Teens

Is Investing Worth It As A Teen? Yes & Here’s Why

You may have wondered if "investing is only for the rich" or if "investing is something to do after 18". Today, we'll debunk both myths.

5 min read
November 13, 2022
You may have wondered if "investing is only for the rich" or if "investing is something to do after 18". Today, we'll debunk both myths.

Key Points

You may have wondered if "investing is only for the rich" or if "investing is something to do after 18". Today, we'll debunk both myths.

First The Basics

What's investing?

Investing is setting money aside to purchase something with the expectancy it will grow overtime.

Here's an example:

You buy a figurine for $20. In 5 years, you sell the figurine which is now worth $500. Your profit, the money earned, would be $480.

You can do the same thing with companies you think are destined for success. Stocks are slices of ownership of a company. In return for buying that slice, you get profits proportionate to your slice.

Let's turn the example above into stock terms.

Let's say you buy 1 share of a company at $50. In 5 years that 1 share is now worth $500. That is a $450 profit.

How do you buy and sell stocks?

Now that you understand how investment and stock profits work, let's talk about where you buy and sell stocks. You buy fruit at the fruit market and you buy stocks on stock markets, also known as stock exchanges. Just like a fruit market, stock exchanges are often locational. You wouldn't go to a fruit market that is 5 hours away. While fruit markets are usually based on town, stock exchanges/markets are usually based on major cities in your country.

Examples include the New York Stock Exchange (NYSE), London Stock Exchange (LSE) and the Tokyo Stock Exchange (TSE).

There are a few exceptions to stock exchanges, most notability the NASDAQ or National Association of Securities Dealers Automated Quotations. Fortunately for you, the full name is never used.

All stock exchanges are virtual. The NASDAQ includes global top companies. There's a few differences in how trades are made but these differences do not affect your experience and therefore something you don't have to worry about when you're just getting started.

How do I start investing as a teen?

We'll walk you through picking stocks, core finance terms and monitoring your success - but first, how do you even open an account?

A custodial app, gives teens the power to trade without a bank intermediary but operates the same way. App custodial accounts are a relatively new phenomenon.

Setting Up Your Account

  1. Download a custodial app (Bloom)
  2. Next add a sponsor (a legal US adult you trust with your money)
  3. Ask the sponsor to add funds to your account

Now you're all setup!

The stock market is accessible through a trading app. If you're using a sponsor app, it's likely they have broker dealer services, meaning you can buy and sell stocks within their app.

1) A few extra years in the market make a big difference

Using the 10% average annual return of the S&P500, let's compare the investing habits of two young investors.

Both Teen A and Teen B agree to invest $2/day (~$60/month) in $VOO. $VOO (or Vanguard S&P500) is an ETF, or bundle of stocks you buy as one that follows the S&P500. You can think of ETFs like an egg basket. You could buy all the eggs separately for $1/each ($12/total) or buy them in a carton for $8.

Teen A is 13 and Teen B is 18. Both teens agree to stop investing at 65, or average retirement.

Here's what their investments would look like (remember that they've investing the same amount & in the same stocks):

Investing at 13 vs. 18 - From Bloom

The 5 extra years in this example results in an extra $500k in profits. The extra $500k in profits is from 5 more years for the investment to compound.

Compound interest is when your investment begins to grow on itself from continued rate or return or interest.

In the example above, with investing $2/day with a 10% annual average return, after 1 year of investing, there is a 10% profit. But the second year, there's an additional 10% profit on the original amount + 10% profit from year 1. As time goes on, the 10% acts on larger sums of money and begins to scale as the years goes on.

Even though $1.2 million by retirement isn't enough to quit your job and buy a private island, this demonstrates the power of using petty cash (that would otherwise be loosing value every year in a savings account) to make longterm, low risk investments.

As you get older, you can always increase the amount of money you invest.

2) Start young and learn early on

Just like anything, when you start something new it's likely you won't be great at it immediately and it's no different for investing. But investing, unlike other things, can result in the loss of money so it's better to experiment & learn early on when you have less risks.

Typical Expenses of a 13 year old (extreme cases may differ):

We assume that most 13 year olds are not paying for rent, electricity or water bills or tuition.

Typical Expenses of a 18-25 year old:

The older and more independent you are, the greater importance of cash on hand.

3) "I'll Be Better Prepared When I'm Older" is a mode of procrastination

Ultimately, becoming financially literate will be your responsibility if you do not have the privilege or resources for that knowledge to be passed down to you. Life gets busier so the time is now!

Let's say you decide to wait to start investing when you're 18. Financial + investing knowledge won't just appear in your head. One can hope to pickup concepts over time but without practice & the ability to learn by doing, it's unlikely that the useful foundations of investing will be cemented in your mind.

Even if you don't want to be a stock market pro, spending 30 minutes once a week to pick up the foundational concepts of investing can make all the difference when you're older & allow you to break into the market early on.

Counting Quarters is an organization dedicated to empowering the next generation of independent, confident, and financially literate thinkers. Together with Bloom’s blog posts and app modules, we are here to support you with resources and workshops along the way on your journey to a better financial future.
Counting Quarters | Key Stats about Gen Z and Financial Literacy

Media Contact

Allan for Bloom

allan@joinbloom.co

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