Smart Money Starts Young

Like many teens, I found investing confusing despite reading countless books and articles. That's why I decided to start this blog: to simplify investing concepts and share practical insights with other young teens interested in investing.

We need to start with the basics. What is investing? Investing at its simplest means using your money to generate more money instead of letting it sit idle in a savings account. You buy assets with money that are capable of increasing their value over time. There are several kinds of investments, and you need to learn about them along with their pros/cons.

Stocks: Buying shares means you own a part of a company. If the company is doing well, then the stock prices rise, and you may receive dividends as well. Stocks have the potential to provide investors with high returns; however, to be volatile and risky.

Forex: It is a global marketplace where currencies are traded. The prices in the foreign exchange market are always changing, and these changes are influenced by economic data, interest rates, and international events. Forex is very liquid and can be risky, so it is a good option for those actively monitor the market and adapt quickly.

Bonds: Lending money to governments or companies. They will give you the money back with interest and are more stable than stocks.

Mutual Funds and ETFs: These are the co-ownership of various investment types. By this way, the risk is lowered, as your money is not invested only in one company.

Real Estate: Purchasing properties is one of the ways to increase your income and also to have passive rental income, but it requires a large capital and a lot of market research.

Cryptocurrency: These are virtual assets whose prices can skyrocket or plummet in a short time. High risk, high reward.

Why invest now?

The sooner you start investing, the larger your money will grow thanks to the compound interest. This means you get interest not only on your initial investment but also on the interest you have already received. It’s like a snowball that keeps getting bigger as it rolls down the hill. For instance, if you begin at 15 with $100 a month for 30 years at an 8% annual return, you will have over $150,000 turned 45. This is a considerable sum compared to if you didn’t invest, you would just have $36,000.

Step 1: Decide How You Want to Invest

There is no single correct method for investing. It is all about dealing with how much you want to be involved in it.

If you want to pick the investments yourself: Through a platform like Fidelity, Charles Schwab, or Robinhood, you can open an online brokerage account. With such an account, you are allowed to directly buy and sell stock, ETFs, and funds. You can start as little as $10 or even less with fractional shares, which gives you the opportunity to own a part of a stock.

Notably, although underage people such as those younger than 18 years cannot open an account individually, they are allowed to invest if their parents or guardians help them manage a custodial account until they gain full control of it.

Step 2: Choose the right type of account

Labels or titles reflect the different types of investment accounts, and the suitable one-oriented depending on your intentions:

Brokerage Account: the most approachable one. Even if you will be required to pay taxes on your profits, you can sell or buy investments at any time.

Roth IRA: The best way for long-term investing. You put in after-tax money, and the money withdrawn at retirement is tax-free – i.e., perfect for a part-time worker.

401(k): If you work at a place that has this plan, especially if your employer provides a match, then I’d say make the most of it. It is money that helps your future, and it is free.

Normally, it takes 10 to 15 minutes to open an account with your personal information (for example, Social Security number). After setting up, you are allowed to connect your bank and start investing.

Step 3: Building a balanced portfolio

Investing is not about making wild guesses about which stock will be the next big thing. It is about creating a diversified portfolio that balances risk and reward.

Firstly, go with funds: Index funds and ETFs are good vehicles for new investors because they automatically spread the money across 100+ companies.

After exploring the advantages and disadvantages and researching the companies, invest in their stocks. Pick companies that you can trust.

If you are young, it is alright if you take more risk (put more stocks in your portfolio). However, as you grow older, you will want to move some of your money to less risky instruments, like bonds. In fact, even $20 or $50 each month, when consistently invested, makes a substantial amount over time.

Step 4: START (start however small and stay steady)

You do not need thousands of dollars and decades of experience to invest. Take $10 if that is all you have and that is how you build it up. Patience and persistence are the key points.

The story of investing is not about becoming overnight rich. The main things are forming good habits, gaining lessons from experience, and giving time and compounding interest to work their magic. The sooner you start, the better.

Therefore, open the account, take the first step by making a deposit, and watch your financial future unfold one dollar at a time.