A recent survey by Wells Fargo on investing showed that 50% of parents said their teens knew more about Bitcoin than they did, while 45% of teenagers felt their knowledge of crypto exceeded that of their parents. The Wells Fargo Parent-Teen Study included 318 teens between the ages of 13 and 17 and largely showed that teens are increasingly confident in their financial knowledge, specifically when it came to investing trends made popular through social media.
The surge in interest after the trading frenzies of GameStop and AMC led to millions of new investors, and even more new interest — teens among them. As teens start sinking their money into stocks and crypto for the first time, here are some basic investing principles to help guide them.
The Golden Rule – Never Invest Money You Aren’t Willing To Lose
The recent craze surrounding social media investing easily allows for feeding into the craze and thinking that you should be investing like everyone else is. The number one rule for investing is that you never invest any money you wouldn’t feel comfortable losing tomorrow. The same golden rule applies to gambling, and in many ways investing is just that — a gamble.
It is even more important to reinforce this in today’s investing atmosphere as the speed with which one can enter the market has changed drastically over the past couple of years. A teen especially can set up an account and begin trading within minutes through their smartphone. Money that is to be invested should only be money that is not necessary for everyday life or expenses — that is disposable income. Typically, teens will not have much of this as they are just entering the workforce and should take this into account when first starting out.
Investing is a Long Game
While there are thousands of stories of people making a quick (and large) buck off of Reddit-fueled strategies this year, investing should be done for a long time over a period of years to see stable and good returns. There are different kinds of investors for each risk tolerance, but for 18- and 19-year-olds who are new to the game, risking the first couple of paychecks you make into get-rich-strategies will likely never work out in the long run. There are investors who buy and sell stock on the same day, investors who put all of their life-savings into one stock and strike it big and investors who have no idea what they’re doing but manage to still get rich — so why can’t you be one of them right?
One of the reasons these kinds of investors are given so much attention is because of how out-of-the-ordinary their stories are. Twitch streamer TheStockGuy even uploaded a video showing one of his viewers put his entire life savings into GameStop back in January. These types of stories end up on your newsfeed because they are news, and not the way things typically operate.
The best way to invest is to put money in the market for a long time horizon. If you are a teen just starting out, this gives you an advantage over other investors because you have more time than others to accumulate accrued interest. Most financial advisors will suggest at least a five-year investment timeline, but based on what your goals are, it could be longer.
Balance Is Key
In short, this means it is wrong to dump all of your money into GameStop. No serious investor would invest all of their assets into one equity. Diversification is one of the foundational principles of investing, regardless of how much or where you are investing. This can mean across several different stocks in different kinds of industries or a balance of stocks and bonds.
For teens, the idea of bonds and treasuries might be a bit tricky, so picking 5-10 companies you really love and stand for can help ensure that you don’t lose the money you worked hard to invest because of unequal distribution. It’s also a good idea to get involved in different industries, as they will perform differently during different times of the year/economic cycle.
Invest in What You Believe In And What You Know
Generation Z could probably teach older generations a thing or two about this. Today’s teens are incredibly in tune with the products they buy and the impact they make. Whether it is choosing vegan squalene moisturizers to ensure sharks aren’t hunted for their oil or refusing to buy a company’s clothing line because of child labor scandals, modern teenagers direct their pockets where they believe it is right to do so — and this kind of strategy could help them in a big way.
Wall Street legend Warren Buffet famously said, “Never invest in a business you cannot understand.” Today’s teens can easily use their knowledge of causes and things they believe in to put their money to good use. It’s a good idea to start researching companies that you believe in and see if their products and mission statements align with your own goals before you decide to invest. Thinking of the services you use on a daily basis, and aligning your investments with your daily life can also pay off in the long run.
Editor’s Note: This article was updated to reflect that The Stock Guy is a Twitch streamer, not a YouTuber.
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