While many laws on the books prohibit minors from entering into legal contracts or owning property, there are no such restrictions when it comes to investing in stocks and bonds. Teens can purchase stock shares or create and feed their own retirement accounts. A custodial account, under the supervision of an adult, allows teen investors to have the same opportunities as more seasoned investors, such as certificates of deposit (CDs) and cryptocurrencies.
In fact, younger investors have several advantages in terms of long-term returns on investment. Contributing to a retirement fund at 16 with a high-yield investment can nearly double the fund’s balance by age 65 compared to starting at 22. Younger investors also benefit from additional time to ride out downturns in the market.
How Teens And Gen Z Can Start Investing
Education and Advice
As with any other business venture, investing starts with studying and mastering the basics. First-time investors should find as many available resources as possible to learn about the history and function of the stock market. Online brokerages and financial advisors often publish articles targeting young or first-time investors.
Parents and other adults should take an active interest in a child’s financial well-being and offer insights and support through custodial accounts. A professional financial advisor or broker may feel more comfortable discussing investment issues with a parent or guardian until the child reaches legal adulthood.
Set Realistic Goals and Expectations
Modest gains and losses are considered the norm for most stock market investors of any age. Teen investors should set realistic expectations regarding a return on investment or long-term growth. While stock market guides often highlight premium and high-performing stocks as an incentive for experienced risk-taking investors, first-time investors must set more realistic goals to protect their positions.
Some young investors plan to use their dividends and profits to subsidize a short-term goal, such as a college education or living expenses. Others may consider setting up an emergency or retirement fund. Understanding the purpose of the investment often helps younger investors stay focused on the journey, not just the destination.
Select The Best Stock Options
Even the most educated and well-connected stock market investors still have to make their selections from a massive menu of publicly traded stocks. The question for beginning investors is whether to invest limited funds into a more expensive share of an established company or invest in lower-yield penny stocks.
Riley Adams, co-founder and CEO of Young and the Invested, explains. “Investing in the stock market has never been more accessible, cheap or easy. Anyone starting out today can invest for as little as $1 in a broadly diversified, all-in-one investment called an index fund—and you don’t even need to be an adult to start, although you might need one to help. If you’re looking for long-term growth, you’re best served by a stock market index index fund, or if you’re seeking income, by a bond market index fund. For a truly diversified portfolio, you’d hold both.”
Start A Custodial Brokerage Account
While minors under the age of 18 cannot legally open a brokerage account, they can still invest in the stock market through a custodial brokerage account jointly controlled by an adult. A brokerage account allows an investor to store and access stock market investments separate from personal savings or checking accounts.
Is the Stock Market Too Risky For Young Investors?
Investing in the stock market has historically been an exercise in risk-taking, with shareholders accepting the reality of loss and the potential for gain. Younger investors with limited funds don’t always have enough capital to diversify their investments to protect themselves from substantial losses. Until a younger investor has built a more diversified investment portfolio, the inherent risk of investing deeply in one company will always be there.
However, the initial cost of investing in the stock market is significantly lower for first-time Gen Z investors, which offsets some of the risks they assume.
Prakash Kolli, founder of Dividend Power, explains, “Investing in the stock market for the first time is simpler and less expensive than in the past. Today, most brokerages offer online trading with no commissions when buying and selling stocks. Going back 20 years, one needed to call a broker to place trades. Additionally, commissions were around $10 to $20 or more. Over the years, they came down because of technological advances, and eventually, commissions were eliminated at many brokerages. In fact, a young person just starting to invest today can even buy one share of a company for no cost. However, investing for the first time may still overwhelm some people because it involves real money and a fear of loss.”
While investing in the stock market may still be seen as a fringe activity among teens and young Gen Z, there’s no reason they can’t create and control their financial future.
This article was produced by Media Decision and syndicated by Wealth of Geeks.
