Should a high-school student invest their (relative meager) savings?

Question

I am a high school student, I don't really have much money, between one and two grand in my savings account. However, I have friends who are investing in both penny stocks and stocks. I do not really know much about the subject, but I do find it interesting. I receive no interest from my checking account, so I have been told I am misusing my money by not doing anything with it. From the suggestions of other people and myself I have narrowed down my options to: - Investing in stocks - Investing in penny stocks - Investing in bonds - Saving up for college - Save up for emergencies - Start thinking about retirement (which I have been told is never too early to start thinking about) Do you think investing in stocks with a small budget would be a good option?

Answer 1

Hello!

Good for you for beginning to plan for your financial future at an early age. As interest compounds, the earlier you begin investing and saving the easier it will be to reach your financial goals.

I’ll give you a few things to consider.

Penny stocks are highly volatile and speculative. They get almost no coverage by analysts from rating agencies or other due diligence firms. Given this is not the kind of money you’re looking to make a very risky gamble with I would stay float away from this option.

I agree with Dianne when she says to start with an emergency fund. Given I don’t know your whole financial or living circumstances or obligations I can say that three months is the generally accepted guideline for how much to have at a minimum in said fund. That said, putting your money in a basic savings account wouldn’t be my answer. Look for high yield savings accounts that are free such as Ally’s. They are offering a return of about 4.5% APR currently. While there are some restrictions based on how many transactions you can make, this would be where I would invest the emergency fund as you can sign up online. There are other options as well, I’m just a fan of Ally.

Once you’ve comfortably saved your three months for an emergency fund, you should look into investing in the equities market or stocks and bonds. I would recommend something like fidelity or Robinhood. Look for low cost, diversified index funds. ETFs are a good start and there are many good options. Invest any extra money after your emergency fund in either a traditional IRA or Roth IRA. There are tax implication and the you should do further research on which to choose. You can set these up with almost any bank and maximum contributions are about $6,500 this year.

Lastly, investing is not for the short term (most of the time.) Your portfolio value will fluctuate. Know that investments held less than a year are taxed at a different rate than investments held longer. (Capital gains vs. income) Begin automatically investing a portion of your paycheck (however small) to build the habit of saving/investing. Don’t check your portfolio more than perhaps quarterly and don’t be scared if values fall. You’re in it for the long haul and selling early will cost you in taxes and in opportunity.

Again, awesome job!

disclaimer: I’m not a licensed financial advisor. You could look for free advice in your community from local programs or call around and ask what an hour of a CFP’s time would cost and see if you think it maybe worth it. Ask for a discount for your age and the basic level of your questions. They may willingly give you time on the phone for free.

Best of luck!

Answer 2

Hey there! I'm not a certified financial advisor, but I was too in a similar position. This is a disclaimer: I am not giving you professional financial advice but I can give you my experiences which you can take with a grain of salt (as with everything online).

What I've been told from financial advisors is to first save up for an emergency fund, but if you live at home, there's not a lot of pressure to focus on this quite yet. Next would be to save up for college (tuition, books, room & board, etc) or some other major goal of yours. Third would be to pay down debt if you have any. If you have some money left after finishing these steps, then investing might be safer. However, there is always risk in investing so make sure you do your homework. Hope this helps!