Investing for Kids, Young Investors have the Advantage

Investing for kids can be fun, and well worth it. The young investor does after all have one big advantage over others. They can afford to let their money grow for years and years on end without having to worry about retirement coming around the corner.

If a kid was able to start investing in the market at age 10, just think of how much they might have made by their 20s and 30s. Not to mention the learning experience they would have gotten.

That sounds all nice and dandy, but how do you actually get the young to become young investors? The first step is getting them interested. If you are interested about investing and talk to your child about it, chances are your child will become interested in it as well.

You can also get a kid interested in investing by telling your child that all money they make will be theirs to use. This will catch their attention a lot more than any money you make will sit in an account for 50 years. The goal is to get a kid interested.

Setting Up an Account

To open up a brokers account you need to be at least 18 years old. In order to set up an account for anyone who is younger you will need to set up a custodial account. This allows a kid to invest on their own free will, but the account will be under the name of a parent or guardian.

When a child reaches a certain age depending on the law of your area, normally 18-21 some as late as 25, the guardian may give the account to the child, who can then do with it as they please.

Learning to Invest

Of course one of the major benefits of starting to invest early is learning how the stock market actually works. By actually being active and trading/investing in the market you can learn a lot of useful information.

Most adults already have some pre-set notion on how stocks are “suppose” to go up or down. This can affect them negatively, because their biases are not always the best way to look at things. Kids on the other hand are a blank slate.

There was a recent study where a group of kids were given money to invest in the stock market in 2008. Not only did they not lose money during one of the biggest losing years ever, they made a huge return of around 80% on average (dont remember the actual percntage and can't find the article).

How did they do this? They simply shorted the financial stocks because they were trending down. It is this type of simplicity that gives kids a great advantage in the market. Why buy a falling knife after all? But if you would have told this to an average investor they would have told you it was an insane idea to short stocks that had already fallen so much.

Of course learning the fundamentals, technicals, and cutting losses short is a great idea as well, so here are some Investing For Kids books that might be interesting.

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