Investing Hacks for Teenagers

INVESTING HACKS FOR TEENAGERS

It is a widely believed myth that one has to be an adult or expert in order to start investing and growing money because of the practices over generations. However, that is not the case at all! In fact, it is much more recommended by the best investors in the world, to start investment from an early age. Warren Buffett, the legendary investor, started investing at the age of 11 and still claims to regret that he did not start any earlier. 

Investing is a game that can not be won by just a large sum of capital or the right investment choice, but the time you give that investment to compound over a longer period of time can be proven to have much higher returns. Take into consideration the example of how if you keep folding a piece of paper for more than a number of times it multiplies exponentially. Similarly, consider the number of times the paper is folded as the number of years you’ve had that investment. The returns are going to compound for you to enjoy financial freedom even sooner than if you would have started late. 

This magic can be demonstrated through the graph below. It can be seen that as the time passes, the graph gets more and more steep, indicating higher returns, due to an increase in capital every year as the interest amount also joins in to increase the overall capital.

When you invest at an early age, the chances that one significant investment loss ruins the chances for your increase in wealth is minimal, as you would still have a lot of time ahead of you to cover up for that loss, than if you were nearer to your retirement age. This is a very major risk avoided by investing from your teens itself as when you lose 50%of your money, you do not need to earn back 50% of that amount but rather a 100% of it. This cover up would take up all the additional returns you should have received as a reward for your risk and be a barrier in the way of you aiming for financial freedom in your future.

Stock market, mutual fund and bond investments intended to be for a longer period of time are one of the most suitable options for teens to experiment with, and can also be done with a lower capital, unlike real estate and gold. As they also have high liquidity, your capital would also not be stuck unlike in asset classes like real estate and gold.

Starting from stock market, that is basically investing in the equities of companies relies on the market forces of Demand and Supply for the company's shares. This depends on aspects like the business's fundamentals as well as technicals. This is not something that can be invested in blindly with little information, but rather requires research and understanding of how the market works. To know more about this, you can check out our other blogs on stock market investing.

Next up, coming to mutual funds, they are actively managed funds by expert fund managers that choose a variation of stocks all across the market and diversify it through different industries and companies to yield maximum returns. This is comparatively a less riskier option as it does not require you choosing from a myriad of stocks with limited knowledge with the support of extensive research, but rather fund managers that are trained to choose high return generating stocks ad investing in them at the right time. Mutual funds can be in either equity or in debt.

Coming to bond investments, they are used by governments or companies to borrow money from investors over long periods of time. They have much lesser risk than stocks and mutual funds but do not have as high returns as them. However, they are a great asset class combination with stocks in terms of diversifying your stock portfolio.

Some things to keep in mind are that this journey of wealth creation through investment requires patience, discipline and strong fundamental concepts, so that you are not shaken up by the occasional downturns of the market that could lead to impulsive decisions. It is very common for young investors to panic at the first glance of a minor loss, but it is vital to understand that fundamentally strong companies are bound to survive through ups and downs. All you need to do is choose the right stocks on basis of its fundamentals and then sit tight, therefore giving the investment time for growing your capital 

Along with the power of compounding boosting your returns, starting in your teens would also give you more experience. As the experience increases, the probability of you making errors that could lead to losses with higher sums of capital when you earn will reduce, as knowing every possible way you could fall when walking on a busy road, would make you be more precautious and accurate the next time you’re about to walk on the same road. This experience might not seem so valuable at the time, but the clarity of approach it will bring to you in the future will definitely be worth it in the future.

Furthermore, this expansion of knowledge and development of experience over the years will help you built up your confidence in investing as you would be relatively more familiar with the market patterns. Confidence, would then enable you to grab every lucrative opportunity henceforth without the irrational fear of new older investors.

Despite the fact that you can research and decide your own investment strategies and allocation, as a teenager, you would need the supervision of an adult, when making the financial transaction for the investment. Besides this, you can independently grow your money starting right from your teens!

To collate, Investing from your teens is a very highly recommended thing to do as it boosts the power of compounding, your confidence as well as your experience into this epitome aspect of life.

~Shagun Johrii