Investing For Teens ( Guide For Investing)

Early investment is undeniably the best strategy and that, in the long run, it pays off. This is something we can all understand too because it will help you over time. The only way to become a confident investor is through experience. Giving teens the ability to experience investing at a young age will speed up the path to financial independence.

Understand the basics first 

Stock investing for teens is similar to stock investing for anyone else. Starting with a small sum of money allows you to learn from mistakes without losing considerable money. As you invest, you will learn the basics and gain confidence through experience. However, we’ve outlined some basic investing principles to help teens become better investors rather than reinvent the wheel.

Gain knowledge

Knowledge is an investor’s greatest asset. While experience is the best teacher, you can sharpen your skills by reading investing articles and keeping up with the news. MoneyLion’s blog provides a library of articles, resources, and financial lessons to jumpstart your investing. Parents who want to invest alongside their teen can start a MoneyLion investment account for $1/mo. MoneyLion gives you access to professionally managed portfolios that cater to your risk tolerance. Turn investing into a family affair and watch your portfolios grow.

Identify their interests

Beginner investors make the mistake of following the crowd and buying based on momentum and recommendations. Confident investors narrow their criteria and prioritize assets that match up with their interests.

If you follow the latest news around social media companies and like the developments, invest in those companies. Encouraging your teen to invest in their interests will inspire them (and you) to dive deeper into the investing world, watch your family’s current investments, and potentially expand their horizons in the future. With a MoneyLion investment account, you have access to thematic investing, making it easier to invest based on your interests.

Research the companies 

Whether you are investing at 18 or any age, research is a vital element of success. Encourage your teen to research and understand companies they want to add to their portfolio. You can look at recent news about the company to gain a fundamental perspective. However, the most reliable source is the company’s investor relations page and the earnings calls. These resources provide investors with a complete picture of the company rather than a watered-down analysis. A combination of these resources will help your teen make smarter investing decisions.

Your teen can also use a resource like Yahoo! Finance to assess a company’s valuation to determine if it is overvalued, fairly valued, or undervalued. Yahoo! Finance makes it easy to find the P/E ratio, P/S ratio, and other essential details about individual stocks.

Test out mock portfolios

Although MoneyLion and other firms require investment account holders to be at least 18 years old, your teen can still invest through a mock portfolio. A mock portfolio such as the Teen Stock Game allows teens to invest in stocks with imaginary money.

Not only will the mock portfolio help a teen learn more about investing, but they will experience the highs and lows of investing. Emotions can get in the way of prudent decisions. Learning to cope with the emotional side of investing with a mock portfolio will build a teen’s mental toughness when they start investing with real money.

Why should I encourage my teen to begin investing?

Investing is a popular path to wealth. Just like anyone else, teens need compelling reasons to take action and stick to a long-term goal such as investing. You can encourage your teen to invest for the following reasons:

College

College tuitions continue soaring, and some people still pay student debt decades after they graduated. Investing your money now gives it time to build and helps with paying college tuition. Make your money work for you before you find yourself in a financially challenging predicament.

Compound interest

Compound interest is the magic behind investing. This growth turns ordinary families into wealthy families. If you invest $10,000 and achieve an annualized 8% return over 20 years, your initial investment turns into $46,609.57, increasing more than fourfold. The same portfolio will grow faster if the initial $10,000 investment is coupled with monthly contributions. Compound interest rewards early investors. Putting your money to work early gives it plenty of time to multiply.

Learn about money

Investing provides the investor with a deeper understanding of how money works. People who invest start to see money as a path to financial independence if utilized correctly. Teens will pay attention to how they allocate each dollar and make smarter financial decisions. Teaching your child about money enforces beneficial money habits such as building credit at an early age.

Build out retirement 

If your teen invests early, they can retire sooner. Not only will their money compound, but beneficial money habits will encourage teens to save more of their money and live more affordably. Investing into cash flow-producing assets yields multiple income streams. A side hustle can complement those efforts. 

MoneyLion helps people retire early with suitable investments. You can open up a MoneyLion Crypto Account to fuel your portfolio and diversify beyond stocks and bonds.

8 types of investments for teens

Wonder where your family’s investing for teens’ journey should begin? These eight assets can give your teens a head start on building wealth. 

High-yield savings accounts

A high-yield savings account is a low-risk asset that produces minimal returns. The idea behind this account is that a small return is better than no return. Before opening up a high-yield savings account, review fees, minimum balance requirements, initial deposits, and other details around the account.  

Certificates of deposit

A certificate of deposit locks away your money for a set period in exchange for a small interest payment. This low-risk asset produces minimal returns, but your money is safe. You can withdraw money before the CD’s deadline, but that action will incur an early withdrawal fee. This asset works best for risk-averse investors who don’t need to touch their funds for several months or years.

Stocks

Stocks give investors a stake in the company. Some stocks present low risk in exchange for a minimal reward. Growth stocks can produce life-changing returns but also come with greater risk. The liquidity of stocks makes it easy to conduct transactions and get out of stocks if you change your mind. 

Bonds

Bonds allow investors to reap cash flow from companies. The risk-reward ratio for bonds usually falls below the risk-reward ratio for stocks. However, some bonds present more significant risks than others. Corporate bonds pay higher yields than U.S. Treasury bonds, but they carry higher risks. In the event a company goes bankrupt, bondholders get paid before stockholders. 

Funds

Funds invest in a pool of assets. Rather than pick investments yourself, you can pour your money into a fund and let them do the work. Check a fund’s fees and other details before investing in one. If you buy shares of a fund during market hours, the transaction will occur at the end of the day.

ETFs

An ETF is a basket of assets, similar to funds. The critical difference is that ETFs trade throughout the day rather than at the close. ETFs, offer automated diversification that makes stock-picking unnecessary for some investors. MoneyLion allows members to invest in ETFs that cater to their risk tolerance. A MoneyLion investment account enables auto investing, so you never forget to invest in your favorite ETFs. 

Mutual funds 

Similar to regular funds and ETFs, mutual funds allow investors to buy into several companies. Trades during the day get executed at the end of the day. Mutual funds eliminate the challenge of diversifying your portfolio because diversification is built into these assets.

Custodial accounts

A custodial account managed by a parent allows teens to invest early. Parents commonly use custodial accounts such as UGMAs and UTMAs so their children can invest before turning 18. Assets get transferred over without requiring a trust account.

A 529 account is tax-advantaged, designed explicitly for paying your way through college and other education. If your child plans to attend expensive colleges, a 529 plan may be the best choice.

Investing for teens made simple

The best time to invest is now. Investing at a young age accelerates the path to retirement, enabling your money to work for you. A MoneyLion investment account can help you get started. MoneyLion gives its members access to customized portfolios, auto investing, and other perks. Get started with MoneyLion today.

FAQs

What can a 16-year-old invest in?

A 16-year-old can invest in various assets such as stocks, bonds, and savings accounts. Some assets require a custodian account for 16-year-olds to invest.

Is investing under 18 illegal?

A child can invest before turning 18 through a custodial account. The parent must first set up the account and then transfer the proceeds when the child turns 18.

What is the age limit for trading?

You must be at least 18 years or older to conduct trading through your own brokerage account.