What Kind Of Investor Are You
Before you commit your money, you need to answer this question: What kind of investor am I? When opening a brokerage account, an online broker such as Charles Schwab or Fidelity will ask you about your investment goals and what level of risk youre willing to take.
Some investors want to take an active hand in managing their moneys growth, while others prefer to set it and forget it. More traditional online brokers, like the two mentioned above, allow you to invest in stocks, bonds, exchange-traded funds , index funds, and mutual funds.
Dip Their Toes In Stocks
Theres more risk investing in individual stocks than in a portfolio holding index funds. But many teens love the idea of investing in their favorite companies and owning a share. But before you allow your teen to invest in a company, its important to talk to them about how to research stocks.
Investing gives you a heightened awareness of whats happening in the economy around you. When they have a share of a company, theyre more likely to stay on top of whats happening. This helps your teen remain abreast of possible problems.
One problem with investing is that many favorite companies often have high-priced stocks. Its a good idea to talk to your teenager about how theyll save money to invest in their chosen company.
This is also an excellent time to talk to them about the benefits of having money set aside in a savings account. Theyll need to think about how to use that money to buy the stocks they want when theyve done all their research.
Public makes it easy for anyone to invest in stocks, including stock investment for teens. You dont need to have a ton of money, and you dont even need to have investing experience.
Public allows investors to buy slices of stocks and doesnt charge trade commissions. It also scrapped the controversial practice of generating revenue from payment for order flow and instead included an optional tipping feature on trades as a means of offsetting its costs.
Chimera Investment Price Performance
Chimera Investment last announced its earnings results on Thursday, August 4th. The real estate investment trust reported $0.31 earnings per share for the quarter, missing analysts consensus estimates of $0.37 by . The company had revenue of $116.89 million during the quarter, compared to analysts expectations of $131.19 million. Chimera Investment had a negative net margin of 8.93% and a positive return on equity of 13.07%. The companys revenue for the quarter was down 32.1% compared to the same quarter last year. During the same period in the prior year, the business earned $0.54 earnings per share. On average, equities research analysts anticipate that Chimera Investment Co. will post 1.32 earnings per share for the current fiscal year.
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Get Them To Invest In A Business
For a more exciting approach to investing, consider your teens investing in a business. But as a parent, be careful. Make sure nobody tries to get your teen to invest in a business only designed to take advantage of people. This happened to me in college with a shady t-shirt for credit card application business.
With proper vetting, though, investing in a business can be very exciting. Whether they decide to open their own business or have researched businesses owned by family members or friends, investing in a business makes everything personal and is an excellent way for your teen to want to learn about business and investing quickly.
While I do believe failure is a great way to learn, you want to make sure your teen isnt setting themselves up for failure by investing in a business that isnt sustainable.
I think the cost of investing in individual businesses can be too high for some teenagers. So you, as the parent, need to be willing to act as the voice of reason when necessary.
This can be difficult. But making sure your teenager is investing responsibly is essential and will allow you to help protect them before they make a huge mistake.
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?
First of all, investing in the US under 18 is illegal unless you have a custodial account through your bank.
Not everyone has the resources or time to open a bank custodial, especially if you’re new to investing.
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.
App custodials like Bloom are completely independent which means fewer to no fees from zero reliance on bank third parties. When the teen reaches 18, they will gain ownership over the account. You can find more about picking the right investing app here.
Let’s assume you choose a custodial app for now.
Setting Up 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.
It’s important to note that unless an app explicitly supports teenagers, it means that trading as a minor on that app would be illegal.
Trading on apps like Robinhood as a minor is common but illegal. These apps do not provide custodial services.
Even if you do find a work around , you have no ownership of that account.
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Minor Traditional Iras And Minor Roth Iras
Note that with both Traditional IRAs and Roth IRAs, your child will need to haveearned income. Without earned income, you are not allowed to contribute. So if you’re thinking of contributing to a Roth IRA for a younger child you might need to find creative ways for them to earn income.
If you are planning to set up a Traditional or a Roth IRA for your children, you can do this until they reach the age of 18. This will allow them to begin saving for retirement early on and will provide significant benefits.
For most situations, the Roth IRA will be best since children are in a low tax bracket now and will be at a higher tax bracket later in life when they take distributions from the account. This way the dollars within the minor Roth IRA may never get taxed.
You can set up Minor Roth IRAs at a variety of brokers. There are many options available so we recommend doing as much research as possible before jumping in. Consider reading about the best brokerages for Roth IRAs before choosing. In the meantime, these brokers below offer great options for minors.
- TD Ameritrade
Find Your Investing Identity
Another important part of the process is to discover your investing identity. Are you a risk-taker? Then growth investing might be right up your alley. Do you like getting paid ? Consider income stocks. Do you love a great deal? You might be a value investor at heart.
As you learn more about investing, you’ll discover what interests you the most, which is the key to staying invested over the long term so that you can benefit from the wonders of compound earnings.
As you discover more about how to invest money as a teenager, you’ll likely go down one of two paths: active or passive investing.
If you find that active investing isn’t your thing, don’t give up. Instead, take a little more time to investigate passive options such as mutual funds and index funds, which track stock market indexes.
There’s no shame in consistently putting some money into one of the top index funds and calling it a day. Over the long term, they’ll do a wonderful job of increasing your wealth.
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Buying Individual Shares Of Stock
If you want to buy individual stocks, thousands of stocks are listed on US stock exchanges. Researching each of these companies is an impossible task. It is probably wiser to begin by looking at big companies such as those found in an index like the Dow Jones Industrial Average if you want to buy individual stocks. In addition, some aspiring teen investors begin by choosing stocks with which they are familiar. I discuss these options in the two sections below.
The Cheapest Way To Invest In Stocks Is Through A Website Often Called A Platform
You can buy shares or funds from different providers, but for the cheapest offers you’ll want to do it through a website, often called a platform.
It’s actually a two-stage process. First you need to pick which platform to buy your shares or funds from, then you need to decide what investments to buy.
It’s like buying bread in a supermarket. You first need to pick where you want to buy the bread , then choose which bread you want to buy .
As a rule, you’ll be charged for using the platform and buying the investment. To stretch the analogy somewhat, imagine each supermarket charges a different price for its shopping bags.
Some supermarket bags are cheaper than others, but the ones that have the most expensive bags may sell the cheapest bread. So it’s a combination of the two factors that needs to be taken into consideration.
Note that while the platform fee is charged by the platform you choose, the company buying the shares on your behalf or running the funds will be charging you for its service.
A stocks & shares ISA is a good place to start your investment journey.
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Costs When You Sell An Investment
The cost of selling an investment depends on the type of investment. With some mutual funds, instead of paying a fee, or front-end load fee when you buy, you pay a fee when you sell. This is known as a back-end load fee.
The back-end load fee:
- is generally a percentage of your selling price
- is normally highest in the first year after purchase
- gradually decreases for every year you hold the investment
- may be waived by the fund dealer if you hold the investment long enough
Think carefully before buying funds with back-end load fees. The fees are charged when you sell the funds and are based on a percentage of the selling price. You may be charged fees as high as 7% if you sell in the first year. To avoid this cost, you may have to hold the investment for several years.
Where To Start Investing
If you pass the age restriction placed on investing in your state, you must be wondering where to begin.
Your first course of action would be to find a suitable brokerage with whom you can create an account. For all the newbies out there, a brokerage account can be equated to a traditional bank account. You will carry out all of your transactions through this brokerage account, including buying and selling stocks, options, bonds, mutual funds, as well as exchange-traded funds.
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Stock Market News For Today Wealth Building For Tomorrow
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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 in $VOO. $VOO 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 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 :
The 5 extra years result in an extra $500k 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%Ã 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 to make longterm, low risk investments.
As you get older, you can always increase the amount of money you invest.
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Why Teenagers Should Also Consider Having A High
While savings accounts arent as exciting as other types of investments, there are advantages to opening one.
If youre new to managing money, savings accounts are a useful way to start experiencing the benefits of compound interest and practicing restraint from spending money.
Plus, once you open a high-yield savings account, all you have to do to start making profits is leave the money alone. No picking the right stock or fund necessary!
With a high-yield savings account, you can have joint ownership as a teenager, as opposed to a custodial account where you cant access funds until you reach the age of majority.
A high-yield savings account will, as the name suggests, earn you more money than a standard savings account. The average interest rate for savings accounts hovers around 0.09% APY.
However, some high-yield savings accounts can more than double that rate. And they can generate even more income over time when benchmark interest rates start heading higher, as they began to in 2022.
The longer you keep money in the account, the more money you make while you sleep.
In fact, these accounts often require you to lock your money in for a specified minimum amount of time.
When choosing a high-yield savings account, in addition to the interest rate, take into consideration any required fees and the minimum balance amount.
A product acting as a high-yield savings account you might consider with attractive interest rates comes from Greenlight Max.
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Stocks Of Companies You Already Know
If the stocks in the Dow dont interest you, you may want to look into stocks of companies that teens like. A company called Piper Sandler does a survey each year of over 7,000 teens to discover what brands they like and use. These include brands of shoe companies, restaurants, snacks, clothing, and many other consumer items and services young people use. Basing stock purchases on brand recognition may not be the best way to decide what stocks to buy, but the companies in the survey may give you some initial investment ideas. Later, when you get more experienced in investing, you can do fundamental research to see which stocks are worth your money.
Here is a list of some of the top brands that may be of interest to teen investors:
Top 3 Footwear Brands: Nike , Converse , Vans
Top 3 Handbag Brands: Coach , Michael Kors , Kate Spade
Top 3 Restaurants: Chipotle , Starbucks , McDonalds
Top 3 Snacks: Goldfish , Lays , Cheez-it
Top 3 Clothing Brands: Nike , American Eagle , Lululemon
Top 3 Payment Apps: Apple Pay , Cash App , PayPal
Getting Information about Stocks
You can get any company’s annual report with a quick google search. For example, if you want the annual report for Nike, enter “Nike annual report” in a Google dialog box. I did such a search and ended up on a Nike website page with all of the company’s annual reports.
Analysts Set New Price Targets
A number of equities research analysts have recently issued reports on the stock. Barclays lowered their price target on shares of Chimera Investment from $11.00 to $9.00 and set an underweight rating on the stock in a report on Monday, July 18th. Credit Suisse Group lowered their price target on shares of Chimera Investment to $9.50 in a report on Friday, July 22nd.
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How To Invest As A Teenager
Can you invest if youre in your teens? Yes, if you are the age of majority in your province. The same age of majority rules apply for a brokerage account: A minor cannot open an account to buy stocks, bonds, mutual funds or exchange traded funds, unless a parent or grandparent opens an informal or formal trust account.
An informal trust, often referred to as an ITF account, is relatively straightforward. The account is managed by the parent because a minor cannot buy or sell securities until they are of age.
A formal trust, however, is established with a lawyer who drafts a trust deed that outlines the terms of the trust. This is typically done for larger amounts of money given the legal and accounting fees involved.
Informal trust accounts at brokerages may be subject to rules proposed in the 2018 federal budget that were supposed to come into effect on December 31, 2021. Previously, informal trusts did not generally file trust tax returns. But the proposal states that trusts with assets with a fair market value that exceeds $50,000 during the year will be required to file trust tax returns going forward.
Most informal trusts will not be anywhere close to this value. But some ITF accounts could be impacted. The expectation is that these rules will apply for the upcoming March 31, 2022 trust tax return deadline.