5 Tips For Kids Wanting To Invest In Stock

Most adults have never invested in stock because it can be expensive and intimidating to get started.  But you don’t have to wait until you’re an adult – or have thousands of dollars or a PhD – to invest in stock.  Here are five easy tips to help you get started with stock investing and find your road to financial awesomeness.

Ask yourself:  Do I want to be rich?  If you want to start building wealth for your future, you’ll want to start saving part of your allowance or your paycheck, but that probably won’t get you there all by itself.  The secret to building large amounts of wealth is to invest your money, which means getting your money to work for you.

Here’s an example.  Let’s say you saved up $1000 this year from your allowance, birthday presents, and other things, and stored it in a shoebox.  If you came back a year later, or even 100 years later, you’d still have $1000 in that shoebox. 

Now let’s say you invested that $1000 in the stock market instead of putting it in a shoebox.  Stocks can go up and down in value (more on this later), but on average, they went up 9.8% a year from 1928 to 2014.*  So if you had invested $1000 back in 1928, you would have had more than $3.4 million by the end of 2014!  Pretty incredible, huh?

*Source:  S&P 500 historical rate of return

How to get started.  The first thing you’ll need to do is open a stock account (also called a brokerage account), and there are a few things you’ll probably want to look for. 

First, you’ll want to open an account that lets you invest as much or as little as you want.  At most brokerages, you need thousands of dollars just to open the account.  And some stocks are hard to afford – one share of Tesla stock costs about $200, and one share of Amazon costs about $700, for example.   At Stockpile (http://www.stockpile.com), there’s no minimum amount you need to open an account, and you can buy fractional shares of your favorite stocks.  For example, you can buy $50 of Tesla, which translates to about a quarter of a share.  It’s real stock that comes in fractions to make it easier to afford.

Second, you want to make sure you won’t be paying any monthly fees because they’ll eat into your investment return.  Same thing when it comes to trading commissions (that’s the fee a brokerage charges when you buy or sell stock, which is between $5 and $10 at most brokerages).  At Stockpile, we don’t charge a monthly fee, and the trading commission is just 99 cents a trade.  So if you want to buy $50 of Tesla stock, you’ll pay just $50.99. 

Third, you’ll want a stock account that lets you keep track of your investments on your own.  Most brokerages can set up stock accounts for kids and teens.  They’re called “custodial accounts,” and mom or dad (or another adult) will be on the account with you.  It’s great, except for one thing – mom or dad get the account login and the monthly statements, which means you’ll have to get them to check in on your stocks for you.  Which is sometimes not the easiest because they’re busy with their own stuff. 

At Stockpile, you get your own log-in so you can check in on your stocks anytime you want, without having to bug mom or dad.  You can even place your own stock trades, which mom or dad can approve.  So if you want to buy $20 of Nike, you just enter that information on the Stockpile app and the trade shows up on mom or dad’s smartphone.  If they approve the trade, it goes to the stock market and executes.  It’s like being a student driver – you get to be in the driver’s seat, with an adult next to you as your co-pilot.

It’s easy to set up an account at stockpile.com. Your parents can help you do it, and it takes only a few minutes.

Start early, invest regularly, and diversify!  Remember how we said that the stock market went up an average of 9.8% a year between 1928 and 2014?  You would have missed out on an average of 9.8% in investment gains for every year you waited to get started!

But that doesn’t mean the stock market goes up 9.8% every year.  For example, the market went up 32% in 2013, but in 2001 it went down nearly 12%. 

It also doesn’t mean every stock will go up or down the same amount.  In 2014, Facebook was up 43%, while IBM was down 14%. 

In other words, you can’t really predict which stocks are going to go up, or when they’ll go up.  You just know that if you invest over a long enough period of time, you’ll do well based on how the stock market has done in the past.  The key to making money in the stock market is to start early, invest regularly (even if it’s a small amount), and diversify. 

Let’s take that piece by piece.  Since you don’t know which years will be the good ones, but you do know that the market has gone up an average of 9.8% a year, starting early will (on average) be better than starting late.  If you invest regularly, you’ll be spreading your risk over a bunch of years, so you don’t end up investing a bunch of money in a bad year.  If you diversify, you’ll spread your risk over a bunch of different stocks, so you don’t end up putting all your eggs in one basket.  And if you do it for the long haul and receive a positive rate of return (say, 9.8% per year), the more years, the better!

Have a strategy.  There are almost as many investing strategies as there are investors.  In other words, everyone has an opinion, but here are some strategies that are better than “day trading,” which amounts to guessing what the market will do on any given day.

One good strategy is to “buy and hold” a stock, because you believe in the company and think it will go up over the course of months or years even though it might be bouncing around a lot day-to-day.  If you follow this strategy every month (by buying a little more stock every month), it’s called “dollar cost averaging.”  Or, you can “buy on the dips,” which means you track companies you think are good, wait for their stock prices to dip, and buy when they dip.  You can also buy stocks you think are underrated or “undervalued” and hold on to them until they make a comeback.  Likewise, people who own a stock sometimes decide to sell when they think the stock is getting to be overrated or “overvalued.”

No strategy is foolproof, though.  You could buy on a dip and then watch the stock go down even further.  Or you could wait for a dip that doesn’t happen for a long time and miss out on lots of gains.  But these strategies have worked well for lots of investors.

One thing that helps is to stick to companies you know.  It may give you a leg up on other investors who may not know as much about a company’s products and what people think about those products.   It also helps to stay informed and read up on your companies online.

Enlist friends and family!  You can get to financial goals sooner by telling friends and family that you’re investing for your future and would love to have their help! 

We’ve made it really easy for them with Stockpile gift cards.  They can buy an e-gift in about 2 minutes by picking a stock and dollar amount, entering your email address, and paying with a debit or credit card.  When you redeem the e-gift, you end up with stock in your Stockpile account!  They can also buy a physical gift card at Kmart, OfficeMax, Wegman’s, Giant Eagle, and other retailers or online.

To make this really easy for you, we’re launching a gift registry this fall.  Email us at support@stockpile.com to be added to our waitlist, so you can tell friends and family which stocks are your favorites and they know just what to buy you for your next birthday or special occasion!