Up to 80% of teenagers are actively saving money. That's fantastic news! But is saving enough?
If you want to make your money work for you, you don't just want to save it. You want to invest in it. When you invest your money, you earn more money than you would just by having it in a bank account.
Investing for teens can be scary. How do you even get started? We're here with a few basic tips that can help you start making smart investments during your teenage years, even if you don't have much money to work with.
Read on for our top 13 tips for investing for teens.
1. Start Early
The first, and perhaps most important, piece of advice that anyone can give a beginner investor is to start early. If you're a teenager, you're in a perfect position to take this advice. You have your whole life ahead of you, and if you start making even small investments now, they can blossom into large sums of money by the time you're ready to retire (or even long before then).
The power of compounding works best over time. Starting to invest early allows your money to grow exponentially.
One of the benefits of learning to invest young is that you still have time to make mistakes. As long as you're smart with your money and don't invest more than you're reasonably able to, you have the ability to experiment with different investment opportunities and risks that older investors may not feel as comfortable with.
2. Understand Risk
Many new young investors struggle to understand the true risks that come along with investments. Teens also tend to struggle with the concept of risk, so you've got two things working against you here. You must always calculate (or at least understand) the risks of investments before spending money.
Learn about different types of investments and the associated risks. Higher potential returns often come with higher risks. Lower or slower returns, while less exciting, often come with lower risks and are thus safer and more reliable investments.
There's nothing wrong with risky investments per se, but they can lead to large losses if you're not careful. The saying goes "High risk, high reward," and that's true. However, the higher the risk, the higher the loss as well.
3. Set Goals
It's always easier to stick to a plan when you have clear goals set out for yourself. When you start investing, set goals for what you're going to do with that money.
Define your investment goals, whether it's saving for college, a car, or retirement. Yes, retirement may seem far away now, but the sooner you invest, the sooner you can reach it.
Having clear goals helps guide your investment decisions. For example, if you know that you're already planning for retirement, you may focus on some slow and steady investments that you know will take a long time to grow, but will be consistent. If you're saving for college, you may focus on higher-risk investments that are faster.
4. Diversify
Have you ever heard the phrase "Don't put all of your eggs in one basket?" It applies to investing. You don't want to put all of your money in one place.
That one investment could go under, but even if it doesn't, it's just not a good use of funds.
Don't put all your money into one investment. Diversify your portfolio across different asset classes, such as stocks, bonds, and real estate, to spread out the risk. Even just choosing multiple stocks instead of one stock is a great way to add some diversity to your portfolio.
5. Learn the Basics
As a new investor, you want to learn the basics before you start branching out. That's what you're doing now, so you're already on the right track.
Educate yourself about key investment concepts, including stocks, bonds, mutual funds, ETFs, and risk management strategies. Before you invest in anything, learn about the potential investment platforms and apps that you could be using.
You're young enough that you have plenty of time to learn first before jumping right into investing. Don't skip the basics.
6. Start Small
Don't feel like you have to jump into investing with thousands of dollars. Many teens don't have that type of money to spend yet, and that's okay. You don't need to go overboard right from the get-go.
Begin with small amounts of money that you can afford to invest. Many investment platforms allow you to start with as little as $100. There are even apps that let you invest your leftover change from purchases, so you can start with a few cents.
If you have the money saved up to start with larger investments, do so, but don't get in over your head.
7. Consider Index Funds
Index funds offer a low-cost way to invest in a diversified portfolio of stocks that track a market index, such as the S&P 500. This is often a safer and more reliable (albeit slower) way to invest. While the price of these funds will still fluctuate and any investment is a risk, the price goes with the market, so as long as the market is up, you can expect the index fund to be up.
Many new investors dislike index funds because they're not exciting, but you don't want your investments to be exciting most of the time. You want them to be reliable.
8. Avoid Timing the Market
Trying to time the market by predicting short-term fluctuations is challenging. It often leads to poor investment decisions, even for people who have decades of investment experience. Focus on long-term investing instead.
Too many people get into investing due to "meme stocks" that they see on social media. It's true that you can make money from lucky investments with stocks like these, but you can also lose a lot of money this way.
Slow and steady is often the best method.
9. Invest Regularly
Consistently invest a portion of your income or savings over time. Investing a few dollars every week is better than nothing.
Dollar-cost averaging can help reduce the impact of market volatility on your investments. Try to be consistent even when the market is down. Remember that the market ebbs and flows, so the $20 that you put into it when it's down will grow in the future.
10. Stay Informed
Stay updated on financial news, market trends, and investment opportunities. Follow reputable financial websites, blogs, and even podcasts to expand your knowledge.
If you want to be a serious investor, you have to stay educated unless you plan on hiring a financial advisor (and even then, you still want to stay up-to-date on financial news for your own sake).
Before buying a stock, do your due diligence and look into the company. See if there are any notable red flags. Before throwing a lot of money into a real estate investment (if you're in the lucky position to be able to do that so young), look at the housing market and see if that's really wise.
11. Practice Patience
Investing is a long-term endeavor. It's a long game, and it will often feel unbearably slow. You can't expect to make a lot of money off of the stock market right away, especially if you only had a small amount of money to invest in the first place.
Be patient and avoid making impulsive decisions. Try to avoid withdrawing your earnings unless you have to. Don't pull money out of an investment without thinking it through first.
Exercising patience will help you a lot as a young investor, but it can be tough.
12. Seek Advice
Consider seeking guidance from a financial advisor or mentor who can provide personalized investment advice. Someone with more experience can help you navigate complex financial decisions.
If your school has an investment class or club, that can be a great resource for you. Any class that discusses finances can help you a lot on your investing journey.
Ask any adults in your life if they have any experience investing. If they don't, they may be able to connect you with someone who does.
13. Stay Disciplined
Stick to your investment plan. Do your best to avoid emotional reactions to market volatility. Stay disciplined in your investment approach and focus on your long-term financial goals.
It can be tough to avoid panic-selling or buying stocks that look shiny and exciting. When you use discipline, you can push through those impulses, stick with your original plan, and stick to your long-term investment goals.
Investing for Teens: You Can Do It
These tips for investing for teens can help set you and other young investors up for financial freedom in later adulthood. Investing seems scary, but it doesn't have to be. With the right investment strategies and a bit of patience, even a beginner investor can make great investment choices.
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