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How to invest in your teens: make that pocket money grow!

By Mike Narouei, Content Producer at Boring Money

18 April, 2019

Plenty of people are smashing the investor stereotype of middle-aged man in the city. Women tend to take fewer risks and get better returns, according to our own research. People in Cardiff are more likely to have a stocks and shares ISA than people in London, according to research by L&G.

And it's not just adults who are planning their long-term finances, according to a 16-year-old boy that got in touch recently. The thing is, women and people from Cardiff can invest with no restrictions. But how can you invest your pocket money and Saturday wages when you can't open a stocks and shares ISA until you're 18? Holly Mackay sheds some light...

Strangely enough, we let 16-year-olds smoke cigarettes but deem investments to be too dangerous for them! The only straightforward way to invest as a 16-year-old is to get your parents to open a Junior stocks and shares ISA for you now. Which you – or indeed anyone – can then pay into. When you are 18 this can then automatically roll over into an adult stocks and shares ISA and you won’t need to worry about any tax implications or hassle. 

At the moment, you can pay up to £4,260 a year into a Junior ISA. This is basically a tax-free savings account which you can use to buy and hold shares and investment funds. You have £2,500 to invest as a lump sum and can then invest a further £50 - £100 a month. 

Your first decision is whether shares are the right vehicle for you.

This will depend on what you think that money will be for, and what the time frame is. If it’s 5 years or less then I’d stay with cash. If the stock market tumbles and you need to take the money out, you’ll get burned if you’re in shares. If you think you might use it for uni fees, for example, then this isn’t that far away so I would err on the side of caution. The Coventry is currently paying 3.6% on a cash junior ISA, as an example, so the cash rates on these are pretty good. If however this is general longer-term savings – it might be for a flat one day – then these longer timeframes make it worth looking to the stock market.

The second decision is where to open an account.

I would avoid buying and selling individual shares – far too risky. Instead, I would look at a robo adviser. You’ll have access on your phone and be able to follow the progress of your investments, learning about them as you go. The good thing is that you will answer some questions and then they will put you into a mixed bag of investments which they pick and manage for you. It’s a bit like getting a playlist on Spotify – you get someone else to put it all together without needing to be up to speed on all the latest songs.

Our Best Buys tables will show you what other investors have to say about these robo advisers and other investment companies, to help you pick. At 16 you have time on your side so do not be afraid to go for a higher risk profile if your timeframes are long. This is not the same sort of risk as skydiving or motorbike racing – ‘risk’ in investment terms just tells you how much something is likely to bounce up and down in value. Just be prepared for higher risk stuff to maybe go from £100 to £75 and then back up to £100 and possibly up to £125 the following year – these are made-up numbers but you get the point. This is normal, to be expected and shouldn’t cause you to panic and sell up. If you hate the sound of this, choose a lower risk profile. Which will probably do less well over the longer-term but be less alarming as a journey.

To be more specific, I would suggest you have a look at Wealthify. They have Junior ISAs and I think they are clear and simple to use. You would pay about £25 a year all-in for a £2,500 Junior ISA investment. Failing that you could look at Hargreaves Lansdown if you fancy taking a more pro-active approach to picking a few investment funds of your own. They have a shortlist of their top 50 picks which will help you to navigate this maze. A typical all-in fee would be about £30 a year for your initial lump sum of £2,500. This will offer you more choice as you learn and want to make more decisions yourself – but it will be a harder journey to get started. Good luck.

If you can save £50 a month from the age of 16 and keep it up, you’ll be in super strong position by the time you hit your 30s. Investment compounding is powerful and a bit like building a snowman. At first you start rolling and it feels like you’re working hard and that ball isn’t getting much bigger. But the bigger it gets the faster it grows. And then it ‘snowballs’! Well done.