If you’re a teenager looking to invest money in the stock market, you are making one of the wisest decisions of your life. You are ahead of the game and taking financial control of your future even while in High School. This is a mistake that many people make. They wait until they’re nearing their retirement age, and then they scramble to come up with the money they need to survive for the next 20-40 years of their lives. Typically, they never make this money, and they just have to keep working or get used to a lifestyle that is not as nice as the one they previously lived.
When you start young, you are setting yourself up for financial success in the future. You may be able to use the money you make to pay for your college, your wedding, your mortgage, and, of course, your retirement. Investing in stocks as a teenager is a great step to take on your path to financial freedom.
The only problem is that teenagers cannot open a brokerage account on their own; you need to be at least 18 years old in order to begin stock investing by yourself. But don’t worry. It’s still possible to invest in stocks; you just have to follow a different investment process. Your parents can, however, start a custodial account for you and, with pretty minimal investment, can help you start investing in NASDAQ or other stocks right away. Once they do that, you may be on your way to becoming next Warren Buffett.
Open Up a Custodial Account
A custodial account is any type of financial account or brokerage account that a parent controls for a minor, or a person under 18. The custodian must approve all activity within the account, such as the buying and selling of stocks on the money market. There are two types of custodial accounts: UTMA and UGMA. UTMA is for any type of investment or asset, like works of art or intellectual property. UGMA is for mutual funds, stocks, bonds, and any other types of securities. UGMA is likely what your parents will want to pursue for you to invest in stocks or begin stock trading.
Once that custodial account is set up through a brokerage account firm like Ally Invest or E*TRADE, you can begin purchasing shares of stocks on the platform. Look at stock prices and how much money you and your parents have in the account, and then determine how many shares you can purchase. And don’t be upset when you realize you can’t afford shares of all your favorite brands like Lululemon, Netflix, Apple, and Adidas. You’ll find a lot of the brands you love have shares worth hundreds of dollars and you may need to start with more affordable stocks. Also, make sure you aware of any platform management fees before making any decisions, as that will eat into your overall investment budget.
H2: Save Up Money for Investments
While many forms of investing do not require a minimum, others do. When your parents open up a stock brokerage account, for example, they may need at least $500 to do it. Even if there is no minimum, when you’re learning to invest in stocks as a teenager, you need to have enough money to make a real difference. If you’re investing in stocks with high value, you’re not going to be able to buy more than a few shares, if that, with only $500. If you have at least a few thousand dollars, you can make a real impact. If it’s going to take you and/or your parents years to save up that money, however, don’t delay. Just start with what you have and watch it grow.
Determine Your Risk Tolerance
When you’re investing in stocks, you need to know exactly what your risk tolerance is. Stocks are one of the riskiest types of investments because there is absolutely no guarantee that you’ll make any money on them. In fact, if a stock plummets, you could lose everything. That’s unlike a government-issued bond, for example, which carries with it very little risk.
Because you want to learn how to invest in stocks as a teenager, you’re likely familiar with the risks of the stock market, however. On the flipside, though they are risky, stocks offer a much higher payout than a government bond or a high-interest savings account, which is a huge benefit. Getting all that compound interest over time is key to your success as an investor. The average interest rate on a government bond or treasury security is around 2.69%. A savings account will be around 2.20%. The average stock market return is 10% annually.
Do you see the difference? If you invest $100 in the stock market and then take it out in 10 years, it’ll be worth $260. If you invest $100 in bonds, it’ll be worth $131, and if you put it into a savings account, you’ll have $125 at the end of the 10 years. That is a big chunk of change you are missing out on when you’re not a teenager investing in stocks. As long as you don’t make very risky moves, you can do very well with stocks. Remember, it not about the short-term goals.
Invest in Mutual Funds
Mutual funds are a type of investment where investors put their money into one managed investment. The mutual funds are going to usually be a diverse mix of different types of investments like stocks, bonds, and other assets that the managers deem to be fit for the portfolio. You typically need at least $1,000 to get into a mutual fund, so make sure you save up for this. Some mutual funds are going to invest in more stocks than others, meaning they are riskier. If you like the idea of putting your money into many types of investments instead of just one, then go with mutual funds. You can start investing in mutual funds through sites like Merrill Edge and Fidelity.
The Best Stocks For a Teenager to Invest In
Whether you’re going to invest in stocks directly or through mutual funds, you need to know what are the best stocks for a teenager to invest in.
Since you’re a new investor, you may want to go with stocks that have a proven track record. Though investing in startups may be exciting, you could end up losing a lot of money because these companies are not reliable. Instead, start your stock investing with proven investments like blue-chip stocks. As Warren Buffett preaches, the best moves are usually boring.
Blue-chip stocks are reliable, high market capitalization stocks from companies that are thriving – and have been doing well – usually for years on end. They are successful now and are predicted to be in the future as well. They typically come from industries that are in-demand, such as tech, healthcare, and energy.
Some blue-chip stocks you should consider investing in (if your personal finance budget allows) are:
- Amazon: Amazon is currently trading for over $1,800 per share, so this blue-chip stock is a bit harder to get into if you don’t have a lot of money for teenage investing in stocks. However, with their diverse offerings, such as retail, entertainment, and cloud services, they have been dominating many different types of markets. They changed the game in terms of retail when they came up with fast, free shipping and easy returns, and they are set to be on the rise in the future as well.
- Apple: Apple stock is a little more accessible, trading for around $203 per share. Apple’s stock has been mostly trending upwards for the past five years because they are constantly innovating and have loyal followers who will buy their products.
- Pfizer: As the Baby Boomer population ages, and healthcare is talked about more and more in the news, healthcare companies’ stocks are going up. One of the blue-chip stocks you should consider investing in is Pfizer, a pharmaceutical company with strong gains every single year. Their stock is currently worth around $40 per share.
There are a number of blue-chip stocks you can look into. Just see which one sounds right to you and which one you can invest a good amount of money into.
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