Why Should Teens Start Investing Early?
From first jobs and babysitting side gigs to simply being young, your teens are a perfect time to learn about the stock market and embark on your own investing journey! In this article, we’ll be breaking down:
What it means to invest,
Why you should start investing as a teen, &
How you can get started!
So, what does investing really mean?
If you self-identify as a screenager, you’ve probably seen buzzwords like “stock” and “bitcoin” floating around your Explore and For You pages — these are all examples of asset classes that you can invest in. But first, what does it really mean to invest?
Investing is a way to reduce the effects of inflation on your savings, putting your money to work over time with the potential of building your wealth. It does NOT, however, mean you’ll be getting rich overnight nor does it guarantee that you’re 100% set to retire at 30.
For example, you can set aside money to invest in companies or initiatives you care about; this can be done through purchasing stocks on stock exchanges. Buying stocks is essentially buying slices of ownership in a company. In return for your purchase of said slice, you will receive returns/profits proportional to the slice’s size based on the company’s performance.
The price of a stock can be influenced by the company’s reputation, stats (revenue, expenses, market cap, P/E, etc.), (perceived) strength of product/service, and more! It’s important to note that the stock’s price is not purely justified by tangible numbers and that it’s changes are not always rational. This is among many reasons you should avoid following “hype” news alone.
Investing shouldn’t be gambling. Do not invest more than you can afford to lose; instead, create considerate plans and personalized strategies to approach your investments with reference to the long term (teens, this is for you!). It’s dangerous to emotionally trade in the short term and expect overnight success while trading high-risk stocks. Instead, diversify your portfolio, do your due-diligence to invest with intent, reassess your positioning habitually, and look for the next best steps you can take to optimize your efforts!
“As a teen, why should I start investing?”
The Power of Compound Interest
Most people end up pushing thoughts of investing onto the back burner. As teens, we like to think that our 20, 30 year old selves will handle it, but by then, we’re most probably getting busier and busier, grappling with rent payments, job searches, and maybe even the costs of starting our own families. As teens, one of the best assets we have is time!
Source: Bloom
Starting small investments early has the ability to compound into life-changing sums of money in your future. The power of compound interest allows your investments to earn interest on interest, which can lead to exponential growth and great opportunities. The more time you give your long-term investments to grow, the more growth you will see! If you’re eager to start building wealth, you can consider investing in the S&P or other lower risk ETFs with strong returns, which are relatively safe choices.
Set Yourself Up for a Financially Healthy Future
Not only will starting early prepare you financially for the future, but it also enhances your financial well-being. Your knowledge and financial literacy will only accumulate, and in due time, you’ll be investing with both confidence and experience. The earlier you begin to invest, the more time you’ll have to learn, ask questions, make mistakes (and learn from them too!), and cultivate healthy financial habits. Investing early can also prepare you for the future by helping you cultivate a long-term mindset that is crucial in managing money. Not only can your money compound, your knowledge will too - to say this is important would be a huge understatement!
“I want to invest, but how do I start?” Well, we’re here to help!
Accumulate your knowledge and do your due-diligence - We encourage you to spend time better understanding the companies and industries you intend to invest in actually do; take a look at their performance and think about how that might change in the future! At the same time, it’s equally important to spend time understanding yourself and your goals! You can ask yourself questions like:
How much do I want to save? How much do I want to invest and how often?
When do I want to collect my gains - yearly, before college, during my retirement?
What industries do I care about?
Who owns/leads this company? What is the company’s customer base?
What are the company’s current/ future products and services? How do I feel about them?
Invest in something you care about - If you invest in something you care about, you will likely be more inclined to follow these positions and watch your money grow. This will also help you discover your own investor identity - which you can learn all about here!
Make it a habit - When you get your latest paycheck or earn a bit of pocket money, try to make a habit of investing a part of it! This can help you build a healthy financial habit/skill of saving and investing.
At the end of the day, how you invest is up to you, your preferences, goals, and comfortability! What’s most important is that you start by accumulating your knowledge about how investing works, doing that due-diligence, and defining your own approach to investing.