How to Invest Like a Boss—As a Teen

No doubt you've figured out by now that your big dreams could cost big dollars. And hopefully, you're all set on how to save smartly to reach your goals.  

But saving money is just the start. Do you know how you can help your savings potentially grow even bigger? Consider investing it. 

But how, exactly, do you go about investing your savings—especially if you're under 18?  

It's probably easier than you think. All you need is a bit of know-how and a little help from an adult. Here's how to do it.

To start, you need an investment account. There are several types, and which one you pick will depend on what you're saving for.

A 529 account is one of the special types of account that can help you save money for college. And it comes with potential tax benefits. Evaluate your personal situation and consult a tax professional to see if this is the right account choice for your situation. If you're not 18 yet, your parents can set one up for you, and you can add money to it, too. (Your parents should evaluate their personal situation and consult a tax professional to see if a 529 is the right account choice.)  

But just a heads up: Once you put money in a 529, you have to use it to pay for education-related things, like tuition, books, and even housing (as long as you're in school). If any money is used for something else, the account owner (your parents) will owe penalties and taxes on that amount. 
 

Retirement might feel like a million years away, but that's exactly why you should consider starting to save now. Remember compound growth? The younger you are when you start investing, the more time your money has for potential growth. 

If you have a job, your employer might offer a 401(k) or another type of retirement account. If your employer doesn't offer a retirement account, you can still open an individual retirement account (IRA) on your own (or with a parent's help if you're under 18). But remember there are contribution limits. Talk to a tax professional about whether an IRA is the right account for you.  
The catch? You can only put money in these accounts if you earn income from a job. So, you can't just put your birthday cash or allowance in there. 

And, in the same way a 529 is only for school, the money you put in a retirement account can only be used in retirement. If you pull out money sooner, you'll get hit with—you guessed it—penalties and taxes.

Brokerage accounts give you the most flexibility. You (or your parent) can save as much money as you want and use the money for anything at all. 

But there's a downside, too. You may have to pay taxes on any money that your invested money has earned when you take it out of your account. (Those are called "capital gains.") There is risk involved in this too—which includes the loss of some or all of the original amount of money you invested.

Once you've picked the right account for your goal, it's time to choose how you want to invest your money. 

There are lots of things you can invest in, but the two most common types are: 

• Stocks: When you buy a stock, you're basically buying a tiny piece of that company (called "a share"). If the company does well, its stock price may go up, which is how you potentially make money. But if the price of the stock tanks, you can potentially lose money, too.  

  This is called investment risk, and it's the risk you take for the possibility of making money. Stocks offer more growth potential over long periods of time than some other types of investments, but they also are riskier. But if you have a lot of time, until you need the money, you may be able to handle more risk. 

• Bonds: If stocks seem too risky, bonds may be a safer option. Buying a bond is like giving a small loan to a company or a government. In return, they typically pay you interest for a certain number of years, then they give you your original money back. However, all bonds carry the risk of default, which happens when the bond issuer becomes unable to pay you interest or pay back your original investment amount. The lower the credit quality of the issuer, the greater the chances that it could default.  

  Because bonds usually aren't as risky as stocks, they may not offer as much potential to grow your money. But, if your goal is to use that money in a short time frame, you may not want your money in an investment that is too risky. This is where bonds, or even cash, may be a better choice.  

  It’s better to know you’ll have the money when you need it versus having less money than you put in because of investment was too risky. Again, it's important to do your research and speak with a professional to determine the best choice for your specific situation. 

Ever heard the saying, "Don't put all your eggs in one basket"? If you accidentally drop the basket, all the eggs will break, right? Think about your investments the same way. 

If you put all your money in one stock and that stock tanks, there goes your money! But if you buy a bunch of stocks, ideally from different industries (think tech, fashion, and food, for example), you're spreading out your risk—and that's called "diversification." There are many different asset classes you can choose from to diversify including stocks, bonds, and cash.

Investing can seem complicated at first, but it's really just about putting your savings to work. With a basic understanding of investments (and maybe a little help from an adult), you can start making progress toward those big goals. 

• Talk to your parents about investing. Ask them which account types they have and how they chose their investments. 
• Research different account types based on your goals. Are you surprised by the number of options available? Ask your parents for help deciding which one might work for you. 
• Refresh your knowledge about setting goals, budgeting, saving, and more.