True or false: Investing $150 a month starting at age 16 could grow to more than $1 million in less than 50 years.
True! The more time investments have to grow, the more money they can earn. In other words, future you could really benefit from the investments you make today.
Know the secret
It’s all about compounding. Money you earn from investments starts earning over time. Here’s an example: If a teen invests $150 per month with an 8% annual return starting when they are 16 years old, they can watch it grow to more than $1 million by the time they are 65 years old. And surprisingly, the $150 they set aside each month equals less than $90,000 of that.
Waiting just 5 more years — until the age of 21 — to start $150 monthly investing would leave $250,000 less at age 65 without the 5-year head start. And only about $10,000 less original contribution! While you’re living with your parents, why not take advantage of this period and save a majority? That’s an opportunity for present you to give a big boost to future you.
Understand the risks
Different investments have different levels of risk. There’s always a chance that you could lose money, whether you are investing in the stock market, real estate or something else.
High risk means there’s a greater chance you could lose money, but also a greater chance for a high return on your investment. Low risk is the opposite. There's a lower chance of losing money, and likely a lower return.
For riskier investments, it’s possible that you could lose the entire amount you invested. A company could go out of business because of changes in another part of the world. A property’s value could drop lower than what you invested. Or, it could become difficult to sell because it’s not a liquid asset — which means it’s quick to convert to cash. Know the level of risk that makes you comfortable and do your research to minimize it.
Save. Research. Invest.
Now’s the time to learn more about the potential investments that you can make. Go for expert-level knowledge, like the pros at Morningstar, a highly reputable investing research tool. In addition to your research, it’s helpful to have trusted advisors or mentors who can give you advice.
Before your first investment, you’ll need money that you are willing to risk for your investment… that’s called your risk capital. Once your money is invested, you’ll want to leave it invested.
You should have separate money saved up for any big changes that could happen in life. That’s known as an emergency fund, and it’s recommended to have at least six months of living expenses saved. Pro tip: A rainy day fund is good for all ages to have. It can help with any smaller unexpected expenses that come up.
It’s also best to have debts paid off before you invest, for one practical money reason. If the interest rate you are paying on a credit card is higher than the expected return on the investment — you’re losing money instead of gaining it.
We envision that you'll build wealth and financial independence. Stick around for our Future You series. Ready for what’s next? It’s all about banking. For now, quiz yourself about Investing on Kahoot!
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