By investing your money, you have the potential to earn a return on your investment and see your money grow over time. But it's important to remember that investing comes with risks. It's possible that you could lose some or all of your investment. That's why it's important to be informed and strategic when deciding how much to invest. In this article, we'll go over five ways to help you decide how much to invest in 2023 as a teenage investor. By considering your financial situation, setting financial goals, assessing your risk tolerance, researching investment options, and diversifying your portfolio, you can make informed decisions about how much to invest and feel confident in your investment choices.
1) Assess your financial situation: How much money do you have now?
Don’t dream about the future before understanding the present, especially when it comes to your finances.
There are 3 key factors to consider when evaluating your financial situation:
How much money do you have coming in each month? This could be from a part-time job, allowance, or any other source of income. It's important to consider your income when deciding how much to invest because you'll need to have enough money left over to cover your living expenses.
Do you have any money saved up that you can use for investing? It’s important to have extra cash for emergencies, but also note that money loses value every year in a savings account due to inflation.
How much do you actually spend each month? Make note of essential spending and excessive spending.
Income - Expenses = Money left over
The remaining money could go into investments, savings, or both! Now you have a good idea of how much you can afford to invest. Next, we’ll discuss specific strategies for deciding exactly how much to invest.
2) Set Financial Goals: How much money do you want to make?
Setting financial goals is an important step in deciding how much to invest. Financial goals give you something to work towards and can help you stay motivated and focused on your financial plan. They can also help you make more informed decisions about how much to invest and what types of investments are right for you.
There are many different financial goals you might want to consider, such as:
Saving for retirement
If you're still a teenager, retirement might seem like a long way off. But it's never too early to start thinking about your retirement savings. By starting to invest early, you can take advantage of compound interest and potentially see your money grow significantly over time.
Funding a specific purchase
Do you have a big purchase you want to make, such as your first car or a new computer? Setting a financial goal to save for this purchase can help you make more informed decisions about how much to invest. You'll want to consider the potential returns on your investments as well as the time frame you have to save.
Building an emergency fund
As mentioned earlier, it's important to have an emergency fund in case of unexpected expenses. You might consider setting a financial goal to save a certain amount of money in your emergency fund.
By setting clear financial goals, you can use them to guide your investment decisions. For example, if your goal is to save for retirement, you might consider investing in long-term, low-risk options such as index funds. If your goal is to fund a specific purchase, you might consider investments with a shorter time frame and potentially higher risk.
3) Consider your risk tolerance: How much can you afford to lose?
When it comes to investing, it's important to consider your risk tolerance. Risk tolerance is the amount of financial risk that you're comfortable taking on. It can impact your investment decisions because certain investments carry more risk than others. For example, stocks are generally considered riskier than bonds, but they also have the potential for higher returns.
There are a few key factors to consider when determining your risk tolerance:
One important factor to consider when determining your risk tolerance is your age. As a teenager, you have more time to ride out any potential market downturns and potentially see your investments recover. This means you may be able to take on more risk than an older investor who is closer to retirement.
Your financial situation can also impact your risk tolerance. If you have a lot of debt or a low income, you may be more conservative with your investments in order to minimize risk. On the other hand, if you have a strong financial foundation with a good income and savings, you may be able to afford to take on more risk.
Your long-term financial goals can also impact your risk tolerance. For example, if you're saving for a short-term goal like a down payment on a house, you may be more conservative with your investments to minimize risk. On the other hand, if you're saving for a long-term goal like retirement, you may be able to afford to take on more risk since you have more time to potentially see your investments recover.
By considering your age, financial situation, and long-term goals, you can get a better idea of your risk tolerance and make more informed decisions about how much to invest. It's important to remember that all investments carry some level of risk, and it's important to be comfortable with the level of risk you're taking on.
4) Analyze investment options: How much does your favorite stock cost?
When deciding how much to invest, it's important to research the various investment options available. There are many different types of investments to consider, such as stocks, mutual funds, real estate, and more. Each type of investment carries its own set of risks and potential returns, and it's important to understand these before making any investment decisions.
On the Bloom app, we walk through each asset type and weigh the risks and benefits. Some investors start by analyzing companies they interact with on a daily basis. Others look at the news for upcoming startups that may have long term growth potential! Even if you do not invest right away, consider making a list to get an understanding of stock prices. With apps like Bloom, you can invest in fractional shares, so you do not even have to purchase the full price of a stock. That means you can invest in expensive stocks like Apple, Tesla and even Berkshire Hathaway for as little as $1!
5) Decide an exact amount or fraction
After you’ve completed steps 1-4, you should have a good understanding of how much money you can invest, how much you can afford to lose, and what the initial expenses of investing can look like. From here, let’s take a look at common funding strategies.
1) Pick a percentage of your savings
One way to decide how much to invest is to choose a percentage of your savings to invest. For example, you might decide to invest 20% of your savings each month. This can be a good option if you have a good amount of savings and want to grow your money over time.
2) Pick a percentage of your income
Another option is to choose a percentage of your income to invest each month. For example, you might decide to invest a particular fraction or percent of your income each month. This can be a good option if you have a steady income and want to make consistent investments over time.
3) Invest a set amount of money over time
Another option is to invest a set amount of money at regular intervals, such as every month or every quarter. This can be a good option if you want to make consistent investments but don't have a lot of money to invest all at once.
Deciding how much to invest as a teenager can be a challenging but important task. By being informed and strategic, you can make informed decisions about how much to invest and feel confident in your investment choices.
In this article, we've gone over five steps to help you decide how much to invest in 2023 as a teenage investor:
- Assess your financial situation: It's important to evaluate your income, savings, and debts before deciding how much to invest.
- Set financial goals: Financial goals can help you stay motivated and focused on your financial plan.
- Consider your risk tolerance: Your risk tolerance will impact your investment decisions and should be considered when deciding how much to invest.
- Research investment options: It's important to understand the risks and potential returns of different investment options before deciding how much to invest.
- Pick a percentage of your savings or income. Or, invest a regular amount over time.
By following these steps and seeking advice from financial professionals, you can make informed decisions about how much to invest and work towards achieving your financial goals. Remember to continue learning about investing and seeking advice as you grow and your financial situation changes. With the right knowledge and strategies, you can make informed decisions about your investments and set yourself up for financial success.