From wearing the right outfit to getting into a good college, teens have a lot on their minds. But one thing not many teens think about is learning how to invest their money. And they should!
Your teenage years are the best time to set up your financial future. At this age, you can start learning about investing and put your knowledge into action. Doing so can help your money grow so by the time you’re an adult, you can have funds in the bank ready to make your goals a reality. That’s why we rounded up our best tips to help you learn how to start investing and building skills that’ll last you a lifetime!
Why Investing is Important
Wouldn’t it be great to buy a condo after college? How about starting your own business, or having the money to buy a car in cash? Investing is a way to make your money grow and accomplish your biggest goals – but you’ve got to start now.
Investing as a teenager has more advantages than starting later in life because time is on your side! Even if you’re on a tight budget, like most students your age, you can still invest a small amount of money every month. And, over time, that can turn into tons of money!
Need another reason to start investing early? How about years to learn from your successes and failures? Plus, the opportunity to improve your investing strategies before you have grown-up responsibilities! The valuable experience you’ll get from starting to invest as a teen will help you become a more informed adult investor.
How to Invest Money as a Teen
Alright, we made our point. But how do you actually start investing? It’s actually easier than you think.
A common way to make your money grow is by investing in the stock market. This basically means buying and selling stocks.
Stocks represent ownership in a company. People who buy stocks are one of the company’s owners, AKA shareholders. If you’re a shareholder, you make money by selling the stock at a higher price than you bought it for.
Sounds simple, right? But to invest in the stock market we have to learn some things first.
Unlike saving, investing in the stock market comes with risk. People put money into stocks hoping to earn a profit. However, it’s always important to remember that there’s no guarantee of earning money. In fact, you could lose money.
For instance, imagine you buy a share of Nike for $200. After a couple of months, Nike drops a new model of sneakers. Two things can happen next:
- Scenario 1: People get very excited about the new sneakers and they sell out everywhere. Nike makes big bucks. People see that the company is doing great and buy the stock. This makes their price go up to $230. If you sell your share, you’d earn $30 because you paid $200 for it and sold it for $230!
- Scenario 2: People hate the new sneakers and don’t buy them. Nike loses big bucks. People see the company is not doing well and those who own their stocks start selling them. This makes the price go down to $170. If you sell your share, you’d lose $30 because you paid $200 for it and sold it for $170!
In the short term, stock prices constantly go up and down. This is called fluctuation. But in the long-term, they usually move upward. This means that investing in the stock market is a long-term strategy, not a get-rich-quick business. Lucky for you, you’ve got years ahead and plenty of time to jump on the investment bandwagon.
If you’re thinking you need hands-on experience before entering the stock market, you’re right. The great news is that these days, there are lots of stock market simulators out there. This is known as paper trading, and it’s a great way to gain experience as a first-time investor.
The way it works is simple. You open a paper trading account, and you get a certain amount of “pretend” money. With this money, you choose the stocks that you think will perform well and build your investment portfolio. Then, you sit back and watch what happens.
Of course, you can also sell stocks and buy new ones. This will cost you fees, which will come from your “pretend” money. As you can see, it’s a realistic and fun way to avoid the risk of losing real money while learning about the stock market.
Best of all, you can do it with your family and friends. You guys can even compete with each other to see who has the highest profits!
Bringing your Family On-Board
Parents are happy to help you start investing your money most of the time. Talk to them about your goals and dreams for the future, and don’t be shy to share how you plan to use the stock market to make your money grow. Chances are, your family will feel proud and encourage you to continue in your financial journey.
Opening a Brokerage Account
Once you feel comfortable enough with the basics of investing, you could talk to your parents about opening your first b brokerage account. Since you’re still a minor, you’ll need to open what is known as a UGMA/UTMA account. It stands for Uniform Gifts to Minors Act and Uniform Transfers to Minors Act.
These types of accounts allow teens to start investing in the stock market with their parents as the account managers. Once you become an adult, you can take complete control of your account and manage your own investments.
If you’ve earned income from a part-time job or your own business, you can also open a custodial IRA account. This retirement account lets you save for when you’re older. Plus, it also offers tax benefits that could make it an excellent choice for you.
The easiest way to enter the stock market for many teens is by hiring a financial advisor. With their help, you can open the best type of account for you and create a portfolio that supports your goals.
Researching and Deciding What to Invest In
If you and your parents decide to manage your own investment portfolio, it’s important to always buy stocks of companies you like and understand. You should thoroughly research the company’s history and its stock price trends before investing. Thanks to all the research and analysis websites that are available today, it’s easier for beginner investors to dip their toes in the stock market.
Once you’ve decided on the companies you would like to invest in, buy one or two individual shares. Then, check their performance at least once a week. Is the stock price increasing or decreasing? Why are these changes happening? Checking your investment regularly will allow you to continue learning and make educated decisions!
If you decide to keep funding your brokerage account, consider reducing investment risk by diversifying your portfolio. Instead of buying additional individual shares, you can focus on low-cost index funds or ETFs. But the same rule applies: you must do your research and educate yourself on what you’re buying before making any purchases.
Ready to be a teen investor? Not so soon. First, you may wanna learn these basic financial terms to help you understand your research and make better decisions:
- Investment: Something that you buy because you believe it could earn you a profit in the future.
- Stock Market: A collection of shares in many companies that are available for buying or selling. The stock market often serves as an indicator of the health of the economy.
- Stock Exchange: The marketplace where investors buy and sell stocks. In the past, these were physical locations where people met and traded. Today, a large portion of these trades are done electronically.
- Stock: A small ownership in a company.
- Bonds: A receipt that a company or government gives you when you lend them money. It states how much they will pay you in interest and over what period of time.
- Mutual Funds: A pool of money that allows investors to bring all of their money together and buy many different securities in a single investment.
Books and Other Resources to Learn About Investing
Want to learn more about investing? Great, because this is just the tip of the iceberg. Here are some great books and resources so you can take a deeper dive into the world of investing. Want more recommendations? Check out our complete list of the best money books for teens!
Rich Dad Poor Dad for Teens is all about smart financial choices and making money work for you! It includes lessons on how to speak the language of money, investing, and ways to help you achieve financial freedom.
The Teenage Investor: How to Start Early, Invest Often & Build Wealth is written by a 13-year old who bought his first stock at the age of 8. Now, they have a diverse portfolio and a great deal of knowledge. That’s why this awesome teenager can share their step-by-step plan to help you invest in stocks, bonds, mutual funds, and more!
The Modern Guide to Stock Market Investing for Teens covers everything you need to know about the stock market, personal budgeting, saving, and making money. You’ll be inspired to change your life by investing the money you have now, no matter the amount!
If you’ve dreamed of becoming a millionaire but don’t know where to start, A Teenager’s Guide to Investing in the Stock Market will help you out! You’ll learn all about Wall Street and get the financial skills to start saving and investing now. And you know what the best part is? It comes with a roadmap for opening an online account, purchasing stock, and putting your money to work!
In How the Market Works, you’ll receive $100,000 in virtual cash to start learning how the stock market works and practice trading!
With TD Virtual Stock Simulation you practice trading every U.S. stock at real prices and can see your real-time ranking against your friends or classmates!
As you can see, there’s tons of info out there for teens who want to get into investing. It’s one of the best ways to get started on your financial journey and set the path to achieving your life goals.