When looking at an investing strategy for a 16yr old we need to consider 2 main principles:
1. Living below your means
2. Investing early and as often as possible
Number 1 makes up 90% of the wealth creation parcel. Because, if you can’t live below your means then you definitely can’t invest because you don’t have any more money.
When you’re looking at an investment strategy it always starts with your budget. We have put together a budget guide that will help you get started, also a guide on how to manage your money better. If unsure – these are a great place to start your education.
A great way to stay broke is to spend all that you have, and this is not the way to start a successful investing strategy.
Because of this reason, the number 1 thing you need to do is get your 16yr old to understand why it’s important to budget and live below their means so that they learn good financial habits early on. Part of establishing an investing strategy is first starting with the end in mind and working back.
Kids learn from our good & bad habits, but if they start off on the right foot then they create consistent habits that will be beneficial for them to get the right start into adulthood.
What I’m going to go through is a very simple and effective way to set a teenager up for their retirement in the first 5 years of their (young adult hood)… So 16 – 21.
As I discussed the number 1 thing is teaching financial literacy about budgeting and living below your means, if you can successfully help your child learn this it will be the single most valuable lesson you can instil on your child throughout the rest of their lives..
Did you know that over 85% of people live pay-check to pay-check. And that 90% of people that purchase a car buy a car that is much better (and more expensive) than there needs require?
How about the fact that society judges people’s success by superficial and material things rather than their actions and actual net worth…
Once you realise that the majority of people have a flawed view of what wealthy is and what constitutes wealth then you can see that by going against the grain is the way to create sustainable and substantial wealth.
There are a few ways that you can set up your young adult financially.
2 Things for a successful investing strategy:
2nd is to get them investing early. Either you on their behalf of they can start once they are earning income.
To give you an idea of what I am currently doing, I started investing $150 a week into a good quality index fund on behalf of my kids a few years ago. I will continue with this investing strategy until they get their first job – they can then take over the investment and continue to contribute to their ongoing wealth.
Now, If that’s not the way you wanted to go the next thing you can do is once they get a job. Get them to start to invest into a brokerage account (you can invest on their behalf through many brokerages – superhero, selfwealth etc).
Let’s say for an investing strategy your 16yr old could only afford $75 a week (most likely they won’t have a full time job) so this is an amount that they can hopefully still afford.
If they invested this $75 a week from ages 16 – 21 then stopped investing.. Now, they really should keep investing, however if they just stopped. And NEVER invested again…
That $19,500 that they invested over their first 6 years of their young adulthood would turn into over $2 MILLION on their 65th birthday. But, if they continued with the $75 a week (which is not much) at 65 they would have over $5MILLION. Now, the point isn’t which investing strategy is best. It shows you the power of compounding growth and the earlier your start the less you have to contribute to the investing strategy.
This is a very good example of what a little bit of money can do over a long period of time.
Let’s compare this with a 45 yr old who hasn’t started investing yet – in order for them to have over $2 MILLION they would have to invest 10x as much each week – $750 a week… Now that’s getting high, and contributing $750 a week into an investing strategy would not be feasible for many people.
So, if we all can just pass on some wisdom that most of us didn’t know at ages 16 and help our kids into the market by investing a small sum of money early and also teaching them the value of living below your means than I believe we are doing a great value to our next generation.
One thing I will add at the end is that I recommend index investing, an index fund is a combination of stocks – so you can invest in a multiple number of index funds. A lot of people confuse index funds with ETF’s – an ETF is an “electronically traded fund” so basically it is set up just like a stock.
With an ETF you can have index funds but you can also have other ETF funds that buy just a whole heap of companies like “green” companies.
So, what you should be buying is index fund ETF’s like (VTS, VGS, IVV etc) these are funds that track a specific index like the S&P 500 and have a really diversified portfolio of companies so your risk is low over the long term and your returns are 10% + per year on average over time.
When we are starting our first investing strategy, you have to remember the 2 golden rules.
- Living below your current means
- Investing early and as often as possible
We live in an environment with FOMO always out in front. People putting themselves into more and more debt to keep up with their next door neighbours. People showcasing versions of themselves on social media which isn’t a true reflection of their lives.
The list of how we try and impress others and the need for others validation goes on. When you become comfortable and confident in yourself, then you don’t need those things to validate your success.
Who’s more successful – a person who drives a 10 year old car but has a multi million dollar portfolio & doesn’t have to work, or the person who drives a new BMW, has a big mortgage and they are 2 paychecks away from losing everything… I’m sure you can work out what the answer is.
Focus on the long-term – forget the noise that comes in between and invest early and often. Implementing a successful investing strategy is not difficult but it does take some thought and you must have a budget & good financial habits to follow through to get the best results.