Monday, July 16, 2007

"How can a teenager (11-17) start investing in the stock market?"


I'm a (11-17) year old student and I have some money I want to invest. How do I start investing?


Congratulations on saving your money and trying to invest it!

In the United States, many US discount online brokerages, such as E*trade ( require you to be 18 years or older.

So what you can do is ask your parents to open an account for you. One example is an Educational Custodial account. Your parents will control the account until you turn 18 or 21. Read the other requirements and benefits on the website:

There is also a Coverdell Account (formerly known as Education IRA), or an IRA for Minors (for your retirement!)

In the meantime, I recommend that you get your parents involved. Have them learn more about Investing. Both you and your parents should start by reading Investing for Dummies by Eric Tyson.

Once they open the account, you and your parents can decide how to invest.

For amounts $500 or less, you are better off choosing one good mutual fund (you purchase shares in a fund, and at the end of each day, the mutual fund price goes up or down, and you lose or gain money each day. After a period of time (for example, 10 years), you may decide to sell your mutual fund. At that time, you may have a profit (or a loss). The money is all yours now).

You can look at all the choices available in your brokerage account. If you use E*Trade, you can choose from among the more than 7000 mutual funds. Choose only mutual funds that are four or five start rated and have no-load (you don't have to pay a special percentage to the brokerage when you either buy or sell), and no transaction fee.

Whenever you get more money, you can purchase more shares in the mutual fund. Look for either a good mutual fund that focuses on large US companies, or a diversified mutual fund that invests in international stocks.

If you have $1000 or more, you can choose to have fun. Are you interested in learning more about the stock market? You are young, and that means that you can take more risks with the money. Even if you lose it all, you'll have enough time to make it up in the future.

One good way is to continue reading about stocks and the stock market (Remember the Investing for Dummies by Eric Tyson book above?).

Then, as I mentioned before, get your parents involved. You can research stocks together. A good stock to research would be stocks you already know. Do you like McDonalds? maybe you can invest in "MCD". Do you like Games? Then consider Gamestop (GME). Of course, don't just buy it because you use the product. This is just a starting point. Research the stock!

Since you don't have that much money, just invest in one stock (or ETF, an Exchange Traded Fund. An ETF is a mutual fund that you buy and sell just like stocks) and just see how it goes up and down, and how what you do (for example, buy more Big Macs) affects the companies bottom line.

Also, watch "Mad Money" on CNBC hosted by former hedge fund manager Jim Cramer. Lots of those in Generation Y like him. He may sound a bit crazy on the show, but in reality, he as a very good hedge fund manager before he did the Mad Money show. (Video of Jim Cramer here.)

To be realistic, expect a market return of 10% per year over a long time. Of course, you can lose 40% in a year, or gain 40% of a year, for example. If you hold an individual stock, the stock will be more volatile. Don't be surprised if you go on a rollercoaster ride.

Good luck!


My own experience plus inspiration from Jim Cramer's article on teaching your children about investing.

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