Why Should You, A Kid, Invest?
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Since investing is something that not many kids do, this is a frequent question. Why should you, a kid, invest? My answer to this question is broken down into three main parts that most likely you would never even thought of, but these are large reasons that can contribute hundreds of thousands of dollars to your savings over your time horizon.
My first reason is the about the time value of money. The time value of money means that your money grows, or compounds, at an interest rate. Since kids have a longer time horizon, their money has more time to compound. I’ll demonstrate it in this simple math: if you invested $5 a week for 50 years, you’d have $886,000. The real amount that you put into your investment account would only be $13,000, but remember that you’d be doing this for over 50 years.
My second reason is about risk. When you invest, you are going to be taking risks no matter what. Since we are kids, we are not covering our own living expenses, so if our stocks dropped we wouldn’t not be able to pay our rent or buy food, because our parents are covering that stuff. You can take advantage of this and invest in investments that have high risk but yield high returns.
My third reason is that it’s easy to get started. Most investment accounts today allow you to invest in fractions of a share, so you don’t need to buy a whole share of something to get started. Investment accounts for kids have no account minimums (no amount of money required to start an account) and the only thing you need is a little bit of money and knowledge.