insight and Assistance from Experts
It can be exhilarating to invest. You might be drawn into the amateur investing nuthouse or wall street bets when more and more people sign up for applications like Robinhood or hear alluring rumors about “the next big IP” or feel envious of a student at school who allegedly “just earned $600 off of a single trade.”
But it’s crucial never to let sentiment override reason while handling your hard-earned money. In the business sector, a proverb can be applied to just about anything: “Trust, but check.”
Never join a bandwagon; instead, let statistics direct your financial decisions. Ask a specialist for guidance if you’re ever uncertain about a particular trade or investment, and then conduct free web research.
Think About Clubs and Online Trading
This is not to argue that investors shouldn’t be social, though. In fact, one of the best ways to hold yourself responsible and hasten your learning is to surround yourself with financially knowledgeable friends.
Find out whether there is an amateur investors group at your school, then join! Since many investment sites will provide you and your colleagues with free shares of stock just for registering, be sure to ask around for some reference codes.
Consider beginning with a virtual trading account once you’ve found a strong group to learn from and invest with. Strangely, virtual trading is sometimes referred to as paper trading and entails conducting actual trades using fictitious funds.
Be Patient and Begin Slowly
The skill of investing is developed gradually. After becoming comfortable with paper trading, the greatest course of action is to spend the smallest sums in the most locations and merely track how your money develops over time.
By doing so, you’ll discover how to invest in various assets, use multiple platforms, and—most importantly—track your holdings over time so you can respond quickly to the market.
Going into an investment with the goal of learning, not making money, is the secret to success.
When novice investors attempt to gain millions overnight by investing their money in the wrong things, they make costly errors. Real money is produced through many years and decades of wise decisions supported by patience, humility, and research. According to statistics, 20% of wealthy Americans’ 30 years’ money was invested. Opposite to what the press implies, most of the rich are turtles rather than rabbits.
Which Teen Investment Opportunities Are the Best?
You will invest alongside adults and professionals because there are no particular investment options for young people in the American economy. Nevertheless, a few investing possibilities are appropriate for young people.
The most straightforward way to invest is by buying stock. A component of a corporation known as “stock,” expressed in “shares” units, gives you the right to a portion of its profits. A portion of the profits made by a firm is now yours if you buy a share of its stock. There are two methods for gaining from stocks:
Initially, some businesses will provide you with a “dividend” or a portion of their profits based on the number of shares you own. For example, Amazon will give you a $5 check if you own one share of AMZN with a market value of $100 and a “div yield” of 5%. The most frequent time for dividend payments is quarterly, although div yields can change over time.
Second, some businesses will reinvest shareholder dividends rather than paying you a dividend for owning shares (this is referred to as a div yield of zero). Why is it a positive thing if a corporation withholds your dividend? Because the company will likely appreciate as a result of the reinvestment, increasing the value of your shares.
By reinvesting your $5 dividend, like in the previous example, Amazon can increase the value of its shares and bring it up to $120. The value of your share increased by $20 even if you didn’t receive your $5 check.
A group of stocks and other investments that have been combined and are traded as a single stock are known as exchange-traded funds or ETFs. Numerous equities and other assets may be included in an ETF, possibly thousands. Some of them even incorporate stocks from other countries. It might be industry- or region-specific.
ETFs are popular among investors because they offer a handy option to invest in specific market areas without extensive research and purchasing many individual firm equities.
Let’s take the example of wanting to invest in solar energy.
You might invest in solar energy by purchasing a solar energy ETF in a single move rather than spending a whole year researching various solar energy firms, paying commissions on each trade, and setting up tools to track the 100 different equities you now hold.
ETFs offer more convenience than individual stocks and have cheaper trade fees. They also carry less risk. What happens if one of the companies in a solar energy ETF goes under?
Your investment is secure since the other thousands of companies in the ETF are performing well. In conclusion, if purchasing stock is like investing in a single firm, purchasing an ETF is like investing in a whole nation, sector of the economy, or another market area.
ETFs and mutual funds are comparable but not the same. Despite the fact that both are “grab bags” of stocks and other assets that typically represent a whole market segment, differences in their trading and management practices become apparent.
First, ETFs can be bought and sold during trading hours, like equities (weekdays, 9:30 AM through 4 PM EST). On the other hand, mutual funds are only available for purchase at the conclusion of trading hours, when their value is determined.
Second, ETFs are maintained passively, whereas mutual funds are handled actively. Unlike ETFs, a mutual fund’s stocks and assets are regularly moved around by better people than you and me to increase value for holders (investors).
Due to this, mutual funds frequently have high minimum investment requirements (typically around $2,000) and hefty management costs. Still, they also offer better yields (payout more money) and are steadier investments than ETFs.
Investing in Stocks, ETFs, and Mutual Funds
Here is a quick primer on how to begin investing in stocks.
- Create a budget plan: Start out small, with $200 or less, until you understand the process and are confident in making larger investments.
- Select a Broker: A broker is someone that performs trades for you through a website, app, or other means. See my list of the top investment tools for teenagers below for a comprehensive overview of your alternatives.
- Register For a Trading Account: You will be asked for personal information and to deposit money into your account to invest when selecting a broker like E*TRADE. This is an excellent place to start if you haven’t already included your parents.
- Buy Your First Stock: Leave the bulletin tapes and the sweating brokers screaming into the phones behind. Through the internet or app-based broker, buying stocks, ETFs, and mutual funds is as simple as doing so on Amazon Prime.
- Follow Up on Your Portfolio: Once you’ve made your first $100 investment, simply keep an eye on your portfolio for a few weeks. Follow headlines on the firms you own stock in and become familiar with the market monitoring techniques offered by your preferred broker.
Think About Investing in Real Estate
Real estate permits you to invest in land and structures, similar to how the stock market allows you to do so with businesses and sectors. Generally, investing in real estate is more time and money intensive, but it might result in higher short-term yields (profits).
Buying and renting a house is the most popular and beginner-friendly real estate investing strategy. For instance, if you buy a house or apartment in your teens or early 20s and decide to become a landowner, it’s conceivable to make $1,000+ a month in rent while your property increases in value.
Rent payments can be used to lower your student loan debt or accelerate your mortgage repayment. You can sell the home’s equity for a sizeable gain if necessary.
You can invest in industrial and commercial property investment in addition to residential. However, these are often only available to experts or wealthy people due to the significant initial investment required.
How To Make Real Estate Investments
The fundamentals for getting started in real estate investing are as follows:
- Create a Funding Plan: Remember that buying real estate requires significant time, money, and study. A 20% down payment on a single-family home could cost between $10,000 and $50,000, based on your local market.
- Gather Information: The home values of various neighborhoods in your city can be found on websites like Roof stock and Zillow, in particular.
- Speak With a Qualified Agent: Property investment is a relationship-based industry, and many realtors are happy to speak with a potential one-day buyer for 30 minutes on the phone. To speak with a local agent about areas, housing trends, and potential investment possibilities, ask your parents to put you in touch with them.
- Do Your Research on Finances: The same procedures and guidelines apply when buying a home as an investment as when purchasing your primary dwelling.
- Buy Your Property and Locate Tenants: Being a homeowner in your teens could be the appropriate choice if the circumstances are ideal, the market is favorable, and your finances are in order!
There is never a bad time to consider investing. As demonstrated, even the tiniest amount you may invest as a teen can grow to millions by the time you truly need it. Making judgments based on information and direction rather than emotion is the easiest approach to avoid blunders.
Discover some of the greatest ways teens can earn, save, and budget now that you understand how to invest.