If saving money for years to come is a fruitful endeavor, it is also prudent to start developing a portfolio that allows an individual to earn at least a modest income from money during their adult life.
Steps
Step 1. Set aside money in deposit accounts
Shop around for the best interest rate. A good strategy is to go for small banks, as they generally offer higher interest rates than larger banks.
- If a child deposits $ 4 a month at 1% interest, he will accumulate $ 505 at the end of ten years, compared to $ 480 he would accumulate if he put the money in a piggy bank.
- If a child deposits $ 4 a month at 2% interest, he will accumulate $ 531 at the end of ten years, compared to $ 480 he would accumulate if he put the money in a piggy bank.
- If a child deposits $ 4 a month at 3% interest, he will accumulate $ 561 at the end of ten years, compared to $ 480 he would accumulate if he put the money in a piggy bank.
Step 2. Buy Bonds (Treasury Bonds)
The US Treasury Department sells a variety of investment products.
- EE Series Savings Bonds can be bought from the online treasury or your bank. They pay a fixed rate interest (announced on May 1st and November 1st of each year). They accumulate simple interest monthly and compound interest every six months. Bonds held for less than five years are subject to a penalty equal to three months of interest. The minimum purchase is $ 25 when you buy a paper certificate in the $ 50 denomination. They are available in denominations of 50, 75, 200, 1,000, 5,000 and 10,000 dollars.
- At the end of the year, a child who sets aside a dollar a week to invest in it can buy a hundred dollar bond for just $ 50. At 1.4% interest, it will accrue $ 57 over 10 years, but regardless of the interest rate, there is a guarantee of reaching $ 100 in ten years, with an effective return of 5%.
- Securities called "The Bonds" can be purchased directly from the online treasury or from your bank. They pay an annual interest rate that reflects the combined effects of a fixed rate and a semi-annual inflation rate. Interest is added to the bond monthly and is paid when you collect the bond. "The Bonds" held for less than five years are subject to a penalty equal to three months of interest. The minimum purchase is $ 50 for an "I Bond" when purchasing a $ 50 paper certificate. They are available in denominations of 50, 75, 100, 200, 500, 1,000 and 5,000 dollars.
- At the end of the year, a child who sets aside a dollar a week to invest can buy a $ 50 bond for $ 50. At 4.44% interest, it will accumulate $ 74.26 over ten years or $ 99.21 over twenty years.
Step 3. Buy silver coins
The investment opportunities for young people are rather limited. Buying real silver coins is an easy way to invest for young people. Coins are available, beautiful and tangible; however, the market is highly volatile, for example the price increased from $ 1.64 to $ 16.30 per ounce between 1970 and 1980 and then dropped to $ 4.07 in 1990. In 2000 the price was around $ 4.07. $ 4.95, and in 2008 the price was $ 14.99. Check the prices before deciding if this is a good investment for your goals.
Step 4. Save to buy your first equity stake
If you get pocket money of just five dollars a week, you can save a dollar a week for a year and be able to buy a share of Revlon, Atari, Sirius Satellite, Denny's, Six Flags Inc, Sun Microsystems, TiVo, LeapFrog, Ford or La-Z-Boy (among others). Read more about One Share.
Step 5. Save for your first direct stock purchase
If you can set aside $ 50-1,000, you can buy Kellogg, McDonalds, Hershey, Home Depot, or Disney (among others) stock directly from the company without opening an account with a financial intermediary.
Step 6. Open a "Roth" Individual Retirement Fund (Roth IRA)
The Roth IRA is an Individual Retirement Account (IRA) permitted under United States tax law. The name comes from the US lawmaker who promoted it, Senator William V. Roth Jr. of the State of Delaware. A Roth pension fund differs in many significant ways from other pension funds. It is the magic of compound interest that makes it such an exciting investment for the very young.
- If a 15-year-old makes contributions of $ 2,000 a year until she turns 18, with an average annual return of 9% on her investment, she will accumulate more than $ 370,000 by the time she is 60.
- If a 15-year-old makes contributions of $ 2,000 a year until she turns 60, with an average annual return of 9% on her investment, she'll accumulate more than $ 1.2 million by the time she's 60.
Step 7. Learn to manage money
Last, but not least, is studying and learning how to invest, how to manage money and have a goal on how much wealth you want and when. Also prepare a plan that can help you reach your milestone.
Advice
- Let your money grow. Try not to spend any of your pension fund or interest. If you never touch it, it will turn into a lot of money when you are old.
- It is a good idea to build a relationship with a consultant early. Advisors can help you prepare your taxes, keep track of your financial area, and make sure you are investing properly.
- Review your investments, income, and interest earned with an advisor after some time has passed. Do this periodically as you get older and pay more contributions.
- Determine the annual cost of each mutual fund and compare it with the cost of setting up your own mutual fund consisting of Exchange Traded Funds ("ETFs"). If you choose the latter, always look for the cheapest ETFs with the lowest management costs and don't choose ETFs that are too specialized. The financial advisor you choose can help you with this choice.
- Try doing some investment research and impress your parents with a relationship. They can also give you enough money to start a small fund to invest. It doesn't take much. Maybe a thousand dollars or less.
Warnings
- If you wait until you get older to open your Roth retirement fund, you risk being out of luck. Only people who earn less than a certain amount per year can access this investment.
- The trading fees at One Share dot com are very high; however, the stock certificate is likely to increase its value as if it were a collector's item. Research this investment carefully.
- You must have a paycheck to invest in a Roth pension fund. You cannot invest money earned by babysitting or mowing your neighbor's lawn, unless you present a business profit and loss picture with your (kid's) tax return.
