Investing for Teens: What you Need to Know

Today I want to touch on investing for teens. It is a topic that I find interesting since it is not talked about as much as it should.

Even with small increases, if you start investing as a teenager today, you’ll have a significant head start on where your money should be when you’re an adult.

Even though there are news today about the stock market collapsing and economic uncertainties owing to the coronavirus epidemic, this does not mean you should not invest.

In truth, a market downturn is common at times. As a result, this is not something that should be deterring investments for teens.

You can establish an exceptionally broad investment portfolio far sooner than you think if you start investing when you’re still a teenager.

As a parent, you should always encourage your children to make good decisions when it comes to money/financial matters. The earlier they avoid doing “stupid stuff”, the easier it will become to accrue wealth in the long-run.

As a teenager, one of the smartest decisions you can make is to begin investing, because time is one of the most valuable assets an investor has.

With a disciplined investment approach, the longer the time horizon you have to put your money to work, the larger the possibility for your money to grow.

Is it, nevertheless, possible to begin investing as a teenager? Yes, and it’s a lot easier than you might imagine.

Below I have highlighted some of the favorable investments for teens.

Investing for Teens

Investing for Teens

1. Bonds

When you are thinking about investing for teens, this is the type of investment that you should not leave out.

Bonds are loan or debt instruments issued by the government, businesses, or other entities in exchange for interest payments from lenders.

Teens can invest in any of the industries by purchasing a bond and receiving interest when the bond matures.

Bonds provide a consistent revenue stream and are less risky compared to other instruments like equities.

2. Mutual Funds

This is another favorable investment for teens.

Teens can invest their money with the support of their parents or guardians when it comes to mutual funds.

They’ll need to open a custodial account for this. Mutual funds are a collection of stocks, bonds, and other securities that are exchanged and managed with the assistance of expert advisors who can help you decide where to invest.

Furthermore, mutual funds are safer to invest in than individual equities hence making them favorable for teens investing.

3. Savings Account

This is a great investment for teens.

Although having a savings account is not considered an investment, it is still a useful way for teenagers to begin budgeting their finances.

A savings account is low-risk and offers a guaranteed return.

Look for a dependable bank with a respectable return rate. Your teenager can learn to save and grow their money by opening a savings account.

4. Business

This is one of the most entertaining and informative methods for teens to invest.

As more teenagers and adults start their own enterprises and become self-employed, entrepreneurship has grown in popularity.

This concept aids and educates teens the fundamentals of starting and running their own enterprises.

They will learn how to buy necessary items, keep track of expenses, and set prices, allowing them to gain expertise in earning and managing money.

5. 529 plan

A 529 plan is a favorable investment for teens.

This is a college savings account that can be opened on behalf of a teenager by parents or other adults.

529 plans are tax-advantaged, which means that donations are not taxed. You won’t have to pay taxes on the withdrawals as long as the money is used on necessary costs.

These accounts can be used to pay for textbooks, college tuition, laptops, and other educational expenses.

6. IRA (Individual Retirement Account)

Investing for teens through IRA is possible since anyone with earned money can open an IRA, which is a sort of tax-advantaged retirement plan.

Going with 2020 rules, your teenager can contribute up to $6,000 to the account as long as they have a job or a business where they earn money.

The only stipulation is that the amount they put to the IRA cannot exceed their earnings.

So, if your teenager makes $3,000 per year, you can’t contribute $5,500 to their account as a parent.

7. Custodial Account

I can’t explore investing for teens without mentioning a custodial account.

This is a brokerage account can be opened on behalf of a teenager by an adult. Parents and other adults can open the account, contribute money, and make investment decisions.

The account then becomes legally theirs when the teen reaches maturity age; either 18 or 21, depending on the type of account.

If you decide to open one, be sure to consult a tax specialist because the money you earn in these accounts is subject to some special tax restrictions.

Why you Should Teach Teens Investing Fundamentals

Interest Rates that are Low

Interest rates on savings accounts are just a fraction of a percent.

If your teen just deposits all of his/her money into a savings account, he/she will not only get very little return on his investment, but it will also devalue in real spending power as it sits there.

The History of the Stock Market

Smart and safe investments, on the other hand, can give a significantly bigger return on his/her money if he/she puts this money to work.

The stock market has seen tremendous advances in recent years. If he/she invests his money rather than simply putting it in a savings account, he has a decent chance of seeing genuine growth.

Read: Discover When to Sell a Stock

Future-oriented Education

When he/she graduates from college and begins his/her first job, he/she will almost certainly be bombarded with information on 401K plans and mutual funds.

Helping your teen learn about investing and the stock market now will help them better prepare for that time.

Investment Platforms with Low Fees

You don’t want your teenager to spend a lot of money on an investment firm’s annual fee.

Fortunately, there are a number of low-cost or no-cost investment platforms where he/she can put some of his/her money.

Because investing in the stock market entails some risk, I can also use this as an example of the importance of diversifying your portfolio.

You would like him/her to invest in a variety of businesses and even put part of his/her money in a savings account.

Now that you have learned the how to on investing for teens, let me touch on some investments basics.

Basics of Investing for Teens

Gain basic knowledge

Visit websites dedicated to educate teen investors the fundamentals of stocks and other viable investments.

Start with your interests in mind  

Looking for companies that interest you will keep you interested; afterwards, you can broaden your investment universe/portfolio.

Discover exactly what companies do

You should be familiar with the industry in which your target firm operates. This is what will make it easy for you to invest.

investing as a teenager

Obtain basic financial data

Obtaining and comprehending basic financial measures can assist you in avoiding costly investment blunders when it comes to investments for teens.

Experiment with dummy or virtual portfolios

Several companies provide free dummy trading portfolio platforms to help you ease into stock investing without putting your money at danger.

Select an appropriate broker

This is a broker offering custodial accounts. No-fee and no-minimum online brokers will be appropriate here.

Avoid Scams

Avoid anybody who promises returns that seem too wonderful to be true. Most of the times they turn out to be scams

Conclusion on Investing for Teens

There are numerous excellent ways for teenagers to begin investing.

Particularly when their parents are interested and prepared to provide them with the support and assistance they require when making financial decisions.

The type of investment you choose will be determined by a number of factors, including not only the amount of money your teen has to invest, but also their risk tolerance and level of involvement in their investing.

Investing for teens can be easy if approached appropriately.

Leave a Comment