The Moneyist: I’m 12 and in 7th grade. My parents are divorced and I earn $10 a month from my podcast. Should I invest in stocks now?
I am 12 and in the 7th grade. I run a small podcast and make $10 a month. I am thinking about investing in stocks, but I don’t know if I should. My mom, sister, brother and I live in a duplex with another family. My parents are divorced and we see our dad every other weekend and on holidays. I am thinking of investing in stocks with my podcast money.
But should I? We are using MarketWatch to learn how to trade stocks and stuff at school, but we start off with $500,000, and I would be starting off with maybe $10 or $20 in my account. I know how to find a good stock and invest in it, but I don’t know if I should. I have read some of your articles and have decided to ask you for a straight answer.
A Young Podcaster
I specialize in straight answers, so you have come to the right place. Should you invest in the stock market? Yes. Your letter gives me hope. I am glad you are learning in school about investing in the stock market and using MarketWatch to do so, and about the value of money and having a stake in an economy that supplies jobs, services, goods and, ultimately, puts food on our tables.
It will teach you the value of risk and reward, patience and discipline, and how to weather a storm like a pandemic and a rollercoaster year for markets. Rule No. 1: Don’t panic. Rule No. 2: Don’t panic. Rule No. 3: Don’t panic. When you don’t know what action to take and you feel fearful, it’s often better to take no action at all. That is true for investing in the stock market, and for life.
You are too young to set up an account yourself, but your mother or father can open up a custodial account on your behalf under the Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA). You will be able to take control of the account when you reach 18 or 21, depending on what state you live in. Perhaps your mother, as you live with her full time, can help you with that.
TD Ameritrade, E-trade, Merrill Edge
and Robinhood all have custodial accounts with no minimum-fee requirements and no trading fees, inactivity fees or annual fees. Start off reading up on stocks that you know and like, and see how they are performing, what risks could push stock lower, and their growth trajectory that give an indication of how they’re likely to perform.
There are also several books out there for young investors such as yourself. “Yummi Yoghurt: A First Taste of Stock Market Investment Hardcover” (2019) by John Lee is accessible. Ditto “Go! Stock! Go!: A Stock Market Guide for Enterprising Children and their Curious Parents” (2014) by Bennett Zimmerman. They may make some good stocking fillers, if you request early.
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Start low, go slow, and by the time you reach your teenage years and take on a part-time job, for example, you will have an appetite to grow your holdings. My colleague Philip van Doorn dishes out some encouraging math on how your investments can rise over time. “Imagine how much bigger it might be if you can increase that automatic investment over the years,” he wrote.
“Let’s pretend that you have a child who is 11 years of age, and you invest $2,500 for him or her in an index fund, along with regular investments of $100 a month (starting the first month),” he added. “Using the future value formula in Excel, with an assumed annual 10% return for the fund, after 168 months (or 14 years), when your child is 25, he or she will have $46,460.28 in the account.”
As Philip suggests, you could even ask your parents to gift you a deposit in one such custodial account for the holidays. It’s a great learning curve for your parents and you. “There’s also a need for parents to explain financial matters to children. How much do things cost? What did you have to sacrifice as a young adult to afford a home or otherwise get where you are now?” he wrote.
“I realized that once a child in our electronically connected age reaches the age of 11 or 12, or thereabouts, he or she no longer has much interest in traditional toys or games, and there are limits to how many games they want for their X-Boxes, etc. There are also limits on how many electronic devices you can buy for them,” he added.
You can start by investing in stocks, products and services that you know and like, and as your investment grows and your earning potential increases, you can move to an index fund or exchange-traded fund (ETF). You may also be interested in sustainable investments in companies that aim to help the planet and/or prevent further damage to it. The world is your oyster. Your future awaits.
In 10 years’ time, please get in touch and let us know how you’re doing.
Quentin Fottrell is MarketWatch’s Moneyist columnist. You can email The Moneyist with any financial and ethical questions at email@example.com. Want to read more?Follow Quentin Fottrell on Twitterand read more of his columns here.
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