At its core, investing is about putting money into something with the hope that it will achieve a profit. It’s one of the best ways to build your wealth for the future — you don’t need to be earning top dollar throughout your career to achieve your financial goals if you invest wisely and early.
The biggest advantage young people have when investing is time, which is your greatest asset when it comes to investing. As a teenager, you have far more time to take advantage of compound investing and increase your financial literacy skills. Just for context, if you were to invest $10,000 into the S&P 500 for an average 7% return annually at 18 instead of 28, by retirement age you’d have $240,000 compared to $122,000. The power of compound interest is magical and shouldn’t be underestimated.
It’s incredibly important to learn as much as you can before you start investing. A common phrase in finance communities is “do your due diligence” which means exercising reasonable care when doing any kind of research, and this can play a large role in whether your investment choices are successful or not. This goes for individual investment opportunities you come across, as well as investing as a whole.
Personal finance books are a great place to start learning. From The Intelligent Investor to The Little Book of Common Sense Investing, reading books on investing can help lay the groundwork for successful investments in the future.
But it’s not the 20th century anymore and investing information is not limited to what you can read in books and newspapers. With the internet, you have access to thousands of sources where you can learn about the ins and outs of investing. Investopedia is an excellent resource for understanding the concepts of the different terms that you may come across during your research. Yahoo Finance is also a great site for any news on stocks and the stock market in general.
However, you should be careful where you take information from as there are some bad actors in the online personal finance space, especially on social media. You should do due diligence on the sources of information just as you would on possible investments. The Plain Bagel has an excellent video on the problem with influencers giving financial advice and why you should be wary of anyone that isn’t a certified financial advisor recommending stocks to buy. As a newbie investor, it’s easy to become swept up in what you think is an amazing stock or strategy but you have to remain skeptical and think about the transparency and objectivity of the source of your information.
If you’ve done your research and have conviction in an investment, be careful not to go through “paralysis by analysis” where you overanalyze information to the point of inaction. There is so much information out there that it can be easy to get bogged down and miss out on opportunities for profit.
You need to set investment goals before you start investing. Everyone is unique and thus, everyone’s investment strategy and goals are different. If you’re a teenager then you’re going to have vastly different goals compared to someone five years away from retiring. Think about what you want to be saving for whether it be travel, university, or even retirement. You will have come across SMART goals (Specific, Measurable, Achievable, Relevant, Time-based) in school and they’re exactly what you want to be using when it comes to investing.
Once you know your goals, you’ll be able to see what your investment time frame is which can indicate what your risk tolerance may be. As a teenager, you have a higher risk tolerance than someone nearing retirement age as you have much longer to build your investments back up should they drop in value. Your goals can also tell you how much you need to be investing. Depending on your risk tolerance and time horizon, you can invest in assets with different growth opportunities.
One of the easiest ways to invest is via an employer matching program. This is where you can invest into a retirement investment account up to an annual limit and that amount is matched by your employer. In the USA this is called a 401k and in New Zealand, we have KiwiSaver, which also has government contributions at a maximum of $521.43 annually. The great thing about these types of investment accounts is that they have no age restrictions so you can open them even if you’re under 18, making them perfect for those working part-time jobs during school.
If you’re just starting out with investing, it can be helpful to use a virtual trading platform, like the one provided by Investopedia. This lets you play around with making investments without risking your money and lets you see how your investments do and learn from any mistakes you make.
Another option that has gained tremendous popularity over the past few years is online investing platforms. Robinhood, WeBull, Sharesies, and Hatch are just a few which have made names for themselves. These are great for newbie investors as they allow retail investors (non-professional individuals) to invest small amounts of money (often as low as $5) from home without the need to go through a traditional stockbroker. Many of them also offer plenty of information to help you get started investing.
As a teenager, you have a massive edge over other investors when it comes to your time horizon and risk tolerance. Always keep your investment goals in mind by sticking to solid investments that will grow over time. Finally, if it hasn’t sunk in yet, start investing now to maximize compound growth and help you build wealth later in life.
Anton is PocketSmith’s Marketing Intern and is currently completing his BComSci degree in Marketing and Ecology alongside working at PocketSmith. Anton started his investing journey in high school and hasn’t looked back since. He’s a strong proponent of index investing, although he still likes the thrill of individual stocks on the side. Outside the office, you’ll find him deep into some book, obsessing over a new watch, or securing wins against his flatmates in Survivor marathons.