Teach Your Teenagers How to Invest Their Money

The greatest favor that you could do for your teenage children approaching their senior year in high school is to teach them about investing their money for the future. If you don't know much about investing yourself this article should be helpful. It has been said that adults spend more time planning their vacations than they do their finances. The real key to investing for the future is knowing about regular depositing and the miracle of compound interest.

Benjamin Franklin was quite an insightful person. Not only was he an inventor, a wise businessman, and a politician, Mr. Franklin also knew about compounding of interest. In his will he stipulated that 1000 pounds, a lot of money at that time, be invested to collect interest for 100 years. After 100 years some of the money could be used then the rest be allowed to collect interest for another 100 years. This investment grew into the millions because of the power of compound interest. Franklin stipulated that, every once in a while, some of the earnings be used for the public. Mr. Franklin established one of the first charitable trust funds.

A young person should invest regularly. A good idea would be to invest every two weeks or every month in an interest-bearing investment. They should not use a bank. Their money should be invested in a Mutual Stock Fund. They should allow it to compound with dividends reinvested. It is imperative for maximum growth that the principal nor the earnings be touched for many years.

One of the safest long term investments a person can make is in a no-load Standard and Poor (S&P) 500 Mutual Fund. This fund is comprised of the 500 largest companies in the United States. It is a broad indicator of the stock market. No load means that very low commissions are charged for management of the fund. A Mutual Fund is the best for the average investor with little knowledge of stocks. The money is invested and watched over by professionals. Over a long period of time stock investments appreciate about 10% a year. We are talking about 30 or 40 years of steady investing.

Investing the same fixed amount on a monthly basis is commonly called Dollar Cost Averaging. Stocks go up, and they go down. If you buy them on a monthly basis, when the price of the stocks are lower, you get more shares. When stocks are higher you get less shares. Over a period of time the costs are averaged out. The key is to keep investing and reinvesting the dividends.

This money is meant for the future. It is not to be touched for any reason. The investment goal for a young person is at least $2000 a year. If placed in an S&P 500 Mutual Fund this money can grow into $500,000 or more by the time the young investor turns 50 years of age. The key is to start early, invest a fixed amount, and let it compound. Individual Retirement Accounts (IRAs) are basically what I am referring to. For even more earnings, if a person could invest 10% of their annual earnings they would be quite well off after 40 years.

If you can teach a young person about investing in Mutual Funds you will be giving them a great gift. Please use a broad market fund like the S&P 500. This spreads out the risk. Also, knowing a little bit about stock market cycles would help. You want to be able to sell when the market is doing well and not liquidate shares when the market is down. You are not going to be able to call the tops and bottoms of the market precisely.

Let's sum things up. A young person should invest money regularly and allow the dividends to be reinvested. If left alone this money will accumulate rapidly. Let the S&P 500 No-load Mutual Fund professionals do the investing for you. This is something every teenager should know.