How to Invest as a Teenager

If you want to learn how to invest as a teenager, there’s no better time than now, as the sooner you start investing, the better! But keep in mind that investing is something you don’t want to do alone as a teen. Your parents or other trusted adults should be involved in the process. If you don’t have any parents who are interested in investing with you, talk to someone else who has been successful at it like an older sibling, a teacher, or a friend’s parent.

5 Top Tips to investing as a Teenager

Investing is a good way to start building wealth as a teenager. But you need to be smart about it! You can’t invest just any amount of money and expect it to work out. The key is starting with small amounts and learning how to invest properly before putting more money on the line. Luckily, Invstr Jr, our investing app for kids lets you manage a virtual portfolio without risking real money, so you can figure out how to read the markets and what to buy and sell. This will help you build confidence in your own investing skills before you hit the big leagues.

Investing isn’t like going into 7/11 for some Slurpees or buying toys at Target—you need to take things slow, get educated, and understand what type of investor you want to be before diving into any investments at all (or taking unnecessary risks). Let’s look at our Top Tips for how to start investing as a teenager:

  1. Education: Learn the basic principles of investing for teens

Investing is the process of making money through a financial asset, such as stocks and bonds. It’s important to learn how to invest your money as a teenager because it can grow over time and compound interest, which means that you’ll earn more on what you have.

The best way to get started with investing is to open an account at a brokerage firm – however, teenagers won’t be able to have their own brokerage accounts due to regulations and age requirements. Instead, you can be privy to a Custodial Account, which is opened by a parent or guardian, and then transitions to your name once you turn eighteen. Invstr Jr is the perfect option to learn and practice how to invest as a teenager

Once you have an account set up, it’s time to start choosing investments that align with your goals and risk tolerance level. Some common options include ETFs or individual stocks. 

Smart investors stay educated and up to date on the markets. With Invstr Academy, you can learn all the ins and outs of becoming a great investor, from understanding businesses to getting top tips for long-term investing success. You can follow Invstr’s customized News feed and stay on top of all the market trends! 

  1. Discover what type of teenage investor you are

As a teenager, you may or may not have already entered the workforce. Regardless of your job situation, now is the time to start thinking about how to start investing your money as a teen. But before we get into that, it’s important that we identify what type of investor you are and what your risk appetite is.

  1. Explore the array of investment opportunities that can exist for teens

Here are some of the most common ways for how to invest as a teenager:

Investing in the stock market: Buying shares of individual companies is one way to invest. If you choose to invest in the stock market as a teenager, you’ll want to make sure that you understand what you are investing in and why. Be sure that your investments align with your goals and risk tolerance. Invstr let’s you identify crucial information about instruments: you can follow stocks and see their performance trends, follow news, and even check out community comments on the stock.

Investing in real estate: There are many different ways that teenagers can invest their money into real estate a.k.a REIT companies as well as other tangible assets such as precious metals like gold or silver coins. 

  1. Start: Begin your investment journey as a teenager

The first step of how to invest as a teenager is learning the basics. This includes understanding and determining what type of investor you want to be, how to choose an investment option, and how to diversify your portfolio.

The next step is learning about risk and reward. You will also need to understand how investors measure returns in different markets, such as stocks or bonds. During this phase, you may even consider investing in cryptocurrencies such as Bitcoin or Ethereum if it suits your temperament or goals. But be sure to keep a balanced portfolio! Diversification is key!

Invstr is the perfect way to get started, especially if you’re a teenager. With Invstr’s Fantasy Finance™, you can practice managing your own investment portfolio without ever risking real money, testing your investment strategy. Use Academy to learn the basics of investing, and get help from the Invstr community via the Feed, Leagues, or Direct Messaging. 

What should teens invest in?

Once you have a little money to invest, what should you do with it?

There are many options when it comes to investing. The best place to start is to talk to your parents or guardians about the right investments for your goals and risk tolerance. Ideally, you’ll want to invest in stocks or funds that match your age and experience level. While some people may be comfortable investing in more volatile stocks earlier in life, others prefer bonds or other more stable investments until they get older. There’s also the option of cryptocurrencies, which is high-risk, but if included in a balanced investment portfolio to soften the risk, can be worthwhile! 

  1. Stocks

Stocks are the most common type of investment, and one of the best ways to grow your money. Investing in stocks means you’re buying a small portion of a company—you own stock in that company. As the company continues to grow, so does your investment.

Stocks can be purchased directly from a company or through a broker, who will keep track of your shares for you and let you trade them at any time. You can buy one share or as many shares as you like; just know that larger purchases require more money up front.

  1. Bonds

Bonds are debt instruments that companies or governments issue to raise money. Bonds are a type of fixed income investment, meaning they pay a fixed rate of interest until they mature. (The difference between bonds and stocks is that stocks represent ownership in a company and can increase or decrease in value over time, whereas bonds represent debt.)

Bonds have many benefits as an investment: They’re easy to understand because there’s only one factor affecting their price—the interest rate. For teens, especially, bonds can be bought for a small amount of money. As well, they’re not very risky because their value doesn’t change much.

  1. ETFs or Mutual Funds

ETFs and funds are easy to buy and sell, making them ideal for young investors who don’t have much money to invest. Also, because ETFs provide you with exposure to many different types of investments (like stocks, bonds, or commodities), they can help you diversify your portfolio and reduce risk.

ETFs can be bought with little or no money down—you can start investing even if all the cash you have is an allowance from mom and dad!

Another benefit of mutual funds is that they help you build a diversified portfolio without having to spend hours researching and picking individual stocks. This can be especially helpful for teens who don’t have much time on their hands!

  1. High-Yield Savings Accounts

High-yield savings accounts can provide a higher return than most other investments, depending on the circumstances. These are a federally insured savings account that pays 20-25 times the national average of a standard savings account. For teenagers, high-yield savings accounts are a low-fuss way to make money on top of your existing money – without you and your parent having to make any risk-laden decisions on what to invest in. However, unlike investments in stocks, high-yield savings accounts might not grow as quickly or as steeply, and the interest rate may change depending on the economy. Still, this low-effort option might be great for busy households. 

Understanding diversification in teenagers investing

Diversification is a risk management technique that helps to reduce the overall risk of your portfolio. It involves investing in a wide variety of assets in order to spread out your investments, rather than putting all of them on one thing. 

For example, if you decide to invest in stocks and bonds, both are considered diversified portfolios because they have different types of risks associated with them (e.g., inflation risk for bonds versus company specific risks for stocks). However, if you only invested 100% into one asset class like real estate or gold bullion then this would not be considered a “diversified” portfolio because there’s still too much risk involved with buying just one kind of asset without any backup options available if things go wrong.

What is diversification in regards to investing?

Diversification is the process of investing in different asset classes. It helps you to reduce risk, build a balanced portfolio, and better weather downturns in the markets. Diversification can be done in a number of ways:

Asset allocation: The most common way to diversify is by investing across multiple asset classes that don’t all move up or down at the same time. For example, you can invest some money in stocks (for growth), some money in bonds (for income), and some money in cash products like savings accounts or certificates of deposit (for safety).

Asset type: Another way to diversify is by choosing investments of different types – such as stocks, corporate bonds, municipal bonds and Treasury bills – instead of simply buying one type like individual stocks or mutual funds made up mostly of stocks. This will help spread out your risk over several types rather than just one type such as equities (stocks).

Market capitalization: You can also choose investments based on their size rather than having everything concentrated into one larger-cap stock fund. This would allow for more diversity because it includes small-cap companies along with large ones without having too much complexity associated with selecting individual small-cap names which may not have been researched sufficiently before being purchased.

Why is diversifying investments important?

Diversification is a key concept to understand when it comes to investing. The idea of diversifying your investments is that by having a broad range of different kinds of investments, you can reduce your risk.

The main reason why you want to diversify your portfolio is that there are different types of assets and they don’t all respond in the same way during periods of volatility (or “risk”). For example, if the stock market drops significantly one year and then returns to normal levels the next year, bonds may not do as well as stocks both years because bonds tend to perform better in safer environments. If instead you had both stocks and bonds in your portfolio at that time, then the value of those assets would likely increase even though overall market conditions were unfavorable for them individually.

What are examples of diversified investing?

Diversifying your portfolio is the first step to investing successfully. It means spreading out your investments in such a way that if one company or industry performs poorly, it won’t affect your overall investment performance. It can also include types of stocks such as defensive stocks, which are stocks that provide steady earnings and consistent dividends regardless of the way the stock market and economy are performing overall.

Let’s take a look at some scenarios below:

Scenario 1 in Diversified Investing: Stocks, Funds, and High-Yield Savings Account

Let’s say you invest in 50% stocks, 40% funds, and 10% in a high-yield savings account. 

Investing in stocks is a good way to start investing as a teen. Stocks are long-term investments, so they won’t earn much in the short run. However, if you hold them for at least five years and keep adding to your holdings as your portfolio grows, you could see big returns over time. 

Funds are another great investment for teens looking to diversify their portfolios. Funds make it easy to spread your money across multiple asset classes—such as U.S. stocks and international stocks—and sectors—like technology or healthcare—in one fell swoop. High-yield savings accounts can help you earn interest on your money while still allowing you access to it if needed.

Scenario 2 in Diversified Investing: Stocks, Funds, High-Yield Savings Account, and Bonds

Let’s have a little more fun by getting even more diversified. Say you invest 25% in stocks, 50% in funds, 10% in a high-yield savings account, and 15% in bonds. That’s a really diversified and well-protected portfolio you’ve got there! 

Scenario 3 in Diversified Investing: Stocks and Bonds

In this scenario, you’re going to be putting your money into two different assets: stocks and bonds. Let’s say your goals are relatively aggressive and you invest 75% of your portfolio in stocks and 25% in bonds. This way, regardless of how the stock market performs, you’ll still have some buffer with your investment in bonds due to the two being dissimilar asset classes.

Discover how parents can start investing for their teens

As a parent, you can start investing for your teen as soon as they start showing interest in money. The best way to go about this is by setting up a Custodial Brokerage Account for Teenagers with Invstr Jr and putting money into it over time.

This account works like any other brokerage account; teens can invest in stocks and bonds, but the money belongs to you until they reach adulthood (typically 18 years old). 

If you’re worried about how much risk they should take, consider talking with an advisor who knows what they’re doing so that they can help determine how aggressive each stock pick should be. You should also educate yourself on how different investments work so that when your teenager asks questions about why certain stocks performed well last month compared to others, for example, you’ll be able to offer some insight! 

Why should you help your teen start investing?

The benefits of knowing how to invest as a teenager are vast. Investing allows you to learn about personal finance, the stock market and compound interest, risk management and the importance of saving for the future.

In short: Investing is an excellent way to learn about money as a teen.

When you invest with Invstr+ and Invstr Jr, it’s easy for both you and your teen to invest, learn about the market, and manage money together.

Final Thoughts

The sooner you start investing, the better – no matter if you’re a teenager or a parent! The time for investing as a teenager is here and now. With Invstr Jr you can easily create a Custodial Account for your teen and start setting them up for financial success today. Invstr Jr also makes a great gift to celebrate your teen’s birthday, important milestones, or the holidays!

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Invstr app and web services are provided by Invstr Ltd. Advisory services are provided by Invstr Financial LLC, an investment adviser registered with the Securities Exchange Commission (SEC) details of which can be obtained here. Securities brokerage and custody services are provided by Apex Clearing, a broker dealer registered with the SEC and a member of FINRA and SIPC. There is no bank guarantee on securities and securities may lose value.

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Invstr app and web services are provided by Invstr Ltd. Invstr+ advisory services are provided by Invstr Financial LLC, an investment adviser registered with the Securities Exchange Commission (SEC). Securities brokerage and custody services are provided by Apex Clearing, a broker dealer registered with the SEC and a member of FINRA and SIPC. There is no bank guarantee on securities and securities may lose value. Vast Bank N.A. a nationally chartered bank and member of the FDIC, provides the banking products, including the products and services related to digital asset accounts. As with any asset, the value of Digital assets can go up or down and there can be a substantial risk that you lose money buying or holding digital assets. You should carefully consider whether trading or holding Digital assets is suitable for you in light of your financial condition. Your digital account does not support wallet to wallet transferring of your digital assets (i.e. cryptocurrencies) outside the platform. Any Digital Assets in your digital asset account are not insured by any government entities, including but not limited to FDIC or SIPC. The Invstr Visa® Debit Card is issued by Vast Bank, N.A. pursuant to a license from Visa U.S.A Inc and may be used everywhere Visa debit cards are accepted. Invstr Ltd, Invstr Financial LLC and Invstr Securities Ltd are subsidiaries of Marketspringpad Holdings (collectively “Invstr”) and Invstr is solely responsible for the application services and website content.

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