As my daughter gets ready to wrap up her junior year of high school, I often worry about how she is going to do when she is required to “adult”. We just had a conversation this morning about how to replace the Social Security card she lost, and while it’s hard to not swoop in and rescue her, I am having her figure out what she needs to do to replace it. Financial literacy is also another topic that I think about a lot – am I equipping my daughters to know how to handle their finances? I know no one ever taught ME any of that stuff when I was younger. Now, there are a lot of tools and websites to help you out as a parent…check out these five tips from Avi Lele, Co-Founder and CEO of Stockpile, meant for teens and kids who want to start learning about and investing in the stock market! (Cool, huh?)
Most people put off investing in stocks because it seems intimidating and expensive — and many never end up doing it. But the earlier you start, the more likely you are to build some serious wealth. Here are five easy tips to help kids and teens get started.
- Ask yourself: Do I want to be rich? The secret to building large amounts of wealth is to invest your money, which means getting your money to work for you. Let’s say you save up $1,000 and store it in a shoebox. If you come back a year later, or 100 years later, you’d still have $1,000 in that shoebox. Now let’s say you invest that $1,000 in the stock market. Stocks can go up and down in value, but on average, they went up 9.8% a year from 1928 to 2014.* So if you had invested $1,000 in 1928, you would have had more than $3.4 million by now!
*Source: S&P 500 rate of return
- Start with the right kind of brokerage account. Brokerages often require thousands of dollars just to open an account. And many stocks are hard to afford – a share of Tesla costs about $200, while a share of Amazon costs more than $700. At Stockpile, there’s no account minimum, and you can buy and sell stock in fractional amounts. So if you want to buy $50 of Tesla stock, no problem – that $50 translates into a quarter of a share. You can invest as much or as little as you want, without overextending yourself.
You’ll also want to make sure you won’t be paying big monthly fees or trading commissions because they’ll eat into your investment return. Stockpile doesn’t charge a monthly fee, and the commission is just 99¢ — not the $7.95 you might pay elsewhere.
Finally, you’ll want to keep track of your investments on your own, without having to bug mom or dad. Stockpile is the only brokerage that allows kids and teens to use their own login to check up on their stocks and place trades that go to mom or dad for approval. It’s like being a student driver – you get to be in the driver’s seat, with an adult as your co-pilot.
- Start early, invest regularly, and diversify! Remember how we said the stock market went up an average of 9.8% a year between 1928 and 2014? The thing is, you can’t predict which stocks are going to go up, or when. Since you don’t know which years will be the good ones, starting early will (on average) be better than starting late so your investments have more time to grow. If you invest regularly, you’ll be spreading your risk over a bunch of years, so you don’t end up overinvesting in a bad year. And if you diversify, you’ll spread your risk over a bunch of different stocks instead of putting all your eggs in one basket.
- Have a strategy. One good strategy is to “buy and hold” a stock, because you believe in the company and think its stock will go up over the course of months or years even though it might be bouncing around a lot day-to-day. Buying (and holding) a little stock every month is called “dollar cost averaging.” You can also “buy on the dips,” where you pounce on a stock you’ve had your eye on when its price dips. Or, buy stocks you think are underrated or “undervalued” and hold onto them until they make a comeback. None of these strategies is foolproof, of course. You could buy on a dip and watch the stock go down even more. But having a strategy, sticking to companies you know, and staying informed about them usually gives you a leg up.
- Enlist friends and family to help! Build your stock portfolio faster by telling friends and family you’re investing for your future. At Stockpile, you can share a wish list of your favorite stocks so friends and family know just what to buy you for your next birthday or special occasion!
About the Author
Avi Lele is the Co-Founder and CEO of Stockpile, a company whose mission is to make the stock market accessible to everyone in an easy and affordable way.