Introduction
Young people have a significant advantage when it comes to investing: time. Starting early allows their money to grow and benefit from compounding, which means earning returns on both the initial investment and any previous gains. Additionally, teenagers have unique perspectives influenced by their interests, activities, and values, which can guide their investment decisions.
For example, Millennials and Gen Z have driven trends like environmental, social, and governance (ESG) investing, aligning their financial choices with their values. While starting may seem overwhelming, there are simple strategies and tools available for young investors to begin.
Key Points for Young Investors
- Start Early: The sooner you begin, the more time your investments have to grow.
- Collaborate with Adults: Those under 18 can invest with the help of a parent or guardian through special accounts.
- Use Teen-Friendly Platforms: Some apps and platforms are specifically designed for young investors.
How Young People Can Start Investing
While minors cannot open their own brokerage accounts, they have options to invest under adult supervision. Custodial accounts allow an adult to manage investments until the minor reaches adulthood. These accounts are a great way to start retirement planning or other long-term goals.
Why Investing Early Matters
Starting young gives you more time to take advantage of compounding. For instance, if you begin investing $100 monthly at age 22 with a 10% annual return, you could have over $700,000 by age 65. However, starting at 15 could nearly double that amount to $1.4 million.
Financial experts agree that time in the market is one of the most powerful tools for building wealth.
Types of Investment Accounts for Teens
- Custodial Accounts: Managed by an adult, these accounts allow minors to invest until they reach adulthood.
- Custodial Roth IRA: This is a retirement account that requires the teen to have earned income.
- Joint Accounts: Minors share ownership with an adult, giving them more involvement in decision-making.
Questions to Consider Before Investing
Before starting, teens should ask themselves:
- Do I have extra money I won’t need soon?
- Am I okay with the possibility of losing some money?
- Do I have an adult to help me navigate investing?
- Do I understand the investments I’m considering?
Understanding Investment Risks
Investing comes with risks, including the possibility of losing money. Some investments are riskier than others, but higher risk can mean higher returns. Young people can afford to take more risks because they have time to recover from market downturns.
However, it’s essential to invest in a way that feels comfortable. If high-risk investments don’t suit you, consider safer options with lower potential returns.
What Teens Can Invest In
- Stocks: Buying stocks gives you ownership in a company. Stocks can earn money through dividends and price increases but can be risky.
- Funds: Mutual funds and exchange-traded funds (ETFs) invest in multiple assets, offering diversification and lower risk than individual stocks.
- Bonds: Bonds are loans to companies or governments, offering steady returns but lower growth potential.
- Other Investments: Options like certificates of deposit (CDs) or even cryptocurrencies are available, but they vary in risk and complexity.
How to Start Investing as a Teen
- Learn About Investing: Use online resources or ask experienced adults for guidance.
- Set Goals: Define what you want to achieve with your investments.
- Choose Investments: Research and pick options that match your goals and risk tolerance.
- Open an Account: Work with a parent or guardian to open a custodial or joint account.
- Invest: Start small and build your portfolio over time.
Conclusion
Starting early gives young investors a huge advantage. While those under 18 need an adult’s help, custodial and joint accounts make it possible to begin building wealth. By learning, planning, and making thoughtful decisions, teens can set themselves up for a secure financial future.
