How should a 14 year old begin to invest?

Recently a friend asked me, what his son should do with $3,000 he had saved up from Christmas and birthday money.

This is a pretty easy decision when talking about small sums of cash and loads of time. He obviously doesn't have enough to buy a property, or a sufficiently diversified spread of shares, but he does have enough time, to maximize the time power of compounding money.

I suggested he look into an Exchange Traded Fund that tracks the return of the top 200 or 300 shares on the Australian Share Market such as Vanguard Australian Shares Index. The stock market has good years and bad years, but averages 10% return over 5-10 years.

This got me thinking about what Ethan's $3000, would look like, when he finished high school at the end of 2026, in just 5 years time. I started playing around with my home made calculator and found that if Ethan committed to add just $1000 to this each year, by the time he finished high school, he would have a nest egg of nearly $10,000 to buy a car.

Here is where it get interesting. If Ethan decides to catch buses for a few year and continue the same investing philosophy, of adding $1000 a year, the sum at 10 years totals nearly $20,000. At the 20 Year mark, if he continues with this same $1000 a year contribution, he will not have $20,000 x 2 = $40,000. Magically at the 20 year mark, of Ethan's investing journey, the total triples to a whopping $63,000.

Thus is the power of compounding interest and the value of time.

Here is a copy of my workings on the calculator.

Comment if you would like the calculator and I will send.

Now is the time to start goal setting for a brand new year.

(P.s a 14 year old cannot set up an investing platform, so will need help from mum to set this up in trust for him, to be taken over when he hits 18.)

This information is, general in nature and for information purposes only. It is important to do your own analysis, based on your own personal circumstances, before making any financial decisions. We do not know you personal financial details and we suggest you consult with a financial adviser for your own specific financial needs, regarding any information that you find on this website.

38 views0 comments