Teen Investors: How to Start Investing With a Small Amount of Money

Investing in stocks isn't just for the seasoned professionals and wealthy tycoons of Wall Street. It's a financial venture that even teenagers can participate in, even with a small amount of cash. In fact, a 16-year-old can start investing with some restrictions. While you cannot open your own brokerage account, you can have a custodial account set up by a parent or guardian. This allows them to manage investments on your behalf until you turn 18. In addition to custodial accounts, you can engage in paper trading, which simulates trading without real money to help you learn the market. Another option is to start a Roth IRA with a parent, which allows for tax-advantaged growth.

Start with Education

First, arm yourself with knowledge. Get comfortable with the terminology and understand the rhythm of the market. There are countless free resources online that can help you learn the basics. Platforms like Investopedia offer a wealth of information to help you get started. No need to go for the glossy paywalled content; online resources are abundant and accessible.

Use Financial Apps

There are numerous apps designed for newbie investors. Consider platforms like acorns or stash, which allows for investing with small amounts of money. These apps often round up your purchases and invest the change. It’s a passive way to invest, and you won't feel the pinch in your pocket. It also requires minimal micromanagement, making it an excellent introduction to the world of investing.

Take Advantage of Custodial Accounts

In the world of finance, it can be challenging for those under 18 to make independent investment decisions. Custodial accounts offer a solution. A parent or guardian can open a custodial brokerage account for you, where you can make all the investment calls. This setup offers a unique opportunity to learn and grow your investment skills under the guidance of a guardian.

Dive into Dividends

Focus on stocks that pay dividends. Dividends provide a little buffer, a return in the form of payments. You can reinvest these dividends, effectively planting a seedling that grows into more saplings. Companies like Verizon and ATT have been known to pay dividends, making them attractive options for younger investors.

Look for Commission-Free Trades

Avoid giving up your hard-earned capital to fees. Many online brokerages offer commission-free trades, allowing you to invest without incurring transaction costs each time. This can significantly impact your returns over time. For instance, Zerodha offers commission-free trades, making it an excellent choice for young investors just getting started.

Start a Roth IRA

While the focus on investing should be on the future, it's important to realize that investing in a Roth IRA can provide a significant advantage. You can start one as a teenager, and because you're likely in a lower tax bracket now, the tax-free withdrawals in retirement could be a major score. It’s a long-term plan that can pay off handsomely in the future.

Buy Fractional Shares

For those with limited capital, buying fractional shares can be an excellent option. This allows you to invest a portion of a share rather than the full price. Many platforms now offer fractional shares, making it easier to start investing with a small amount of money. For example, if you have $50, you can invest in a fraction of a share of a popular company like Apple.

Conclusion

Starting to invest as a teenager isn't just about making money. It's about learning, growing, and becoming financially literate. With the right resources, guidance, and mindset, you can start investing with a small amount of money and build a solid financial foundation for the future.