Online stock trading is not just for adults. Teens can also get started learning investment basics to build a strong foundation of knowledge that they can use the rest of their lives.
If you’re a teen intrigued by the ups and downs of the market, follow these tips to help jump-start your investor education.
Take a Test Drive
Several online sites allow you to try your hand at investing before committing real money by tracking your trades and expected performance. Some are more realistic, while others walk you through the techniques with cues and tips.
Simulation sites include HowTheMarketWorks, a free game to help teens learn to play the market. Over 10,000 elementary, middle, high school and college classes have used this site to help teach the art of stock trading. The website is user-friendly and has a large emphasis on education.
What to Look For in a Broker
As you graduate from a fantasy stock portfolio to a real online brokerage account, you’ll need to consider several factors when choosing a brokerage. Setting up an account shouldn’t take long, but you want to find the right online broker to fit your needs.
Look for a broker that has relatively low trading commissions; an intuitive website; and low account minimums and no fees for account inactivity.
Discount brokerage firms such as E-Trade and Scottrade can be good places to start with lower fees and less hassle; just ensure you look up their fee schedules to avoid any surprises down the road.
Consider setting up a custodial account with your parents. A custodial account is a gift to a child through a Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account that allows parents to trade and invest money for their children under the gift tax exclusion. Once the money is set up in a custodial account, it is the property of the child and can be used for anything once the child is of age to take over the funds. This is a great place to start saving for college, while learning how to invest with your parents’ help.
Tips and Tricks of the Trade
No matter where you open your online stock trading account, keep the following factors in mind as you build your portfolio:
- Diversify your account. As the old saying goes, don’t put all your eggs in one basket. Investing in only one or two companies could put you at risk if their stock price starts to fall.
- Invest in index funds. Index funds are a relatively inexpensive and simple way to diversify your investments. An index fund works by creating a portfolio that replicates an existing index of stocks or other securities.
- Decide on asset allocation. Choose a mix of asset classes, such as stocks, bonds, real estate and cash equivalents such as CDs.
- Weigh risk and return. How much risk you are willing to take in the market will be a very personal decision and will depend on your financial goals. For example, investing a heavy percentage of your portfolio in stocks may carry higher risk, but you also stand to gain significant returns.