Investing might seem intimidating at first, but starting early is one of the best ways to grow your money over time. As a teenager, you have the advantage of time on your side, which means your investments can grow significantly through compound interest. In this guide, we’ll walk you through the basics of investing and how to get started with your first investment.
Why Should Teens Start Investing?
Investing early comes with big benefits:
- Time for Growth: The longer your money is invested, the more it can grow.
- Learn Early: You’ll gain experience managing investments, which is valuable for your future.
- Build Wealth: Even small amounts invested as a teen can turn into significant savings over time.
What Is Investing?
Investing is the process of using your money to buy assets, like stocks or funds, that have the potential to grow in value over time.
Types of Investments:
1. Stocks
When you buy a stock, you’re buying a small part of a company. If the company does well, the value of your stock increases.
2. Exchange-Traded Funds (ETFs)
ETFs are bundles of stocks or other assets that you can buy and sell like a single stock. They’re a great option for beginners.
3. Mutual Funds
Mutual funds pool money from many investors to buy a mix of stocks, bonds, or other assets.
4. Savings Bonds
Bonds are loans you give to a company or government, which pay you back with interest.
How to Start Investing as a Teen
1. Learn the Basics
Before investing, take time to understand how it works. Learn about:
- Risk and return: Higher risk investments usually offer higher potential returns.
- Diversification: Spreading your money across different types of investments to reduce risk.
- Compound interest: Earnings that grow on both your initial investment and past earnings.
Resources to Learn From:
- Websites like Investopedia.
- Books such as The Little Book of Common Sense Investing by John C. Bogle.
- Videos on financial YouTube channels like Graham Stephan.
2. Open an Investment Account
You’ll need an account to start investing. If you’re under 18, you can open a custodial account with a parent or guardian.
Types of Accounts:
- Custodial Brokerage Account: Allows teens to invest with the help of an adult.
- Roth IRA for Teens: A tax-advantaged account for long-term savings (like retirement).
Popular Platforms for Teens:
- Fidelity Youth Account
- Acorns Early
- Robinhood (with parental supervision)
3. Start Small
You don’t need a lot of money to start investing. Many platforms allow you to invest with as little as $5 or $10.
Example:
- Invest $10 in an ETF that tracks the S&P 500.
- Over time, your money grows as the stock market increases in value.
4. Set Investment Goals
Decide why you’re investing and what you want to achieve. Your goals might include:
- Saving for college.
- Building long-term wealth.
- Saving for a car or a big purchase.
5. Choose Beginner-Friendly Investments
For your first investment, focus on options that are simple and low-risk:
- ETFs or Index Funds: Track the overall market.
- Fractional Shares: Buy small portions of expensive stocks.
- Savings Bonds: Safe and steady growth.
6. Invest Consistently
Regularly adding small amounts to your investments is more effective than waiting to invest a big sum. This is called dollar-cost averaging.
Example:
- Invest $20 every month in a diversified ETF.
7. Be Patient
Investing is a long-term game. Don’t panic if the market dips—investments take time to grow, and short-term changes are normal.
Real-Life Example
Meet Lucas:
Lucas started investing at 16 with $100 in a custodial brokerage account. He put his money into an ETF that tracks the stock market. By adding $25 each month, he grew his account to $2,000 by the time he graduated high school.
Tips for Success
- Do Your Research: Understand what you’re investing in before putting in your money.
- Diversify Your Investments: Don’t put all your money into one stock or fund.
- Avoid Emotional Decisions: Stick to your plan, even when the market fluctuates.
- Think Long-Term: The longer you leave your money invested, the more it can grow.
Why Starting Early Matters
Investing early gives you a massive advantage because of compound interest. Even small amounts can grow significantly over time.
Example of Compound Interest:
- Invest $1,000 at age 16 with a 7% annual return.
- By age 30, it grows to $2,660.
- By age 60, it grows to $16,000—all without adding more money!
Final Thoughts
Making your first investment as a teenager is an exciting step toward building wealth and securing your financial future. Start small, stay consistent, and focus on long-term growth. With time on your side, even small investments now can lead to big results later.