Time gives teenagers a massive advantage over those starting their investment journey later in life. Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”
What makes compounding such a powerful force is the impact it has over time. The longer you allow an investment to compound, the more valuable it can become.
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Teens can let the wonders of compounding interest work to their advantage for a longer period, which could make them wealthier by the time they hit retirement.
This guide will help teens and their parents (since you must be 18 to open a brokerage account in most states) get on the right path to building wealth through investing. Getting on the best path is crucial since it will allow a teen to take full advantage of compounding interest.
Compound interest is what you get when you reinvest your earnings, which then also earn interest.
Five steps to investing as a teenager
It’s easy for anyone, including teenagers, to start investing. Just follow these five steps, and you’ll be on your way to an exciting lifetime adventure:
- Learn the basics of investing.
- Find your investing identity.
- Discover the right investments for you.
- Open and fund your brokerage account.
- Make your first investment.
1. Learn the basics of investing
As with any new adventure, investing might seem challenging at first. However, it’s relatively simple once you understand stock market basics and how to invest in stocks. Read as much as you can about investing so you know how it works, what mistakes to avoid, and the best practices to follow. Also, be sure to check out our book, The Motley Fool Investment Guide