As one gets older, one tends to think of retirement more often. But it is important to remember that retirement doesn’t mean you have to stop investing altogether.
A person’s age when they start investing is not a deciding factor in the best age for someone to start investing, but rather how much risk they are willing to take and how much time they are willing to put into their investment portfolio.
People who want a steady return on their investments should start investing as soon as possible because the longer you wait, the higher your risk of losing money.
What Is Investing?
Investing is the process of buying securities to generate a profit. It is also the act of giving money to purchase an asset, such as a stock or bond, with the expectation that it will increase in value.
Investments involve committing money and time, which you have at your disposal. It is also committing capital to an asset (either a project, a business, or a property) to make a profit.
What is the best age to start investing?
The best age to start investing is when you are young enough to have a long time horizon but not too old that you risk losing the opportunity to put your money in the market. If you are 35 years old and have 10 years of working life ahead of you, your best age to invest is 25.
The reason for this is that at this point in your life, you will still be able to make the most out of investing and will not lose too much money in case of a downturn.
How to Invest Under 18: Investing as a Teenager
Grow your investment knowledge
Investment is a complicated subject; the more you know, the better your chances of making the right decision.
Invest in Individual Stocks
It is widely considered that investing in individual stocks (also known as “equities”) is one of the most effective ways to generate growth from your savings. However, this investment strategy also carries a high level of risk. You become a part owner of a single company when you purchase its stock, so you also share in its success and failure.
- Growth Stocks – As the name implies, growth stocks are stocks belonging to companies expected to generate most of their returns from their growth.
- Value Stocks – Alternatively, value stocks are expected to generate much of their returns through a reversion to the mean.
- Dividends – As a reward for holding their stock, some companies will pay you cash at regular intervals, known as dividends
Invest in Mutual Funds
- The Power of Diversification – Investing in individual stocks has the disadvantage of being extremely risky if all of your money is invested in one or two companies. Almost all financial advisors will advise you to “diversify” or spread your risk across several stocks and other investments. Investing in a mutual fund is one of the easiest ways to accomplish this.
Invest in ETFs
- Diversify – Exchange-traded funds serve the purpose to provide instant diversification. However, their prices are subject to change throughout the day.
Learn the basics of investing
The process of investing in stocks is relatively simple once you understand the basics of the stock market. Read about how it works, what mistakes to avoid, and what best practices to follow. Don’t forget to check out our book, The Motley Fool Investment Guide for Teens.
Find your investing identity.
Growth investing may be right for you if you consider yourself a risk-taker. However, if you enjoy receiving a paycheck? Consider investing in income stocks. Are you a fan of great deals? Try investing in a mutual fund.
By learning more about investing, you will discover what interests you most. This is the key to staying invested over the long term to reap the benefits of compound growth.
Discover the right investments
As soon as you become interested in investing, you should learn how to research stocks. After that, choose a few you like that align with your interests (investing or not) and begin researching them. Find out how it makes money, how much it can grow, and where it might expand.
Understand its financial statements to determine if it can withstand economic downturns. List the companies you want to own after going through this process for those you like.
Open and fund your brokerage account.
When you are ready to begin investing, you should open and fund a brokerage account. Anyone at least 18 years of age may open an online brokerage account. It will be necessary for those younger than that to have the assistance of their parents.
A parent may open a brokerage account on behalf of their teen or establish a custodial account on behalf of the child. It is a relatively simple process that usually takes less than 15 minutes. You can start investing in a Roth IRA for your child if you have earned income.
Make your first investment.
When the funds have cleared in your brokerage account, it is time to purchase your first stock. Set up an order for the stock you wish to purchase from your list. It is recommended that you place a market order for the purchase.
When you are ready, submit your order during market hours. It will not be long before you are the proud owner of a small piece of what you consider a successful company. This could be a basket of good companies.
Conclusion
Those who start their investment journey as teenagers have a tremendous advantage over those who begin later.
As Albert Einstein said, “Compound interest is the world’s eighth wonder. Those who understand it earn it; those who do not pay it.”
What makes compounding so powerful is its cumulative effect over time. By the time teenagers retire, they may have amassed significant wealth.
FAQs
Can a 14-year-old start investing
The answer is yes, but with a lot of work and effort on the part of the teen. Getting started with investing is not easy, but anyone can do it. A 14-year-old can start investing by opening a Roth IRA and learning how investments work.
Is investing at 18 a good idea
Investing at 18 is a good idea because you can start your investing career without worrying about the high fees that come with other investments. You can also save money on taxes and earn more interest.
Can a 14-year-old invest in Bitcoin
Many people are skeptical about the idea of a 14-year-old investing in Bitcoin. However, with proper financial guidance, patience, and research, anyone can invest in cryptocurrency.
