If you are a teenager, and are motivated enough, you can start investing at a very young age. The term investing is used pretty loosely and it can be as simple as throwing up a quick savings account with higher interest or a Certificate of Deposit at a bank. There are a few things a teenager, under the age of 18, can do to start investing.
Open a Custodial Account
A custodial account is when the parent of the teenager opens the account for them. They are the “custodian” of the account until the teenager reaches the age of maturity. The age of maturity depends on your state and is usually 18, 21, or 25. You really have two options here – you can open a traditional custodial brokerage account or a Roth IRA if you have more money. The broker account is usually the choice most people go with.
The biggest thing you need to pay attention to is tax purposes. Having a large investment account can impact your future ability to get financial aid from the government and FAFSA. However, it’s a great way for young teens to start learning how to invest with little money.
Basics of Investing for a Teen
Basic Rule #1: You should ALWAYS set a goal for your investing.
If you don’t have a goal for short or long term investments then you’re more likely to lose your money. If you need the money in less than five years, don’t jump into any long term commitments. If you’re interested in longer term investments the stock market can be a big way to gain quite a bit of money with a higher risk. You should learn how to properly buy stock before you spend money.
Basic Rule #2: Diversify, Diversify, Diversify
This isn’t Harry Potter. That isn’t a magic spell. If you don’t diversify your funds you will end up possibly losing it. The “don’t put all your eggs in one basket” concept comes into play here. You don’t want to lose everything, to build back up would take even longer. As your assets grow this becomes more and more of a requirement in your portfolio. You want a mix of low, medium, and high risk investments.
Basic Rule #3: Allocate Them Assets
This falls into diversifying your portfolio. You need to make sure you have a wide selection of stocks, bonds, and even liquid cash to make a move when you need to. You have to act fast when it comes to a lot of investments or you may lose out on the chance to make large sums of money.
Basic Rule #4: Understand Risk vs Reward
The higher the risk, the higher the reward. A suggestion for just starting out is to not spend a bunch of money or time on high risk investments. You’ll want to target some low risk investments to build up even more funds that will give you room to “play”. Once you’ve built up enough funds to have a safe cash reserve, make the jump into higher risk markets.
Basic Rule #5: Stay Educated
Investing is not so much a “set it and forget it” thing to do. Once you start investing your money you need to start investing your time. You have to do research on the companies you invest in. Just about anything can change the value of a stock in the stock market or the interest on a bond. If there is a bad news release on a major company they can lose billions – just ask Facebook or Google.
Basic Rule #6: Just Like Gambling, Don’t Invest More than You Have
You should never invest more money than you can stand to lose. Just like gambling – it’s addicting. You track your stock, you watch the news, and you set a budget for how much you want to spend. You pull the trigger. Then you hope in a week, month, year or even longer that you’ll profit. However, if you feel uneasy about the stock or have a gut feeling – follow it. You’re better off taking a profit than a loss any day, even if it’s minimal.