Investing

Start now and you won't regret it

So...what is investing anyways?

First, it's important to know that investing applies to many different things. At its root, investing means giving something—like money or time—with the expectation of benefitting from it in the future. Working as a teen is an investment of your time which will result in money for you. College is an investment of both money and time which will result in either more money for you or a job you are passionate about. There are also a bunch of other types of investing, like real estate investing, or investing in your own business.

That being said, I'm going to be talking about investing in the financial market through stocks and bonds. As busy students and young people, investing in stocks and bonds is a great way to passively earn money, especially since the longer money is invested, the more money it will become (and we have a lot of time ahead of us).

If you are already confused, don't worry. Before tackling how to invest in stocks and bonds, I'm going to first explain what that even means, as well as define a few things for you. Bear with me, I'll try and make this the least painful it can be.

Stocks

Buying stocks means buying parts, called shares, of a company. This means you will have equity (partial ownership) of that company. When it does well, your shares will grow in value (making you money), but when the company does poorly your shares will decrease in value (losing you money). This means that investing in just one company holds significant risk. One way to have stocks without such high risks is to diversify your stock portfolio (the collection of stocks you own) by investing in many companies. This doesn't mean you have to hand-pick a bunch of companies though; you can do this through funds.

One type of fund is a mutual fund. Mutual funds are essentially customized portfolios of companies where money from a bunch of different people is pooled and a manager invests that money in a bunch of different companies. These funds often have a theme to them, like small companies on the rise, international companies, or environmentally sustainable companies.

Another type of fund is an index fund. An index fund is a group of companies that people have tracked for a long time. Index funds, as well as exchange-traded funds, let you invest in some part of the broad market. There is no manager picking a customized portfolio, rather just the set group of companies in the index. The benefit of index funds is that there are much lower fees than mutual funds (if any).

Phew, okay, you made it. Take a second to breathe and make sure you understand all of that. If you are confused, don't worry, there will be a visual summary at the end of all of this that will hopefully help.

Now it's time to move on to bonds.

Bonds

By buying bonds you are lending money to a company, which means they are in debt to you, and therefore they will owe you that money back with interest after a certain number of years. There is significantly less risk associated with bonds since you have a set contract with that company, so you will be getting your money back after the set amount of time, unless the company essentially goes bankrupt. Since it is less risky though, the return (how much money you earn) is expected to be lower than top-performing stocks. Governments also offer bonds that have even more range in the duration of the loan. For the US government, the risk is even lower. Bonds can complement the rest of your portfolio as a very low-risk addition to help balance it, especially later in life.

There are two main types of investment accounts that I am going to talk about: retirement accounts and taxable accounts.

Retirement Accounts

Even though retirement seems like the last thing on our minds, it should actually take first priority in your investing right now. Remember: more time invested = more money. You won't be able to access the money in a retirement account until you are in your 60s. That being said, retirement accounts come with significant tax benefits, allowing your money to grow tax-free or with taxes only due at retirement (deferred taxes).

Starting to invest in your retirement right now, even if it's only $10 a month, and slowly increasing your contributions as you earn more and more (from $10 to $100 to $1000), can lead to millions in 40+ years, and I'm not exaggerating.

There are two types of retirement accounts: individual retirement accounts (IRAs) and employee-sponsored retirement accounts (like a 401k).

IRAs are set up by you and you alone. In fact, as long as you have some income, you could set one up right now! Opening an IRA is a great way to start investing as a teen, although they do have a limit on how much you can invest per year (which is well above anything that has ever given me trouble). Keep in mind that for IRAs, your income must be reported in tax filings to qualify for an account.

Employer-sponsored accounts are set up through a job, often only for those working full time (AKA not most teens). Since there is a higher limit here, and sometimes benefits like employers matching the amount you invest, these accounts are a great resource to be used alone or in addition to an IRA. If an employer ever asks you if you want to be a part of their program for these accounts, ALWAYS SAY YES!

One other important distinction between types of retirement is whether they are traditional accounts or Roth accounts. Roth accounts come with even more tax benefits. People who make under a certain amount of money can qualify for Roth accounts. Roth IRAs are much more common, but things like Roth 401ks exist as well.

Taxable Accounts

Taxable accounts are for long-term savings. These are funds that you won't need to access for 5,10,20 years. You can use this to save up for things like a deposit for your first car, or first house, things you won't need anytime soon but want to be able to access money the money for whenever (ie. not when you are in your 60s).

When thinking about where your money should go when you want to invest (taxable vs. retirement) pick a percentage and stick with it. I typically go 60% retirement and 40% taxable. This is up to you, both are important and useful, so don't just invest in one.

A warning before you start investing: Remember to treat investing as a tool to build wealth slowly over time. It is easy to get pulled in and treat investing as gambling, so be careful to examine how you are looking at your investing. Be smart and be careful.

You made it! Now that you have a basic understanding of what investing means and the options you have, here are my top choices of platforms to use to invest.

My Top Recommendation:

Fidelity Go

This is a great way to invest without having to pick your exact stocks and bonds (which means you can take more of a step back). You can take a short survey and they will give you a customized plan based on the amount of risk you are willing to take. This a FREE platform until your account balance surpasses $25,000

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