If you are here, then I want to congratulate you. The fact that you are thinking of investing at a young age or if you are a parent hoping to teach your child about investment early, means you are financially conscious.
Not many people are financially conscious. So, to find people who are concerned about their financial conditions now and how they could protect their future through investing now is certainly encouraging. This is especially true if you are young and you are already thinking maturely about your finances.
So to speak, financial investment programs are far more complicated than simply setting up a savings account. This is the reason why there are legal requirements for individuals who want to start investing. If you are still young but are already earning your own financial resources, you need to understand that these legal requirements are critical in order to avoid money laundering which other malicious users may utilize to have their funds move around.
Getting your parents’ approval and completing certain documents to prove the legality of your investments may be necessary- but these requirements are all designed to protect you and your investments in the long run.
How Old Do You Have to Be to Start Investing?
Millions of people have earned money from successful investments all around the world. As of today, the financial world of investing has grown immensely. But you may be wondering: “Should I start investing? Is it really smart for me to do that? And if it is, am I old enough or too old?” Well, let’s answer that question, shall we?
There Are NO Age Requirements in Investing
If you have ever thought of investing, then think about it again and seriously consider it this time. Investments can be very successful, especially if started at a young age. Time is a critical aspect when it comes to investments, in general, the longer you wait, the higher your return becomes.
Take this for example, according to a calculation, if you invested about $1,000 in “Berkshire Hathaway” back in 1964, you can get over $24 million dollars in return in 2017. So that’s about 53 years of holding that money in an investment. Crazy right?
So generally, the earlier you start, the better results you’ll get in the future.
Experience Can Pay Off
There is no age requirement when it comes to investing, but it does pay to have experience. Experienced investors tend to have better success when it comes to investing. This is of course thanks to careful planning and possibly years of experience in the industry.
Then again, you don’t have to be that old to have experience, again, if you start early, you get more experience at a young age, which can benefit you greatly when you’re making investments. So let’s take a look at the basics of investments for rookies.
Basic Knowledge You’ll Need Before Investing
ONE: Getting an Employer Match
Okay, what is an employer match? An employer match is basically a company process that helps you save money for your retirement plan. If your company provides its workers with your basic 401 (k) plan or 403 (b) plan, then you’ll get an amount of your monthly salary saved into your retirement plan every year of which the amount is decided by your employer.
In hindsight, this money can grow pretty quickly. So if I were you, I’d check in with my HR representative now and check if the company I’m working in has an employer match system.
TWO: Children’s Savings
If you’re planning to start investing for the sake of your and your children’s futures, then investing can be a very beneficial option. There are many options available to you when it comes to picking how and where you can invest your money for the future of your kids.
THREE: Education Savings Accounts (ESA)
ESA’s provide much freedom when it comes to the withdrawal rates and control of your money. The contribution limits though are capped at $2,000 per child.
FOUR: 529 Plans
529 plans are usually set by individual states in America, these are tax-advantaged if of course, you use the money for educational purposes for your children. You also have little freedom when it comes to the growth and distribution rate of your savings.
FIVE: Roth IRA’s
Roth IRA’s aren’t exactly the most common way used to invest in your children’s future, but it is still very effective. Roth IRAs have much freedom when it comes to controlling your money and also have a higher limit compared to other options.
SIX: What about Major Expenses
If you are planning on investing money to increase its value in the short term for some major expenses that you have to pay, it’s not such a good idea. It may work, it may not either. You see, the stock market can be very unpredictable and volatile.
The possibility of losing your money with the snap of a finger can be a big risk when investing money for short or medium-term purposes. So if you’re planning on investing money that you want to use in the next 3 to 4 years, don’t risk it, risk the money for more long-term options.
Again, you don’t need to be of any age to start investing, no matter how old or young you are, you can invest your money for your future, the future of your kids, and maybe even the future of your grandkids. Just remember that the earlier you start, the better your chances are at a higher return.
What Are the Best Investments for Teenagers at 16?
Many people have started investing their money at a young age and have fared significantly well. With the help of parents and relatives, young adults can learn how to save money for their future and how to spend that money responsibly and wisely. Let’s look at some of the best investments for teenagers at the age of 16 looking to start investing.
Stocks, Bonds, Mutual Funds, and IRA’s
Stocks is one of the most common ways of investing and also one of the most popular. It is also suitable for 16-year-olds who want to branch out and start investing their money wisely. A requirement for stock trading is a custodial account which usually has to be opened by an adult such as a teen’s parent or legal guardian.
This custodial account doesn’t have to be deposited with much at first, you can open with just as little as $100. These types of accounts are usually available at brokerage firms.
16-year-old teens can make their own trades, but then again, it is much better if, in these early days, the teen is accompanied by their parents or legal guardians and consults with them for safer and better success and stocks. The most common stocks that teens are familiar with and can invest in are tech stocks, video game stocks, or book stocks.
Bonds are another very common and very lucrative form of investment. Unlike other forms of investments, bond trading is much safer because it is backed up by the government.
Bond trading works like this, government bonds are borrowed by the government and they must pay the holder of the bonds. The government pays you the stated amount of interest along with the principal. There are bonds that you can hold for over 5 to 7 years while there are some that you can hold for much shorter periods of time at 1 year and 6 months.
So if a youngster gets a hold of government bonds at a young age and keeps them till his 16 or older, they can trade in those bonds with the government and earn a significantly large amount of money.
THREE: Mutual Funds
Mutual funds are very popular due to their generally high success rate. Mutual funds give you the option to invest in groups of stocks or groups of bonds. These types of investments can provide significant financial benefits to a young investor’s future.
Mutual funds also don’t necessarily require a large amount of starting cash, starting mutual fund accounts can be opened with a $250 deposit. Just like the stock market though, mutual funds have a risk of increasing or decreasing your money.
You have to be smart and invest your money into mutual funds that are performing well. Another tip a 16-year-old investor can use when investing in mutual funds is to diversify. Not going all-in on one mutual fund can be a very good option when dealing with this type of investment. Investing in multiple mutual funds is a safe option when it comes to making sure you don’t lose all of your money.
An IRA is a common way used by young investors to secure their future in retirement. Starting as young as 16 can help ensure a young adult’s future. There are two types of IRA’s, Regular IRA’s and Roth IRA’s. Roth IRA’s don’t have any taxes involved when there are gains or withdrawals involved compared to regular IRA’s which make them very appealing options for saving for your retirement.
If a 16-year-old is starting to earn income at a young age, they can also start early in building their funds for their later retirement in their future. Starting is early as possible is critical in the success of the young adults with investments.
Investments can be very beneficial to a young adult, however young. Many people think that starting young is a little premature for an investor, but the truth is, the earlier you start, the better results you’ll get. The snowball effect is a very common way to describe the overall process of investments.
Frustration is often a part of investment especially when you are young.
Nonetheless, remember that when you start early on, you will reap the benefits of your efforts early on. If you are still living with your parents, do not forget to ask them for their opinion on this matter. It may surprise you how much they want to get involved in helping you with your finances, protecting you from possibly experiencing the same issues that they have gone through when they were still your age.
Learning from their experience may help you set your goals better and give you a better chance at growing your current rate of funds.
All these are major classifications of investments that teenagers at 16 years of age can consider. But to be more specifically successful in your process of earning and investments, you may consider these 9 steps of investment with the help of your parents:
ONE: Open your first checking account
Why not open just a savings account? Remember that part of the experience of early investment is the need to learn how to manage one’s monetary resources. If you are establishing your financial standing along with the help of your parents, you can ask them to assist you in deciding on what particular account to open and you can successfully manage your very first checking account.
Picking the right bank to save and invest your money into is part of the critical process of assuring the growth of your money in the long run. So, before you go for a particular bank, be sure to search for its background and find a way to read reviews from young individuals who have subjected their investments under the same accounts that you are looking into.
TWO: Open Your First Savings Account
Although a savings account may seem rather basic for many who are looking into the process of investing, it is still considered the primary starting point for anyone who wants to start early in terms of managing their financial resources.
The great thing about savings accounts is that they can be opened as early as eight years of age- depending on the involvement and support that comes from the parents.
When opening your savings accounts online, as do other young adults today, take note of the other features and benefits of these accounts.
There are several investment companies that require a certain amount of investment ceiling before you can begin your investment accounts. Hence, as you try to earn that amount of money, it is best to have your financial resources safely tucked and protected in your savings account while it earns small yet amicable rates of interest.
Take note though that when you choose an online bank to open your savings account in, be sure to pick a savings type that will help you control your online spending. At times, when you have an online savings account, it becomes easier for you to make impulsive online purchases. When this happens, your goal of saving your available funds for bigger investments will certainly be derailed.
If you want to start early, you also need to be careful enough to establish a responsible attitude towards money, purchasing, and savings.
Setting your attitude towards reaching the goals that you have established for yourself at a young age will certainly be rewarded handsomely in the near future.
THREE: Invest in Roth IRA at an Early Age
If you are sixteen years of age and are already working, it will be most likely that your salary tax will be much lower than usual. Hence, investing in Roth IRA would be very beneficial for you at this time. By the time you are already working on a regular job as an adult, it will be easier for you to manage your IRA investment until the time when you are ready to take money from your investment portfolio.
FOUR: Try Index Funds
What makes it frustrating for many young investors is the need for investments to earn returns within a specific span of time. Waiting on the results of their investments may not be that easy for teenagers. To start out with a fast earning system of investment, you may want to try out index funds.
This type of investment allows you to invest in different companies at one time. This means that you can receive multiple payment options within different time schedules in a month. This way, you will not feel the pressure of investing in only one company and be affected by the ups and downs of the results of performance by these companies.
This could be likened to the pattern of multi-investment. Dividing your financial resources into different forms of investment, it is best to pick investment policies that offer lower risks. Sure, you might want to pick the ones that will yield higher returns fast- then again, these options may be riskier. If you are still starting in the field of investment, it is best to start slow and low in returns. Try to get the hang of it and understand the system.
As you grow older, you might consider engaging in more complicated forms of investment that will assure you of higher returns in the long run.
FIVE: Study and Explore the Possibility of Investing in Stocks
Compared to index funds, investing in stocks is much riskier. So, before you plunge into this form of investment, you need to learn deeper about its systems first. For instance, it would be helpful to get the insight of an investment advisor to make sure that you understand the system and that you will be able to get the best rate of returns from your invested funds in the future.
Public stocks are often more amicable, especially for first-time stock investors. They are easier to buy and you do not need so much to make the purchase. With the help of an investment advisor or a financial manager, you would be able to find a good stock investment match that will fit your current available funds.
SIX: Invest in Small Businesses
Given that you are starting out early, it is obvious that you will have limited financial resources. Putting up a business that you will be interested in managing would help well in improving the possibility of earning from your early efforts of investment. Today, creating startup businesses is easy through the aid of the internet. With the right skills and enough passion, anyone at the age of 10 onwards can already start their own businesses and earn at an early age.
Of course, for legal requirements, you may be asked for supporting documents stating that your parents are supporting your business and that they are involved in the process of aiding you in the process of growing your business and managing your finances.
What if you choose to simply support another business, may bit be a startup or already an established and operating entity? You can do that too. But make sure you research deeper into the background of the business. Knowing more about the business you are interested in will tell you if there really is a chance for the business to grow depending on the record of its performance in the market.
Looking through the past record of an organization’s performance can help you forecast the possibilities of growth for the business and assume whether investing in this business would be beneficial for you now and in the future.
What if you fail at your first try? Don’t fret. That is one factor that cannot be completely avoided when it comes to investing your funds in different forms of policies.
So, when you do fail, do not stop. The key to getting the best out of your experience in your past investments is to remember what you may have done wrong and not repeat it in your future investment transactions.
Handling failure with positivity is critical to going through investing procedures and finding the best option of investment that will help you improve your financial standing not only now but towards a more financially stable future.
SEVEN: Search and Engage in Certificates of Deposit
The best factor that makes certificates of deposit interesting and applicable for young investors is that they are safe. It works like a savings account, only that it cannot be used for a certain span of time so as to earn the highest rate of return of investment from the policy.
When it comes to investing in CDs you need to remember that the longer you save your money into the policy, the higher the rate of earning is. Enrolling your available funds for investment in CDs will also assure you of FDIC insurance which of course reduces the stress that most teens often go through when putting their available funds in certain types of investments.
EIGHT: Engage in a Custodial Traditional IRA
Starting early with traditional IRA investment can offer you the option of enjoying lifelong benefits through tax-deferred investment interest earnings. Getting advice from professional investment and financial managers will help you forecast the future of your investment earnings once you subject your fund to a custodial traditional IRA.
NINE: Setup Several Minor Accounts
Among the safest move in terms of improving the potential of earning from your investment is to not concentrate on one investment alone. Engaging in multi-investments will help you earn from several policies and get payment at several different times of the month.
This also improves your investment experience over time. The more experience you get as you grow older in this process of financial management, the better it will be for you to spot good investments in the future.
When in the process of picking the right investments to engage within as a young adult, you ought to find a way to learn more. Dig deeper into research and find ways to understand how a certain investment works. Accordingly, this approach will help you in becoming more familiarized with the system of investment that would be best for you and your available funds.
If you have the resources, you may also contact trustworthy financial managers or agencies that assist young adults in terms of finding the right investments to put their money into. At some point, it is not the amount of your available funds that matter when looking into possibilities of investing at an early age. Instead, your knowledge and your mindset would determine if you really are ready to engage in investments at an early age.
The desire to earn more is one thing, but the goal to protect one’s financial capacities towards the future is a critical process of consideration for young adults to make. Starting early and starting now gives you great options of growing into becoming a responsible financial manager who is able to prepare for the future even when you are at a very young age.
Many individuals, now older, feel that they have made mistakes when it comes to managing their finances. Often, they end up in huge amounts of debt. Now that you are here and are looking into investments at an early age will certainly assure you of a better future.