How to Teach Your Teenager to Invest

Teens have the great advantage of time, but how do you get them interested in investing?

TIM OLSEN BOUGHT HIS first stock when he was 8. His parents set up custodial accounts for both of their children, believing that outside of a savings account, investing in stocks was the best way for their children to start building wealth.

Olsen started with PepsiCo (ticker: PEP) because it was relatable. “I started with three shares, and I vowed never to sell the stock because I’d be really curious over the long run to see how many more shares I could accumulate,” he says. (He now has more than six.) He knew he had time on his side.

With his interest piqued, he immersed himself in financial literature, reading Peter Lynch and Benjamin Graham and Warren Buffett’s letters to shareholders of Berkshire Hathaway (BRK.A, BRK.B). By the time he was 13, he authored the book, “The Teenage Investor: How to Start Early, Invest Often & Build Wealth.” With various gifts from grandparents and accumulated money, Olsen invested more in individual stocks – one of them being Keurig Green Mountain (GMCR) in 2002, which soared 2,600 percent before he sold it in 2011.

“I did very, very well, but I didn’t want all my investments in Wall Street tied to one company,” he says.

Then Olsen learned about index funds by studying John Bogle and plunged most of his wealth into the Vanguard Group. After graduating with a finance degree and earning his MBA, Olsen, 26, interned at a hedge fund, and worked at financial and commodity firms while still giving advice to young investors.

Some wonder whether allowing teens to invest in volatile stocks may turn them off from investing in the future. But experts say because teens have little exposure to financial education, the best way for them to learn is with either fake money or small amounts of money while time is still on their side, so they can take advantage of compounding interest. That means over time, they’ll be earning interest on their interest.

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