For Investing it is better, the sooner you start. Even if you’re a teenager under the age of 18 and don’t have a huge capital to start investing with yet, having a depot and being able to play around with different assets can be a great way to get a feel for the stock market. In this guide, we will explore how you can begin your investing journey and lay the foundation for a secure financial future.
Advantages of Learning to Invest as a Teenager
Investing early in life provides several advantages. By starting young, you have more time for your investments to grow, thanks to the power of compounding. Even small amounts invested regularly can accumulate into a substantial portfolio over time. Additionally, investing as a teenager cultivates important financial habits such as budgeting, saving, and long-term thinking. I elaborated more on this in my recent post.
Investing as a Minor
As a minor, there are a few obstacles you need to navigate when it comes to investing. First, you will require a custodial account, which is a type of account managed by an adult on behalf of a minor. Custodial accounts allow you to invest in various assets while complying with legal requirements. Second, as a teenager, you may have limited financial resources. However, there are investment options available that cater to individuals with smaller budgets.
Getting Started: Practical Steps for Teen Investors
- Educate Yourself: Before diving into the world of investing, it’s crucial to gain a basic understanding of financial concepts and investment principles. Research key terms aswell as asset classes you think might be interesting for you. There are many online resources, books, and courses specifically designed for teenagers to learn about investing, a public library is always a good place to start.
- Start with Simulated Investing: To gain practical experience without risking your money, consider using virtual investment platforms that simulate real market conditions. These platforms allow you to practice investing strategies, track your portfolio’s performance, and learn from simulated market fluctuations. Invest your actual, real money safely, use the simulation to try riskier trades.
- Seek Guidance from Adults: I know it sounds boring, but try to involve your parents or guardians in your investment journey. Their support and guidance can provide valuable insights and help you navigate the legal and financial aspects of investing as a minor. They can also assist in setting up a custodial account and selecting suitable investment options. If they’re letting you have an investment account, they probably know at least a little about what they’re doing.
- Explore Custodial Accounts: Custodial accounts, such as UTMA (Uniform Transfer to Minors Act) or UGMA (Uniform Gift to Minors Act), are specifically designed for minors. These accounts allow an adult custodian to manage investments on your behalf until you reach the age of majority. Research different financial institutions and online brokerage firms that offer custodial accounts to find one that suits your needs. The vast majority of institutions offer something at least similar, so the easiest way would be to go with where your parents are at.
- Don’t invest in stocks – research Low-Cost Investments: As a teenager with limited financial resources, investing in individual stocks with high share prices may be challenging. But as stocks are also very volatile and require a fair bit of knowledge before you can make informed decisions, you should research low-cost and low-risk investment options like a World-ETF, which provides diversification and is more accessible for beginner investors. The biggest downside of ETFs is basically the long time you have to hold it to make any significant profit; which is negligable in this case.
Investing as a teenager can lay a strong foundation for your financial future. By educating yourself, starting early, and making use of the resources available to you, you can develop valuable financial skills and set yourself up for long-term success. Remember to seek guidance from adults, stay disciplined in your investment approach, and continue learning and adapting as you grow.