How to Start Investing As a Teenager

Sep, 2022 - by CMI

How to Start Investing As a Teenager

Young people have never been exposed to as much financial information as they are now, from YouTube to TikTok. But with more teens becoming interested in a topic as complex as teen investing, it's vital that they're knowledgeable about it. We'll show you how the following generation can create a solid starting point for their investment journey.

Investing is all about putting money into something in the hope of realizing a profit at its core. It's one of the most effective methods to grow your money for the future — you don't need to earn top dollar throughout your career to meet your financial objectives if you invest intelligently and early. The biggest advantage that young investors have is time, which is their most valuable asset when it comes to investing. You have far more time as a teenager to take advantage of compound investing and improve your financial literacy abilities. Just for the sake of comparison, if you invested $10,000 into the S&P 500 for an average 7% annual return at 18 rather than 28 years old, by retirement age you'd have $240,000 instead of $122,000. The power of compounding interest is stunning and should not be taken lightly.

Take the time to educate yourself

Before beginning to invest, it's crucial that you learn as much as possible. A frequently used saying in finance is "do your due diligence" which means investigating an investment opportunity with care and attention. This can have a major impact on whether your investment decisions are prosperous or not. This applies to both specific investments you researched and investing generally.

A strong foundation for success comes from reading personal finance books. You can start learning from classics like The Intelligent Investor or move on to more modern reads like The Little Book of Common Sense Investing. Understanding investing now will better prepare you for future opportunities.

But, in today's world, investing knowledge does not have to be limited to what you can discover in books and periodicals. With the internet at your fingertips, you have access to thousands of resources that will teach you about the ins and outs of investment. If you're wanting to understand different concepts and terms that relate to stocks and the stock market, then Investopedia is a great resource. Another useful website for following any news on stocks is Yahoo Finance.

However, be cautious where you obtain information since there are some bad actors in the online personal finance industry, especially on social media. You should perform similar due diligence on the information's sources as you would with potential investments. The Plain Bagel has an excellent video on the problem with influencers giving financial advice and why you should be wary of anyone that isn’t a certified financial advisor recommending stocks. As a newbie investor, it can easy to get caught up in what seems like amazing stock tips, but it’s important to remain skeptical and think about the transparency and objectivity of your sources.

Do not overthink your investments to the point where you cannot take action. It is easy to get caught up in all of the information available and miss out on chances for gain if you are constantly second guessing yourself.

Think about your investing goals

Before investing, it is crucial that you establish investment goals. Remember that everyone has different objectives for their investments, and your strategy should be personalized to fit your needs. For example, a retiree's goals will differ immensely from those of a teenager. Before you even begin investing, it is important to have a clear idea of what your end goals are. This could be something like saving for travel or retirement. Once you have that figured out, you can start using SMART goals (Specific, Measurable, Achievable, Relevant, Time-based) to map out your journey.

Once you know your objectives, you'll be able to see what your investment time frame is, which can assist you determine your risk tolerance. You have a higher risk tolerance as a teenager than someone approaching retirement age because you have much longer to rebuild your investments if they fall in value. The amount of money you need to be investing is also determined by your objectives. You may invest in assets with various growth potential according on your risk tolerance and time horizon.

Explore different ways to invest

The next best option to save is through a matching program at your place of employment. This is when you can invest up to an annual limit in a retirement investment account, which will be matched by your employer. The 401k in the United States and KiwiSaver in New Zealand are two examples of such plans. The great thing about these investment accounts is that they do not have a minimum age requirement, so you may contribute to them even if you are under 18 years old.

A good way to start learning about investing is by using a virtual trading platform, where you can make investments with play money. This lets you get experience without any risk and learn from your mistakes. Another option that has become very popular in recent years is online investing platforms. Many platforms have emerged in recent years, including Robinhood, WeBull, Sharesies, and Hatch. These are ideal for novices since they allow retail investors to invest small sums of money from the comfort of their own homes without the need of a traditional stockbroker. Many of them also provide a lot of information to assist you get started investing.

Compound growth is key for teenage investors. By investing now, you can take advantage of this and build wealth later in life. Keep your investment goals in mind and stick to solid investments that will grow over time. Remember – the sooner you start, the better!