When you were a teenager, time seemed to stand still, and there was always something on your mind. Money was one of the main things you thought about, and you probably wondered how you could get more from your parents via weekly allowances and much more.
Nowadays, teenagers have so many more options when it comes to money. In addition to having a part-time job, there is stock trading for minors and apps that help kids learn about investing.
As a teenager, you have more time to start making intelligent financial choices via investing and building generational wealth.
As parents, you can start guiding your kids and showing them the different stocks for teens they can invest in. In addition, you can learn about the other stock options that can help you build wealth over extended periods. Spreading your investments as a teenager into different markets and stock types will help you grow your wealth.
So how can you do that? Read on to find out more.
Understanding Diversification: Spreading Your Investments for Reduced Risk
Diversification is the best way to reduce risk when investing in stocks and shares. Teenagers setting up a stock market account for minors should consider diversifying their investment portfolio.
For example, if you invest in one stock every month and then that stock plummets, you risk losing your money. When you invest in other stocks from various markets, your money can gain even more compound interest.
Setting Investment Goals: Identifying Your Financial Objectives as a Teenager
Are you saving for any long-term goals? Perhaps your parents have been helping you save for college, and you want to use investing to save even more money. As a teenager, you might have long-term goals you want to meet for yourself.
The general rule of thumb is it is better to invest to reach a long-term goal that’s at least 10+ years away.
Some of these might include:
- Saving money for a car
- Saving for retirement
- Saving for college
- Saving to travel the world as an adult.
- Saving to buy a home.
Assessing Risk Tolerance: Understanding Your Comfort Level with Investment Risks
Risk tolerance is the level of risk an investor is willing to endure in highly unpredictable stock markets. As you invest, you might notice that you have a low or even high-risk tolerance.
So how can you know if you are ready to take risks or play it safe? The answer is you will only know from the investments you do make.
Examples of low-risk investments
- Bonds and bond funds
- Income funds
Examples of high-risk investments
- Stocks
- Equity funds
- Exchange-traded funds
The younger you are, the more open you will be to taking risks with your investments. As a teenage investor, this could mean you invest in stocks, equity funds and exchange-traded funds rather than bonds and income funds.
As a teenager, you have more time to take risks, make mistakes, and learn from them. This can also mean you have more time to gain experience and know everything about investing to become a pro and then build generational wealth. On the other hand, if you start investing later in life, you might stick to low-risk options because you will aim to cash in on your investments soon.
In addition, if you have ambitious investment goals, you are more likely to make bold moves and invest in riskier, high-yielding markets.
Whether you are a high-risk or low-risk investor, it is always good to understand your investment goals and map out a plan for your investment plans. This takes us to our next point.
Researching Investment Options:
Once you have decided on your investment goal, you should start looking into different options that work for you. Parents can help their teenagers by sharing their experience of investing too.
Tips for Gathering Information and Making Informed Decisions:
- Follow the industry news of the stocks you want to invest in.
- Follow other world news and understand their challenges before investing in a new market.
- Read the success stories of other investors to understand their mindset – and follow suit.
- Set up a dummy account and play around with investments before doing the real thing.
- Search for investment app games to learn about investing in a fun and interactive manner.
- Learn as much as possible about the stock market by watching insightful YouTube videos.
- Share what you learn about the stock market with your parents and make it a fun experience. It will keep you interested in investing in the long term.
- Ensure you read the most up-to-date information about stock market news by checking verified news sites.
Considerations for Teenage Investors: Account Types, Legalities and Parental Involvement
If you want to invest in the stock market as a teenager, your parents can set up a custodial account. The money saved there will be tax-free until you turn 18 or 21 (depending on the state). Parents can consider this option when their children are incredibly young (it will give the investments enough time to grow and gain compound interest).
Investing for the Long-Term: The Power of Compounding and Patience
As a young person, if you invest in the stock market, you have more time to learn how to invest and grow your wealth over many years.
The reason for this is when you invest, the amount you earn is compound interest, which continues to grow over an extended period when it stays in the account. The more you invest over time, the more time your money will have to generate interest.
Since teenagers have little responsibility, they are more likely to grow their wealth via early investments, which will increase over the years.
In closing, by teaching your teen about investing in the stock market, you will be setting them up for life – and they have more of a chance of building generational wealth through the power of compound interest. As a parent, you can help your teen get excited about investing by explaining its importance and guiding them to diversify their investments.
