investing for teens

Investing For Teens (Easy)

Investing For Teens

How to start investing as a teen | Investing for teens

Investing for teens is a great way to teach teens about the stock market and to get them making money early in life!

 The first thing to do is to get an account with an established provider like E-Trade or Schwab. Diversify your investments as widely as possible. 

investing for teens

There are a variety of apps and websites that are specifically geared towards investing for teens. Below are the well-known ones:

  1. Make a Fidelity Youth Account – Parents are required to have Fidelity Youth Accounts themselves to get their teen a Fidelity Youth Account. This is a teen-owned brokerage account. It’s not a custodial account, meaning that the teen makes the investment decisions.
  2. Bloom app – There’s an investing app called Bloom specifically for investing for teens. Here is their website: https://www.joinbloom.co/
  3. Stockpile – This app was voted the best investment app for parents by Forbes. These accounts allow teens to choose which stocks they buy and sell, but with parental approval.
  4. Acorns – This app will round-up your purchases to the nearest dollar and invest it automatically. The app offers a Family account. For $5 a month, parents can add multiple children at no additional cost. Parents can 0pen an account and get their kids started at investing in under three minutes.

 

General investing tips | Investing for teens

Buy stocks in companies whose products that you use. The point of buying stocks is so that you can make a profit. Warren Buffet says he tends to buy stock in companies that he likes. 

When you buy stock you are a part owner in that company. You should tend to buy stocks in big companies as a high school student. When you get more life experience then you can start buying stock in startups. The things to look at are price-earnings ratio (which is the price of the share of stock compared to the earnings per share so a company will have let’s say 10 million shares of stock and that amount of money is called the float which is the combined monetary value of all of their stock that is in circulation). Price-earnings ratio is the price of the stock divided by the earnings per share. You also want to look at the debt-equity ratio of the company, price-to-book ratio, earnings per share, and market cap.

 

The price-to-book ratio

The price-to-book ratio compares a company’s market value to its book value. The market value of a company is its share price multiplied by the number of outstanding shares. The book value is the net assets of a company. A low ratio (less than 1) could indicate that the stock is undervalued (i.e. a bad investment), and a higher ratio (greater than 1) could mean the stock is overvalued (i.e. it has performed well).

The price-earnings ratio

The price-earnings ratio tells you how expensive the price of stock is in relation to the profits of that company. You’re supposed to have a low price-earnings ratio.

price earnings ratio

 

Debt equity ratio

Debt equity ratio is the ratio of the debts of the company to the value of the company. You should have a low debt-equity ratio.

 

Earnings per share

You want to look for high earnings per share.

 

Market cap

The ones with the most highest market cap are powerful companies, and usually that equates to good investments but not always.

 

Where to find the information of stocks | Investing for teens

To find this information, type in the stock symbol of the stock you are researching into e-trade, Schwab, or wherever you have your account and generally the basic research will be available. If not, Google Finances is great. Stock symbols are essentially shortened versions of the name of a company. In google finance, you can t1ype in the stock symbol and then that info will come up. Twtr is the symbol for Twitter, for example. Here is a picture in Google Finance where you can find the price equity ratio of a stock:

price equity ratio of amazon investing for teens

If you see a line like a dash that means they are losing money their profit (the 3 months) is negative. Companies report profits quarterly.If the Price Earnings (PE) ratio is negative the company is losing money. It is much riskier to buy stock in companies that have a negative price-earnings ratio. Here is a picture of the dash:

low price earnings ratio

What kinds of stocks to avoid | Investing for teens

Try to avoid fad stocks. For example, there was the fad stock called Segway which was an elaborate electric scooter thing. There was also beanie babies. 

Don’t buy penny stocks.  Penny stocks are stocks that sell for a very very small amount of money. Avoid penny stocks unless you can afford to lose everything on that particular stock.

 

Terms you should know to be great at investing as a teen | Investing for teens

A bear market is when the stock market overall is going down. A bull market is when the stock market is going up.

What are mutual funds?

Mutual funds are indirectly shares of stock or other investments such as 90% in the stock market. Most of it is in the stock market. Fidelity is in the business of investing for example. Everyone who puts money into that giant account a mutual fund all the fund managers take the money that’s put in the fund and invest it into the stock market or bond market. Mutual funds can be stocks in a variety of companies. Mutual funds are run by a person or a group of people who have expertise in investing. You give them your money and they invest it and you get the majority of the return on any profit and they take a management

 

Individual stocks (these are normal stocks)

If you want to learn about the stock market I would buy individual stocks first. It teaches you what stocks tend to perform well. If you buy five stocks chances are one will do good. If you buy stock in a variety of companies and you’re watching them day to day you just generally learn more about what performs well.

 

Individual stocks are divided into common stocks and preferred stocks

Common stock is a subcategory of individual stocks. Normally you’re buying common stock. 99% of individual stocks are common.

 

Preferred stock

You need your SSN. Preferred stock is a type of stock that offers different rights to shareholders than common stock. Preferred stock holders receive regular dividends and are repaid first in the event of a bankruptcy or merger.

 

What is leverage?

Leverage is the use of a smaller amount of money to control a larger amount of money. To put this into practice, you would trade with 50% margin. You have to be approved for margin trading. In order to get approved, you must apply for margin trading. On an E-Trade account there’s a button that says to apply for margin. Based on your credit and your income and other factors you can get approved and the maximum allowed is 50% margin. With 50% margin I could purchase 2,000 dollars of stock with 1,000 dollars with etrade lending you that 1,000 and you dont have to pay that money back. You do pay some interest which is payment for borrowed money. is a pretty low amount of money. 

 

What are dividends?

A dividend is a payout by the company to all shareholders. Dividends are typically paid quarterly. Not all companies offer dividends. 30-40% of companies do pay dividends. Really no tech companies pay dividend. Most bank stocks do and most old manufacturing companies. An example of one that does pay dividends is General Elector, so if you buy one share of stock they can pay you a dollar a quarter which is the same as interest. In conclusion, on top of the stock money you can get from a company you can also get a dividend. 

 

What are bonds? 

When you buy a bond you’re not getting ownership in a company you’re just getting an interest payment. Not all companies offer bonds. The bond legally bonds companies to paying a certain amount every quarter and you can sell bonds.

 

Difference between bonds and stocks

You can sell stocks and bonds. You do own stocks. However, companies don’t have to pay you if you bought stock but you can sell the share of stock to someone else. However, historically, if you invested in stocks you will just make more than if you’d invested in bonds. Statistically, stocks outperform bonds which is why people tend to buy them.

When you buy a stock the money does not go to the company. The money goes to whoever owns the stock, but the company does know who owns each share (E-Trade has to report that to the company). If you buy a stock you can go to the company annual meeting get a free meal and meet executives. For bonds you can’t go to meetings. A bond just means you lent the company money and they’re paying you interest on it.

Other resources:

You can read my guide on how to make money online as a teen.

You can read my guide on how to make money in high school.

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