Investing Basics for Teens
WHAT IS INVESTING?
Although investing isn’t a necessary skill to master in order to become financially stable or independent, it may provide benefits to someone looking for a smart way to grow their extra cash. Once teens are able to manage their money efficiently, learning about the pros and cons of investing can help establish a more complete financial picture for their future.
While budgeting and saving are great solutions for short-term goals, investing provides a way to save for larger purchases or costs, like retirement, many years in the future. Investing is the act of spending money with an expectation of eventually receiving more money back than you originally provided. The amount you invest will vary from investment to investment, as will the growth of your invested dollars. Although they can be a great way to grow your money long-term, it’s important to keep in mind that any investment could lose value, and often without any warning.
There are three main types of investments, all of which carry some level of risk for the investor and may have different minimum age requirements to pursue. It is best to carefully research each option you’re considering before you commit to anything.
- Cash Investments: One of the least risky investment options, cash investments are usually a great starting point for teens learning how to invest or looking for a relatively safe way to grow their extra money. Cash investments may include products such as certificates at your financial institution. The relatively low risk of these cash investments provides peace of mind, but also tends to offer the lowest returns on investment.
- Bonds: These may include treasuries and government, municipal, or corporate bonds. Treasuries, such as T-bills, T-notes, and T-bonds, have historically been considered fairly low risk since they are a debt obligation of the U.S. government.
- Stocks: In general, stocks tend to offer the largest return on investment since they often carry the highest risk. Typically, investments in stocks require a long-term commitment to see results, due to the regular fluctuation of stock prices. If you’re interested in investing in stocks but want a safer alternative, consider looking into mutual funds instead. While they are still riskier than a certificate, they are usually professionally managed and may sometimes be opened with as little as $25.
KNOW YOUR RISK TOLERANCE
Since all types of investments carry some form of risk, knowing your personal level of risk tolerance will help you determine which type of investment option is right for you. Starting with a low-risk investment such as a certificate can act as a stepping stone to other options in the future. As your investment knowledge expands, your portfolio of investment products can also expand to include investments that best suit your specific goals.
HOW TO GET STARTED
If you’re unsure about how to start investing or which options might be right for you, consider speaking with an investment professional. Online resources such as www.Investor.gov also offer a variety of resources for both teens and adults, including information about important investing principles such as why to save and invest, diversification, risk, and return on investments. You can also call us at 505.293.0500 or 800.947.5328 or visit any branch to speak with a representative about resources available to SLFCU members interested in learning more about investments.
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