Your First Investments: Money That Works
There are two ways to earn: trading your time for money (a job) and having your money earn for you (investing). Wealthy people use both, and over time the second does more of the work.
Common investments: stocks (owning a small piece of a company), index funds (owning many companies at once), businesses (buying inventory or tools to sell products or services), and real estate (property that can earn rent).
Compounding means your returns earn returns. $1,000 growing at 8% a year becomes about $2,159 in 10 years and about $4,661 in 20 years. Starting early is the biggest advantage teens have.
Return and risk go together. Higher possible returns usually come with a higher chance of losing money. Diversifying — spreading money across many investments — reduces the damage from any one failure.
Teens under 18 usually need a custodial account opened by an adult to buy stocks or funds. A Roth IRA for minors is possible if you have earned income.
You, if you invested $50 a month starting now, how old would you be when it could pass $10,000?
Learning objective
Compare investment types and estimate compounding over time.
Understand the mechanism
Investing exchanges money today for a chance at more money later. Compounding means growth builds on prior growth.
Risk and return are linked, and diversification reduces single-point failure.
Put it to work
Run the SEC compound interest calculator with $50 a month for 40 years at 6% and 8%, and compare.
Worked example
- 1
Start: $1,000 at 8% a year.
- 2
Year 1: $1,080. Year 2: $1,166.40 — the extra $6.40 is growth on growth.
- 3
Year 20: about $4,661 without adding a dollar.
Time in the market is the teen's superpower.
Your practice lab
Maya invests $100/month from 16 to 26 then stops. Leo starts at 26 and invests $100/month to 36. At 8%, who likely has more at 60, and why?
Personal scratchpad · not graded or saved
Priya's Sticker Shop
Priya, 15, spent $120 on a sticker printer and supplies. She sold stickers online and at craft fairs, earning about $60 profit a month.
She reinvested half to expand designs and, with her mom, moved the other half into a custodial index fund. Her business and her fund both grew.
A small business can fund long-term investing — two engines working at once.
Illustrative example — names and figures are composites for teaching.
What is your first investment going to be — a business, a fund, or a skill — and how much will you put in each month?
Example: $40/month to an index fund and $20/month to my sticker shop.
Go deeper — outside resources
- Investor.gov — Introduction to investing · U.S. SEC
- Compound interest calculator · U.S. SEC
- Junior Achievement · Junior Achievement USA
Key ideas
- Time for money vs. money for money
- Compounding rewards starting early
- Diversify to manage risk
Try it: With a parent, look up a broad index fund and note its expense ratio.
Quick check
1. What are the two ways to earn?
2. About how much is $1,000 at 8% a year after 10 years?
3. What is an index fund?
4. What does diversifying do?
5. What account do most minors need to buy stocks?