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Stocks for teens?

Ask the Fool

Published: September 19, 2023

Q. Is the stock market too risky for a teenager? -- H.R., Biddeford, Maine
A. Nope. The stock market is one of the best ways to build wealth over the long term, and young people are best positioned to take advantage of that.
If you start investing at age 15, for example, and expect to retire at age 65, your first invested dollars will have a whopping 50 years in which to grow. The stock market's long-term average annual growth rate is around 10%, but even if your money grows at 8% over 50 years, that can turn a single $100 investment into nearly $4,700.
There are some caveats, though, which apply to all investors. First, stock market returns aren't guaranteed, and it's easy to lose money if you engage in ill-advised practices -- like investing in penny stocks, investing with borrowed money ("on margin") or day trading. One of the safest ways to invest in stocks is via a low-fee, broad-market index fund.
Also, any money you'll need within five or so years shouldn't be in stocks, because you don't want to have to sell after a temporary downturn. Favor money market accounts or certificates of deposit (CDs) instead. Learn more in "The Motley Fool Investment Guide for Teens" by David and Tom Gardner with Selena Maranjian (Touchstone, $17).
Q. What schooling do you need to be a stockbroker? -- I.A., Santa Clara, California
A. A college degree is generally required, ideally with a business major. You'll need to pass the Securities Industry Essentials (SIE) Exam. You'll register with the Financial Industry Regulatory Authority (FINRA). And you'll need to take and pass the "Series 7" licensing examination -- and in most states, the "Series 63" exam as well.
Fool's School
Making Millions -- or Billions!
Want to be worth millions, or even billions? Here are some thoughts on how to chase that dream.
Many very rich people simply inherited great wealth, but that's not an option for most of us. Many others, including dozens of billionaires, have gotten rich by starting successful companies. But that takes inventiveness, a lot of work and dedication, and a bit of luck. It's not a reliable strategy for everyone.
The easiest path to great wealth is, arguably, simply investing in the stock market for a long time -- and doing so effectively. You don't have to become a stock market genius, actively and frequently buying and selling stocks or other securities. That's actually a wealth-destroying endeavor for many people, as you can't know how any stock will perform from day to day.
Instead, you might embrace the simplest stock market investing approach -- just buying and holding shares of one or more low-fee, broad-market index funds, such as ones that track the S&P 500 index, or the entire U.S. or world stock market. Your 401(k) at work might offer an S&P 500 index fund in its menu. Index fund investing can get you to a million dollars or more if you add money regularly and hold for many years.
To get there faster, consider adding some individual stocks to your mix. Instead of doing the hard work of building a great company, you can simply invest in some.
Here are some promising characteristics of a company you might want to invest in:
-- A sustainable competitive advantage that keeps it near the top of its industry.
-- A solid balance sheet, featuring little debt or at least manageable debt.
-- A business that generates lots of cash.
-- A demonstrated ability to innovate and adapt.
Following these guidelines may not make you a billionaire, but many of us can become millionaires by saving and investing significant sums -- and being patient.
My Dumbest Investment
Locked-in Gains
I started investing in the early 2000s, and I bought into companies I know -- such as Disney, Nvidia, Microsoft and Amazon.com. I invested a total of about $30,000 in them -- only to sell almost all my shares around 2006, locking in my gains. I thought there was no way those companies could do any better, and I was proud of dodging the stock market collapse in 2008 due to the financial crisis. However, looking back now, I can say my most regrettable investing move was locking in those gains. -- M.W., online
The Fool responds: Your story illustrates an important investing lesson. We repeatedly urge long-term stock investors to avoid panic selling when the market drops. Well, in 2008, the S&P 500 plunged nearly 37%! Indeed, in the bear market that existed from 2007 to 2009, the S&P 500 fell by more than 50%. That's enough to make many investors very nervous and to make many of them sell. But look what happened to those who hung onto shares of great companies: The shares recovered and went on to reach new heights.
It wasn't unreasonable to sell when you did -- if you'd lost faith in those companies. But if you weren't sure whether they could still grow, you might have considered just selling some of the shares and retaining a smaller position in each stock.
Foolish Trivia
Name That Company
I trace my roots back to 1947, when my founder launched a chemical company in Korea called Lucky. In 1958, he debuted an electronics company called Goldstar. Throughout my history, I've made and sold everything from toothpaste and face cream to radios, televisions and much more. My slogan is "Life's Good." Today I'm a major holding company, with subsidiaries specializing in electronics, video displays, chemicals and energy, among other things. I employ more than 280,000 people in more than 60 countries, and my businesses generate around $150 billion in annual revenue. I helped modernize South Korea. Who am I?
Last Week's Trivia Answer
I trace my roots back to the 1966 founding of a store in St. Paul, Minnesota: The Sound of Music sold stereos, vinyl records and more. By 1993, I was the second-biggest electronics retailer in the U.S. Recently I had a market value of $18 billion and boasted more than 1,000 stores and about 100,000 employees in the U.S. and Canada. I sell refrigerators, televisions, laptops, smartphones, headphones, guitar amplifiers, desks, electric bikes, home security systems and more. Don't call my home service technicians "dorks" or "nerds." I rake in more than $45 billion annually. Who am I? (Answer: Best Buy)
The Motley Fool Take
A Stock To Swing At
More people are playing golf these days, and not just on golf courses. This is driving strong growth for Topgolf Callaway Brands (NYSE: MODG), which was formed in 2021 by the merger of leading golf entertainment and tech provider Topgolf International with Callaway Golf.
Callaway has been a top brand in golf clubs and balls for a long time, but the equipment business has fallen on hard times lately. The company saw golf equipment sales decline by 5% year over year in its first quarter, but this was more than offset by double-digit growth at Topgolf.
People go to Topgolf's 80-plus venues to hang out with friends and hit some balls, and business is booming. Topgolf reported revenue growth of 25% year over year in the first quarter on top of strong growth last year, and management sees more room for expansion. It's planning to have 92 venues open by the end of this year.
The growth potential of Topgolf is why the stock looks attractive after falling roughly 50% from its high over the past few years. Investors are clearly concerned about the weakness in golf equipment, but this segment should bounce back when the economy is stronger. Topgolf's stock was outperforming the S&P 500 in the years leading up to the pandemic, and may do it again over the next five years. (The Motley Fool has recommended Topgolf Callaway Brands.)