Becoming a millionaire is not as daunting as it sounds. You do not need to create the next Amazon or Apple to strike it rich. Instead, it all comes down to investing money wisely and, more importantly, starting early.
While investing money may sound like an adult task, it is actually the most relevant to teens because the key is starting young. The sooner you start, the more you will make.
Emily Chan, a private wealth advisor and certified financial planner, shares her knowledge about the subject and what she would do differently looking back on her life if she were 16.
“If I have the money available, I would definitely set up a Roth IRA for myself. A Roth IRA, because I was working when I was 16, so this would allow me to put aside money in a retirement account. Everything I earn in the account will be completely tax-free by the time I retire,” said Chan.
When a teen is ready to start investing, they may want to put all their money into their favorite places to shop. Emily Chan shares her basic investment rules for teenagers regarding this mistake.
“Keeping the portfolio diversified is the key. … Sometimes it’s okay to invest in your favorite stores, but you really have to look at the fundamentals and do your own research to see if the company is actually profitable or not. Just because they are popular, just because you are familiar with them, does not make them a good stock. … It’s very important to keep a very balanced portfolio. There are 11 sectors in the economy, so make sure that you keep a well-diversified portfolio. … And really, consistency is the key. Even if you can save that $10, $20, $30, $50, it makes a huge difference due to the compounding growth,” said Chan.
She also shares one small habit that will pay off in the future if started now.
“… Control your spending. Do not try to keep up with the Joneses. Goodwill is a great place to shop, Costco and and those good value places. And besides, you’re going to outgrow things anyway. So you don’t need to spend $200 on a pair of cutting-edge Jordans that are exclusive. … Don’t overspend on clothing just to keep up with your friends or keep up a public image, because at the end of the day, it’s really your portfolio value that can achieve all your financial goals. … The key is about continuous investing, even if you can save that $10 per month, $20 per month, by not having that Starbucks once in a while, it really makes a huge difference over time. It’s really the time value of money that’s worth a lot,” said Chan.
According to Amerprise Financial’s investment calculator, if you invest $100 monthly for 40 years at 8% return, you could have $324,180.39 – all from just $48,000 total invested. Also, starting just 10 years earlier in this same situation (age 18 vs. 28) could result in $718,009.46, even though you invest only $12,000 more out of pocket. If invested at 18, the ending value is $718,009.46, vs invested at 28, the ending value is only $324,180.39. Starting just ten years later makes a huge difference.
Maybe instead of buying a daily Starbucks, make it at home. That one sacrifice will result in about $100 extra. It will look different for everyone, but finding a way to set aside $100 a month and putting it toward your investing will benefit you greatly later.
Start investing your money now, and your future self will thank you.
