Watch any movie or series about Wall Street or investing, and you’re sure to see adults — but only adults. Well, guess what? You don’t have to be an adult to start investing.
You can start right now. There’s no age limit to honing the necessary money skills and mastering personal finance. After all, the teenage years can be difficult, and you can’t always ask your parents for money.
As discussed before, your goal should be to get rich quickly. Trust me when I say that there’s nothing more awesome than retiring early. Your goal should be making your money work for you, not vice versa.
Before starting this Article, I want to congratulate you because if you are a teenager and you’re reading this, you must be interested in investing. And this means you are several steps ahead of most people your age.
You can consider yourself within the few of the adolescent population interested in the world of finance for their future. For this reason, if you consider any of the concepts we’ll explain below, you will already be ahead (at least financially) of thousands of people.
Get Familiar With Investing
To start investing, it is important to be focused on your projects and ventures. For that, you must take responsibility and be well-informed.
However, your goal should never be to become a millionaire because that won’t happen easily. But investing and making the money work for you can help set you on the path to becoming a millionaire.
It is never too late to start investing. Although this Article is designed to give basic guidelines to young people who want to start investing, it can be applied to all those who haven’t started their journey to Wall Street yet.
The first thing we have to be clear about is that our investment must have an objective. It doesn’t matter if it’s being able to earn enough for the down payment on a house, take a dream vacation, or afford a car, but there has to be a goal. With this, you will not only give meaning to the investment, but you will also motivate yourself to save even more.
Types of Investments
Before you start investing as a teenager, you should know that there are many risks that adolescents (and everyone else who decides to invest) must face.
That is why I want to warn you about risks (such as losses) that you might have to face. But the truth is that starting to invest as a teenager will be a great advantage for your future. And let me tell you something interesting.
As per research by the Census Bureau, nearly 17 percent of the world’s population will be aged 65 and above by the year 2050.
Mind-blowing, right? This shows the unsustainability of future pensions, which could be a great problem in the future.
There are more and more older people and fewer young people who work to pay their pensions. For this reason, starting to invest as a teenager can help you generate sufficient income for your future.
Let’s talk about the different types of investments available for you as a teenager.
Education: One of the best investments at any time in life, especially in your youth, is studying. Consider learning a second language, enrolling in courses, or learning something that will add to your resume.
While these abilities may not help you in the short term, they’ll help you utilize your skills and make money when you land in the professional field.
Purchasing shares: When you buy shares of a company, you automatically become a partner. If you buy shares at a young age, you can allow the process of compounding to work for your profits.
Investment funds: This product is characterized by pooling money from various investors. All this money is pooled into a fund.
This fund is then invested in various financial products according to established rules. Once profits are made, they are then distributed among the fund’s contributors.
Start Investing Now!
By now, you’ve learned how to figure out how long you want to invest and what risks you should take. But that’s everything you need to know if you have a profitable investment. You still need to learn what type of investment is best suited for you.
Do you want to invest in the stock market or hedge funds? Do you want to invest in foreign exchange or pension plans? With everything I have said, you can get an idea of where things are headed. There’s no ideal investment based on your age.
But the sooner you start, the more time you will have to earn profits and (above all) learn and discover how the financial markets work.
But wait a minute! The factors that will determine whether an investment product is ideal for you will be your objectives, investment profile, and time horizon.
Before making any decisions related to investments, you must choose which path you will take because this will influence your financial capacity now and in the future. Here are a few factors that will help you make your decisions.
Reserve the capital — As mentioned before, saving is key. You must save before you can invest. Knowing how much money you have and how much of that you can save will limit your investment opportunities.
Know the business — The more you know about the business you want to invest in, the more you will know whether you are prepared to put your energy into that project.
Know how to take risks — You must define if you should take a risk or if it is better to wait. Before making a decision, consider the worst possible scenario.
Logic first — Don’t leave it to chance or try to guess when it comes to business. Even though you have hunches or good feelings about an investment, look for the specific data that supports your plan.
Research — Analyze the market and define investment strategies by talking with business partners. With the right tact, you can get a substantial amount of information without revealing your plan.
Do not put all your money in one place — At any time, you can be wrong. Do not invest all your money in one place; diversify your investments.
Accept your loss (but don’t give up) — If you’ve been wrong, admit it. Do not be proud, and keep learning. Keep diversifying your investments and see where the money is flowing. Once you understand the high-performing areas, you can continue with your goals.
Your Investor Profile
Another important point that you should consider is your investor profile. The more profitability we seek, the more risk we will expose ourselves to. In other words, we determine our risk tolerance as an investor.
Traditionally, in the investment world, three investor profiles have been established based on their risk aversion.
Conservative — These are mainly new investors and take the least risk in the market. They try to avoid financial losses at all costs.
Moderate — These investors take risks, but they have a set percentage of losses that they can bear. They use risky and safe asset classes to balance their investments.
Aggressive — These investors take huge risks and are well-versed in the market. They aim to seek potentially better results.
Understanding Investment Time Horizons
Time horizons refer to the time you are willing to have your money invested without using it for other purposes. Any important objective you want to set for yourself will have a medium or long-term time horizon. And herein lies the importance of investing at a young age.
Investing at a young age means you’ll have a long-term time horizon (for example, for retirement). With a long-term horizon, even if our investment leads to losses, we will have plenty of time to recover.
Once we get closer to our investment objective, our risk aversion may grow, and we may not be so focused on achieving larger returns.
Then, we can go from a more tolerant or dynamic profile to a moderate one, where we can continue obtaining returns but reduce our risk exposure.
If you’re looking forward to recovering your investment in a short time, perhaps it would be interesting to reduce your risk aversion as much as possible.
For this reason, you have to start investing as soon as possible since you will be able to use time to your advantage. You’ve got nothing to lose at a young age.
Don’t Get Greedy — The Best Lesson I’ve Learned About Investing
Greed is a curse. You might have heard of that already. To operate in crypto or on the financial markets, it is not possible to improvise.
You don’t become a trader by receiving the rules of conduct on the phone from an imaginary tutor for a few minutes. Mistakes (and losses) are always around the corner.
So, you must arm yourself with humility and not let yourself be seduced by the courtship of operators, who sometimes also act on behalf of authorized intermediaries.
When you trade in the financial markets, two big emotional levers come into play: fear and greed. A good analogy that describes an investment is that of a pendulum.
As this instrument always swings from side to side, so does an investment, moving up and down following the laws of supply and demand, greed, and fear. And the key to investing is knowing when to enter and exit this movement.
Because unlike a pendulum (which is fundamentally regular), the trend of a share, a bond, a fund, an ETF, or any other financial instrument is irregular. Ultimately, the mistakes an investor makes are all attributable to the unleashing of fear and greed.
Want an example of how fear can be harmful? Let’s say you buy a share of Apple and you set a profit goal of 10% and a stop loss of -10%.
One month later, the value of Apple shares increases by 10%, but you don’t sell because (according to your analysis and information), it will continue to rise in value.
In this case, you are greedy because even if you set this goal (and since you are receiving profits), you want more. But the title begins, however, to fall.
In less than no time, unfortunately, you find yourself at -10% on your investment. But you don’t sell. And why don’t you? Out of fear. Because if you sell at that moment, you fear the loss and suffering connected to that sale.
To succeed in investing, one must be able to analyze the risks related to the investments being evaluated correctly. We must not be guided by greed in business decisions.
If we can analyze the risks and thoroughly understand what we buy, our investment’s risk drops drastically.
The greatest risk (as Warren Buffett explains perfectly) is investing with the crowd and (too often) acquiring shares or shares in companies that do not have sufficient value to guarantee long-term success.
The goal is to understand the behavior of the financial markets in relation to the individual’s and society’s behavioral patterns.
In particular, people are influenced by several variables, including past experiences, context, beliefs, and the format in which information is presented. All these factors guide the performance of the economy (for better or worse).
Important Things to Consider Before Investing
Before diving into investments, thoughtful consideration can pave the path to financial success. While there are risks involved in investing, adults also sometimes make some silly mistakes. So, let me tell you about some of the things you should be careful to avoid.
Beware of Pyramid Scams
No one is safe from falling for a pyramid scam. In this type of deception, the con artist will look for young people like you — people starting out in the world of investment who do not have much experience.
They will encourage you to join their system and start investing in their platform, which “supposedly” will help you earn a substantial amount of money very quickly.
The companies running these schemes often entice people with glamorous “success stories” about how teenagers became millionaires with minimal investment.
They’ll come up with terms like “network marketing” to make their schemes appear legitimate. These systems can make you lose a substantial amount of money, time, and even friends (since most of them ask you to recommend them to family and friends because a business model like this is destined to fail).
Beware of Gambling
Making quick money is attractive. Games can help you win a substantial amount of money in a matter of seconds. But don’t forget that they can also make you lose it fast. And sometimes the worst thing is not losing all your money, but that you can fall ill.
Yes, you heard that right! A large percentage of the population suffers from gambling addiction. It is an actual impulse-control disorder.
It is also referred to as pathological gambling or compulsive gambling and involves a person unable to control their urge to gamble, even if they are losing a substantial amount of money. Now, that’s scary, isn’t it?
Be Careful Who to Trust
Remember when you were little, and everyone used to tell you, “Don’t go with anyone or take candy from anyone.” Well, you’ll have fewer problems if you don’t trust anyone. You must be wary of people you don’t know — much more so if you give them your money to invest.
Before investing in any asset, you must educate yourself well. Gather as much information as possible about the person/company you’ll deal with.
Keep an eye on reviews and opinions of people already working with them. This will give you more peace of mind and save you from any future monetary losses.
10% Per Year Is Ideal
Haste makes waste. I know you might have heard this proverb already. Well, guess what? It also applies to investments. When investing, you will always see ads and offers promoting quick and easy money.
I suggest you should look for an investment that could give you good returns in the long term.
In most cases, it is better to achieve a “low return” (such as 10% per year) if the return lasts for many years. Long-term investments are much safer than short-term investments.
There are no 100% safe investments. So, if somebody offers you such a deal, run! And be sure to tell your friends and family about it so that they can also stay safe.
The Power of Compounding
In the financial world, compounding allows you to earn interest or returns on the initial investment amount and any accumulated interest or returns that have already been earned.
That sounds cool, doesn’t it? It can be thought of as interest on top of interest, which leads to the exponential growth of an investment over time. Let me give you an example to illustrate the power of compounding: Let’s say you invest $1,000 in an account that earns an annual interest rate of 5%.
After the first year, you would earn $50 in interest. In the second year, you would earn 5% interest (not on the $1000 but on the new total, which is $1,050).
The amount of this interest will be $52.50. So, at the end of the second year, your total investment would be $1,102.50.
So, as you can see, using the power of compounding, you can earn great returns on your investments. In such a scenario, you should keep in mind that the longer the investment remains untouched, the greater the impact of compounding on the investment’s overall growth.
This is because the interest amounts keep accumulating, giving you higher returns. This is why investing in your teenage years (and allowing your investments to grow over a long period) can substantially increase your financial well-being.
Compound interest is one of the most important concepts in personal money management because understanding this principle will help you get higher returns from your investments and prevent you from getting into debt.
The term “compound interest” is based on the definition of the term “interest,” which means that compound interest can only be accrued if simple interest is accrued first.
If you don’t receive interest for putting money into a savings vehicle (such as a savings account), the principle of compound interest doesn’t apply.
Few finance concepts are as important to grasp as the compounding effect. For this reason, if you’ve never heard this word or you don’t quite understand this concept, it’s important to cover it immediately.
Today I will explain to you what it means — and why the compounding effect is so important. I’ll also explain why you need to make the most of this effect. Its benefits can be remarkable and relevant.
You should understand these crucial implications on your investments from the above example.
The compounding effect multiplies interest on interest. However, unlike bank compounding, this effect works in your favor and significantly increases the final amount. Of course, this effect applies to interest, dividends, and equity capital gains.
For example, if your stock grows 15% from one year to the next, and you monetize the profits by leaving only the capital invested, the future growth of the stock each year will be applied only to the original investment. If (on the other hand), you leave the profits reinvested, you will have the compounding effect.
What Do Millionaires Do?
Getting rich is a very ambitious goal that requires a certain mindset. People who become rich are not afraid to make mistakes. They know what they want and do everything possible to get it.
They try different strategies and do not give up in the face of failure. Becoming a very wealthy person is an ambitious goal, and if you want to do that, do something big, and make some big changes in life.
With that clarified, here’s what you can do to achieve your goal.
To become a millionaire, it is important to learn how they invest. Most millionaires follow a disciplined approach to investing.
Talk to any millionaire, and they will tell you how you should never let emotions drive your investment choices because it often leads to impulsive choices.
Below, I’ve gathered some important points to give you insight into the millionaire mindset.
Diversification: You might have heard of the idiom “Don’t put all your eggs in one basket.” It also applies to investments.
Millionaires reduce financial risk by diversifying their investment portfolios across different asset classes, industries, and geographical regions.
It helps them protect their investments from potential downturns in a specific market. That’s why you should look for multiple investment options and avoid putting all your money into one investment.
Long-Term Perspective: Every millionaire understands the value of patience in investing. Instead of chasing quick gains, they focus on building wealth over a longer period.
That’s yet another quality you should adopt as a young investor. You shouldn’t be worried about short-term market fluctuations because you’re looking at the bigger picture.
Continuous Learning: Successful investors understand that we live in a constantly evolving world. Therefore, they are always committed to staying informed and educated about financial markets and the latest trends in the economic world.
As a young investor, you should take your time to research and understand the investment options available to you. Explore the internet, join online investment communities, and follow the investment mentors.
So, my friend, you have to constantly keep yourself updated if you want to taste success. And this will help you make informed decisions and help you in quality financial planning.
Risk Management: While risk is an inevitable part of investment, millionaires focus on minimizing potential losses.
This is done through creating effective risk management strategies and requires a strong financial foundation and budgeting skills.
You need to familiarize yourself with terms such as volatility, inflation, and interest rate risk.
So, the idea behind all of this is that to do what millionaires do, you have to develop a millionaire’s habits. Remember, Warren Buffet once said: “The first rule of an investment is don’t lose. And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.”
