In my regular travels through our extensive discussion board community, I often stumble upon particularly interesting posts. So it was with "My Investing Story," posted by Alex146 on our Teens and Their Money board.
Alex essentially recapped his entire investing history, which began three years ago at the age of 13. He has learned (and shared) some great lessons, and his post made me wish that more Fools would share their investing stories. Here are some snippets:
My investing story
"I probably didn't choose a very good time to start investing. I started just as the tech bubble was bursting and just before 9/11."
"I opened an online brokerage account with Sharebuilder, which was definitely not a mistake. They were exactly what I needed. There was no minimum deposit to open the account (which meant that I could start with just one hundred dollars; indeed I still haven't invested enough to meet the minimums set by some brokers)...." [Sharebuilder is one of the sponsoring brokerages in our Broker Center. Drop by to learn how to evaluate brokerages and perhaps to select a new or better one for yourself.]
"My first investment was a company called Safeguard Scientifics (NYSE:SFE) which I bought on three different occasions (increasing my position as it sank from $5.55 to $3.95 to $2.15 [per share]).... I bought SFE for no reason in particular.... [probably because] it was cheap. I could invest $20 and make it looked [sic.] like I owned some serious shares in something at least. And if I owned more shares I could make more, where could the stock market go, but up?" [Alex fell for a common lure -- volatile, often manipulated penny stocks. Read about why you might avoid them in Securities Fraud -- Penny Stocks and in Hype, Spam and Penny Stocks.]
"I consolidated my over-expanded portfolio. I bit the bullet and started selling some of my larger investments, the ones that would actually return cash after the commission. I sold Nike (NYSE:NKE) because I wanted that money elsewhere. I sold Disney (NYSE:DIS) because I thought that their movies weren't good anymore. Maybe this wasn't the soundest reasoning, but I was looking to cull stocks and Disney fit the profile...."
"I took the money from these stocks and put them in (what I thought) were better ones; [the S&P 500 index], Starbucks (NASDAQ:SBUX), Sirius Satellite Radio (NASDAQ:SIRI), and AOL [which is now Time Warner (NYSE:TWX)]."
"My investments in total are somewhat of a wash. I invested a total of $410 (not a lot, but keep in mind that most of this came out of my Middle School allowance). Not counting commissions, I've lost only $2. When commissions are factored in (and this is where many of my mistakes come back to haunt me), I've lost about $80."
Alex concluded his story with some excellent points: "If I had put all $410 into the S&P 500 in March of 2001... I would still have lost money, about $60. That would have been a better idea, but I think the lessons I learned and the fun I had were well worth the $20. On the bright side, I could have done much worse. I could have used my money to buy 410 sodas and gotten a return of $20.50 in bottle deposit money (plus a whopping dental bill) or I could have bought say... 82 packs of Pokeman Cards and been left with 574 totally useless cards. Yes, it could have been much, much worse. Also on the bright side is that I learned these lessons when I was young. I could have been learning them when I was 50, and that would definitely not be fun. I may have lost a little money, but I've gained much more."
How millionaires are born
Alex's story, and many others I've read from teens, reflect how many of us start out investing. We make mistakes; we learn from them. We set out with some unreasonable expectations or assumptions ("I'll double my money this year," "This stock is so cheap it can't go down," etc.) and get straightened out along the way.
But while we older folks and teens alike often share similar beginnings, we probably won't share similar endings. I'm some 25 years older than Alex, so any money I plunk into stocks will have many fewer years to grow than his money. If I earn an annual average of just 9% over my 50 years of investing (let's just say age 30 to 80), an initial investment of $10,000 will grow to $743,000 or so. If Alex manages to invest just $5,000 at age 20 and leave it invested for 60 years, growing at 9%, it will approach $900,000. An initial investment of $10,000 would approach $2 million -- results more than twice as big as mine -- all because of remaining invested longer. Of course, these are simplistic and unrealistic examples. Ideally, both he and I would continue investing additional amounts over our lives and we may well earn more (or less) than 9%, on average, too.
Rex Moore explained more about the power of compounding in his article "Time Really Is Money."
Turn teens on to investing
Teens have a lot to gain from getting interested in investing now. They needn't become stock analysts, so don't worry if the teens you care about aren't the types to stay up past midnight reading annual reports. Just gaining an understanding of how the market works and making investments in an index fund can set them up for a much more comfortable future.
Point teens to our Teens and Their Money nook, which features free guidance and tips, including some advice and experiences from fellow teens. Also of interest should be our well-regarded book The Motley Fool Investment Guide for Teens and our Teens and Their Money discussion board.
Pointing someone in the direction of financial independence is one of the greatest gifts you can give.
Here are some Fool articles on young people and money:
Lo ngtime Fool contributor Selena Maranjian owns shares of Time Warner. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.
