Investing is an opportunity to build long-term savings. The earlier you start, the more time you have to learn how to play the markets and become an expert strategist. If you have teens, investing is a financial topic you should tackle early. And even though it may seem complicated, there are some things you can do to teach your teens about investing. Here are some ideas to get a head start.
First, you should start from scratch. Investing, in general, is an attempt to purchase and hold specific assets until they increase in value. These assets are then sold and profits return to the investor.
Investors have different assets available, such as stocks, bonds, and mutual funds. These all function differently. For example, stocks are a share in a company’s ownership you can buy as much as you can. On the other hand, bonds are contracts between two parties in which any monetary gain is paid when the bond reaches a specified maturity date.
Narrow down their differences early on in your teen’s education.
Lastly, your teen needs to know the risk vs reward side of investing. Financial markets ebb and flow, and there may be times when investments lose a lot of value quickly. Risk management is a big part of any investment strategy. Even though returns on investment may be big, risk is high, so practice caution.
Once your teen has a good grasp of the basics, you can work on goal-setting. Investing can work for both short and long-term financial goals. Whether it’s to get extra college funds or buy their first car, your teen should have a clear goal in mind with their investing.
Risk tolerance is a great topic to bring up here. This is essentially how willing and how much you’re willing to risk to get your desired return on investment. Naturally, the higher the risk, the higher the return, but losses can also be high. Your risk tolerance can help you find what investment assets to target, how long you’re willing to hold onto them, and what you’ll do in response to market swings.
With a clear plan and some patience, your teen can work on an investment strategy to help them meet their needs.
The first step to investing is an investing account, also called a brokerage account. These act as middlemen between your investment assets and the financial markets. Your teen can use this account to buy, sell, or hold investments and track their performance.
Diversification is one of the most crucial parts of an investment strategy. A solid investment strategy involves many different types of assets at once. A mix of stocks, bonds, ETFs, or mutual funds across different industries ensures a balanced portfolio. While it can't completely protect you from losses, diversification is a smart strategy for navigating often volatile markets.
While there are high-risk investments, there are also low-risk options for your teen. Cyprus Credit Union’s Learn and Earn accounts are perfect for teens looking to build financial literacy.
It includes Learn and Earn Savings, a high-yield savings account, which is a low-risk investment. Teens can use this savings account to save $1,000 and begin earning 5.00% APY once they reach that milestone. It can help teach teens how to save and benefit from compound interest. You can learn more about everything in our Learn and Earn accounts here.
Rookie investors can make mistakes, and that’s normal. But there are some things to avoid before even getting started. For one, research matters. Uninformed investors could buy a stock declining in value because they weren’t informed. Make sure your teen is doing their research beforehand to not get any surprises.
Any seasoned investor will tell you that getting too emotionally connected to your trades can cost you. For example, some investors may impulsively buy assets based on short-term upswings, and sell them the same day when it’s on a downturn. They could also place more buys in anger because they lost value elsewhere. Teach your teen to regulate their emotions when investing to prevent heavy or nonexistent losses.
Learning to invest as early as possible will help your teen gain valuable knowledge many others acquire later in life. Your contribution now can pay off tremendously in your teen’s financial future.
Also, look for additional tools and resources to help your teen stay up-to-date on investing news and keep track of their investments at home or on the go. And keep encouraging your teen, even with potential losses, to continue learning and growing as an investor.