So, how to invest money wisely, and where to invest money to get good returns?
You might think of investing as a topic for adults, perhaps just for wealthy ones. But, it actually isn’t confined just these people. In today’s post, I’ve covered “Investment options for teenagers that involve the best way to start investing with little money”!!
Yes, you heard me right!
If you are stuck wondering, What can a teenager invest in? Do I have enough money to invest? – Be prepared! I’ve covered every aspect in detail. Do post your queries and suggestions for ideas that aren’t included in here. That being said, let’s get started.
After all, as the saying goes, it takes money to make money. As a teenager, you might think that you don’t have enough money to invest in anything bigger than a bicycle to get you to and from a part-time job. Some even can’t afford that bike and go for a second-hand model in order to fall within your budget.
So before you proceed with the idea of investing, consider just how much cash you actually have.
The key to earning money through investing is starting early. The earlier you begin investing, the longer your money has to grow.
Let’s consider this scenario where your parents give you $10 a week as pocket money or for doing chores around the house, unloading the dishwasher, walking the family dog, or mowing the lawn, you make a total of $520 a year. Even if you spend half of this money, you will still have $260 to invest in a year’s time.
If you get a weekly allowance, you have a lot more money to start investing.
You might be surprised to know that this small sum is enough to buy stocks in numerous companies including – Intel, Johnson & Johnson.
If you’ve ever thought that investment is not for you and that you need large amounts of money, you need to change your thought.
Before you start investing
You must decide which investments are the smartest options for you. Investment falls into four categories:
- No Risk
- Low Risk
- Medium Risk
- High Risk
No risk and low-risk investments include regular money saving accounts, certificate of deposits (CDs /fixed deposits in other countries) and savings bonds. Mutual funds, stocks with proven track records, forex trading, college savings programs (such as 529s and ESAs), and individual retirement accounts are typically considered medium risk investments. High-risk investments include mutual funds that invest in sectors, or specific areas of the economy, such as energy and technology. Other high-risk options are small and mid-cap stocks, penny stocks and commodities.
You might wonder why anyone would place money in investments that carry a risk in losing that money. The answer is that high-risk investments usually offer the possibility of a higher return on the investment. Low-risk investments may carry minimal risk, but they also offer very little in the way of rewards.
On the other hand, you might wonder why anyone would play it so safe as to earn only 1% on investment. The answer is financial security. Many people would rather make a small amount of money consistently than make a large amount one year just to lose it all the next. For this reason, many people opt for low or medium-risk investments.
10 great investment options for teens with less than $500
In this article, I will discuss the best ways to invest the money as a teenager. Depending on your financial goals choose the one that best suits your needs.
1) 529 Plan
A 529 plan will help you grow your college savings through tax-free investing.
Have you started saving money for your college tuition?
If not, it’s never too late to start investing for this important expense.
By opening a 529 or an ESA today, you can begin putting money away for your future. As long as you use the money for educational costs, you won’t have to pay taxes on the interest it earns.
Even if you can only invest $25 a month, you will be glad you did it when the time comes to pay your tuition bill. The sooner you start putting money away for your education, the more compound interest it will earn.
2) Certificates of Deposit (CD)
A certificate of deposit is a great place for savings that you might need down the road. Certificates of deposit, or CDs, typically have the highest interest rates among government-insured savings products. That makes them ideal for people who want to earn passive income without taking much risk. The price for getting higher interest rates is that you agree to lock in your money for a set time period, sometimes up to five years.
The longer a CD’s term — and the larger your deposit — the higher your rates. If you wish to break the bond and release the money within the maturity period, you’re prone to withdrawal penalties. The minimum amount you need to invest may be as little a$100 or $1000.So, you need to move into this if you have saved a certain amount of money.
If you think you will need the cash in a year, opt for a 12-month CD. Won’t need it for longer? Consider a three or five-year CD instead. Choose the longest term that works for your circumstances, providing it offers you a higher interest rate. Just remember, there is a penalty for early withdrawal.
3) Individual Retirement Account (IRA)
The best time to start saving for retirement is while you are young. Doing so can make it possible for you to retire as early as possible.
A regular IRA will allow you to invest pre-tax dollars. Since you probably fall into a low tax bracket at this point, however, a Roth IRA may be the smarter choice.
This retirement savings plan does not give you any tax benefits now, but when you retire, you won’t have to pay any taxes on the interest you earn through this investment.
A traditional IRA requires that you begin withdrawing money by the age of 70.5 and also won’t allow you to keep contributing to your investment once you reach this age. While, a Roth IRA, however, has no such requirement and will allow you to add to your plan for as long as you live.
Have you heard of Robo-advisors, a new kind of investment services that are becoming popular these days?
These services create portfolios based on risk tolerance (the extent a person is willing to lose money to attain financial gains).
They make recommendations from how much money to invest in the type of account that’s right for you and manage it for you in a way that many traditional investment services can’t.
They are a great option for investing with less than $500, because of their low fees and low minimum investment requirements.
Betterment is an excellent Robo-advisor to consider. There is no minimum deposit required. You can start investing with as little as $10. There’s a low annual fee of 0.25%.
6) Mutual Funds
When you invest in a 529 or an IRA, chances are good that part of your money is going into one or more mutual funds. You can also purchase these investments individually. It is smart to talk to a financial planner before investing in a mutual fund, to help you make the best possible choice.
7) Exchange Traded Funds (ETFs)
They are similar to mutual funds but often have low minimum investment requirements. You can buy an ETF for the price of a single share, whereas mutual funds tend to require an initial deposit of $1000 or more.
8) Savings Bonds
This is another investment option but you won’t earn much interest from savings bonds.
At the same time, you won’t be risking your hard-earned money either.
Saving bonds are among the safest investments in the market today. They are also a great way to diversify your investment portfolio.
9) Statement Savings Account
Many parents begin teaching their kids about money by opening statements saving account for them.
You won’t get much interest from a statement savings account, but it is a great starting point for your other investments.
Use this account to keep your cash until you have enough to move into another investment, such as a CD.
If you might be tempted to spend your cash before you reach a minimum investment amount, your money is safer in the bank. it will also earn a small bit of interest this way.
10) Individual Stocks
Stocks are the riskiest type of investment, but they also offer enormous potential for growth. To keep your risk as low as possible, choose a company that has been around for a long time and has a proven track record.
If you buy a growth stock, try to buy low and sell high. An income stock can earn you money through monthly or quarterly dividends. Even when the stock goes up in value, you may want to hold onto this investment, as your dividends are also likely to rise when the company does well.
Robinhood, a free stock trading mobile app is gaining steam nowadays. It allows you to purchase stocks from your mobile with zero trading commissions. It’s a great option for youngsters, well accustomed to technology and want to avoid the fees involved in purchasing the individual stocks.
These are some of the best investment ideas for teens and obviously, the best way to start investing with little money. Hope you find value with these options.
The risk of losing your money (or gaining less than you expected) is a possibility with any type of investment, but the danger is greater with some investments than with others. You should never invest any amount of money that you cannot afford to lose unless there is absolutely no risk involved.