A guide to investing for teens

Two girls looking at phone

After you master managing money between paychecks and start to save toward long-term life goals it is important to understand how investing can help to achieve those goals faster. As a teen, you don't have a lot of money or make a lot of money. You are hopefully thinking about your first paycheck, or investing in saving towards a college degree to start your career. After you have money set aside for emergency expenses and are looking to save towards your long-term goals, there are a variety of investment options to consider.

Let’s start with the basics.

What is investing?

When most people think of investing, they think of the stock market. Investing simply means devoting an asset of money, time or energy to a specific undertaking with the expectation of getting a return of higher value in the future.

Investments can earn money in different ways. Let’s take a look at some of them:

Appreciation When people buy stocks or even cryptocurrencies like Bitcoin, they hope that those assets will be worth more money when they sell them than when they bought them. If they do, that’s appreciation.

Compound interest When you earn interest on your initial investment and do not withdraw what you earned you are reinvesting that interest. Your next interest payment will be calculated on your initial investment plus the additional interest investment,that’s known as compound interest. Over time, this can really add up. In fact, it’s one of famous investor Warren Buffett’s favorite things and if you’re serious about investing, you may want to read up on him.

The most common examples of investments that earn compounding interest are savings accounts, Certificates of Deposit (CDs), money market or interest-bearing checking accounts. When you keep money in one of these accounts, you earn interest on that money and interest on the interest.

These investments are typically guaranteed or have a very low risk of losing your initial deposit. They also have a lower return than higher risk investments, which can be reassuring.

Dividends A third way investments grow is through something called dividends. This usually comes from stock investments and it basically means that the company gives you a percentage of their earnings based on the number of shares you own in that company.