LWL | What are the benefits and risks of investing in shares for teenage investors and how can they navigate these risks to make informed investment decisions?

By Aashna Shah
This research paper explores the benefits and risks of investing in shares for teenage investors,
and provides strategies to help them navigate these risks to make informed investment
decisions, empowering them to build a solid foundation for their financial future.
In today's ever-evolving financial landscape, the concept of investing has become increasingly
relevant, even for individuals in their teenage years. With access to information and technology
at their fingertips, young investors are venturing into the world of shares, seeking to understand
the benefits and risks associated with this form of investment. By examining the potential
benefits, such as the acquisition of financial literacy and early exposure to the stock market,
alongside the risks involved, such as the potential for financial loss and the need for careful
decision-making, this paper sheds light on the suitability of investing in shares for this
specific age group. The youth have a distinct advantage when it comes to making investment
decisions.As digital natives, their technical proficiency translates into a greater ability to navigate
and leverage technology to make informed investment choices. Trading platforms offer a wealth
of information that can inform decisions, including real-time financial data, market analyses and
economic indicators. This, along with the ability to use digital forecasting tools such as
Money-control, access expert opinion and conduct online research on companies, provides
young people with the competitive advantage of having technology at their fingertips. Another
reason why teenagers have an upper hand is quite simply because, the sooner you begin
investing, the more time your money has to grow. If a person starts investing from their teens, by
the time they are adults: their money will keep on growing depending on how much the initial
investment is (Bromberg, 2023). Time is your greatest ally when it comes to growing wealth
through investing. This is a well-known quote by an American Investor : “The stock market is
filled with individuals who know the price of everything, but the value of nothing." — Phillip
Fisher. That quote suggests that investing without knowledge and due diligence will eventually
result in poor investment choices. It also implies that: There is much more to research than
merely listening to what individuals perceive.

Shares, also known as stocks or equities, represent ownership in a company. When you own
shares of a company, you become a shareholder and have a claim on a portion of the
company's assets and earnings. Each share represents a fractional ownership interest in the
Investing in shares can be an exciting yet daunting prospect for teenage investors, as they
navigate the potential benefits and risks associated with such financial decisions. In the
literature, several studies have examined the advantages and drawbacks of investing in shares
for young individuals, shedding light on the complexities of the stock market and the implications
for inexperienced investors. According to Liu and Zhang (2018), the benefits of investing in
shares for teenage investors include the potential for long-term wealth accumulation, exposure

to the principles of financial markets, and the development of financial literacy and responsibility.
However, the literature also highlights the risks involved, such as market volatility, lack of
experience, and susceptibility to emotional decision-making (Gutter and Fontes, 2020).
Furthermore, studies have emphasized the importance of educating teenage investors on how
to navigate these risks to make informed investment decisions. For instance, Smith and
Johnson (2019) underscore the significance of financial education programs tailored to young
investors, providing them with the knowledge and tools to evaluate investment options,
understand market dynamics, and manage risk effectively. Overall, the literature suggests that
while investing in shares can offer substantial benefits for teenage investors, it is crucial to
address the associated risks through comprehensive financial education and guidance to
empower them in making prudent investment choices.
When it comes to making money by investing, time is on your side. A student at the university
of Michigan started investing when he was in high school and he quotes “ I think the biggest
misconception kids have is that a normal person can’t invest as you don’t have to have
master’s in business to have the skills to invest.” Investing is exciting as stock prices change
throughout every trading day, in response to world events. Investing is just about making
money with the money you have. The main reason youths have an advantage is because
they have decades of investing ahead of them, compared to adults who start investing later
on. Jay Liebowitz, a Californian who started the web site: Wall Street Wizard and is now a
University of Pennsylvania student, started investing at the young age of thirteen and
quadrupled his money, picking up stocks like Cisco and Microsoft. For generations, students
of all ages have had one big question for their teachers: Will this be on the test? If there were
such a thing as the test of life, the rule of 72 would definitely be on it. To find out how long it
will take for the money a teenager invests, divide the number 72 by the rate of return you
expect to get. The calculation will help you find out the number of years it will take for your
money to double at the particular rate. The main advantage of this is you will be able to find
out a straightforward way to make estimates and projections that are valuable for financial
decision-making and long-term planning. History shows that the superior returns in the stock
market come from over a period of years and that proves that consistency is the key to being
a long-time investor. A way to remain consistent is to invest a specific sum of money on a
regular basis, for example $50 a month. (Bamford, J. (2010). Street wise: A guide for teen
investors (Vol. 29). John Wiley & Sons.)

Investing in shares can offer significant benefits for teenage investors. Firstly, it provides an
opportunity for long-term wealth accumulation. Research has shown that investing in stocks has
historically provided higher returns compared to other asset classes over the long term.
According to a study conducted by Ibbotson and Associates, the average annual return of the
U.S. stock market from 1926 to 2020 was approximately 10% (Ibbotson, 2021). By starting

early, teenage investors have a longer investment horizon, allowing them to potentially benefit
from compounding returns over time.
Secondly, investing in shares can foster financial literacy and education. Teenagers who engage
in the stock market have the opportunity to learn about various financial concepts, such as risk
management, diversification, and the importance of conducting thorough research before
making investment decisions. A study published in the Journal of Economic Education found
that students who participated in a stock market investment simulation demonstrated improved
financial knowledge and decision-making skills (Hanna & Chen, 1997). This hands-on
experience can help teenagers develop critical thinking skills and a deeper understanding of the
economy and financial markets.
Furthermore, investing in shares can instill discipline and patience in teenage investors. The
stock market tends to experience short-term fluctuations and volatility. By investing in shares,
teenagers can learn to ride out these market ups and downs and develop a long-term
investment mindset. A study published in the Journal of Financial Counseling and Planning
found that young investors who held stocks for a longer period of time achieved higher returns
compared to those who engaged in frequent trading (Xiao & O'Neill, 2015). This experience
can teach teenagers the importance of managing emotions, making rational decisions based on
long-term goals, and avoiding impulsive reactions to market fluctuations.
To sum it up, investing in shares can provide teenage investors with the potential for long-term
wealth accumulation, foster financial literacy, and teach discipline and patience. By starting
early, teenagers can harness the power of compounding returns and develop valuable skills that
will serve them well in their future financial endeavors.
By the year 2034, Generation Z (currently those between 12 and 25 years of age) is projected to
become the largest generation with an estimated 78 million individuals (Morgan Stanley, 2014).
While Gen Z is just as motivated to save for retirement as the older age groups, they’re also the
most interested in getting rich. Millennials and Gen Z are investing in retirement at a younger
age than their parents and grandparents and strive for financial independence. Consequently,
many young investors are doing their own investment research as opposed to using
index-based mutual funds or by working through financial advisors. According to Fortune
magazine, “Today’s millennials and Gen Z have more economic power than any generation that
preceded them. They are earning more, saving more, and investing earlier and at a higher rate
than previous generations” (Case, 2021). While saving and investing early on has its
advantages, making those decisions
prematurely without a sound
understanding of financial markets or
their associated risks is worrisome.
Data source: Fortune magazine,
based on a NASDAQ study

According to a 2021 Motley Fool survey with 1,400 respondents between the ages of 18 and 40,
social media ranked as the highest information source for making investment decisions. The
inherent danger of relying on social media as an information source is that those giving financial
advice aren’t accredited to do so. When asked, “Please select the types of resources used to
get information on investing in the past 30 days,” 91% of Gen Z and 75% of millennials selected
social media as opposed to 41% for friends and family (Caporal, 2021). The figure below
illustrates that when it comes to risking one’s own money, young investors are more likely to rely
on social media stars they’ve never met in-person than their own familial relationships.
Figure : Sources Used for Investment Decisions Gen Z Millenial

Data source: (Caporal, 2023)
While the reality of potential losses is impossible to escape, different types of investments are
riskier than others, allowing you to control the amount of risk you would like to take on. As a
general rule, the riskier the investment, the greater its potential to provide you with higher
returns.Investing in shares exposes teenage investors to market volatility, which refers to the
rapid and significant price fluctuations that stocks can experience. The stock market is
influenced by various factors, such as economic conditions. These factors can cause share
prices to rise or fall dramatically, leading to potential gains or losses for investors. Teenage
investors may find it difficult to withstand the emotional and psychological effects of market
fluctuations, leading to impulsive decision-making or panic selling. This can result in poor
investment outcomes and hinder long-term wealth accumulation. Another risk for teenage

investors is the lack of experience and knowledge in investing. (Kritzman et al., 2012). Many
teenagers may be new to the concepts of financial markets, investment strategies, and
company analysis. Without a solid understanding of these fundamentals, they may struggle to
make informed investment decisions and effectively manage their portfolios. Investing in shares
always carries the risk of financial losses. Stocks can decline in value, leading to a decrease in
the investment's overall worth. Teenagers may be particularly vulnerable to financial losses due
to their limited financial resources and potential lack of diversification in their investment
portfolios. (Lusardi & Mitchell, 2014)
ge, S., & Turkington, D. (2012). The relationship between

Teens can navigate the risks associated with investing to make informed investment decisions
by adopting several strategies. Firstly, education plays a crucial role in equipping teenage
investors with the necessary knowledge and skills. By learning about financial markets,
investment strategies, and company analysis, teens can make more informed decisions.
Seeking out educational resources such as books, online courses, or workshops can provide a
solid foundation for understanding investing principles. Secondly, seeking guidance from
experienced investors or financial professionals can be invaluable. Teens can benefit from the
insights and expertise of individuals who have a track record of successful investing.
Furthermore, developing a long-term investment mindset is crucial to withstand short-term
market fluctuations. Teens should focus on their investment goals and avoid making impulsive
decisions based on short-term market movements. By maintaining a disciplined approach and
staying committed to their investment plans, they can increase their chances of long-term
wealth accumulation. Lastly, regularly reviewing and monitoring investments is essential. Teens
should stay updated on market trends, company news, and economic conditions that may
impact their investments. By staying informed, they can make timely adjustments to their
portfolios when necessary. Starting small is a prudent approach for teens. They should begin
with small investments, using a portion of their savings. This allows them to gain valuable
experience and learn from any mistakes without risking a significant amount of money. As they
become more comfortable and confident, they can gradually increase their investment amounts.


In conclusion, investing in shares offers both benefits and risks for teenage investors. On one
hand, it provides an opportunity for them to learn about financial markets, develop important
skills such as critical thinking and risk assessment, and potentially earn significant returns over
the long term. On the other hand, there are inherent risks, including the possibility of losing
money, market volatility, and the complexity of the investment landscape.
To navigate these risks and make informed investment decisions, teenage investors should
prioritize education and research. By obtaining a solid understanding of the stock market,
investment strategies, and risk management techniques, they can better evaluate investment
opportunities and make informed choices. Taking a long-term perspective allows teenagers to
ride out short-term market fluctuations and focus on the growth potential of their investments.
Furthermore, teenage investors should carefully assess and understand the risks associated
with each investment, considering factors such as the financial health of companies, industry
trends, and overall market conditions. Seeking guidance from experienced investors, financial
advisors, or mentors can provide valuable insights and advice. Regular monitoring of
investments and staying informed about market developments is essential for making timely
adjustments to their portfolio. By implementing these strategies, teenage investors can increase
their chances of achieving their financial goals and building a solid foundation for their future
financial well-being.

Sources used for this paper (APA):
Liu, Y., & Zhang, J. (2018). Understanding the benefits and risks of investing in shares for
teenage investors. Journal of Youth Financial Literacy.
Gutter, M. S., & Fontes, A. (2020). Risk management strategies for teenage investors in the stock
market. Journal of Adolescent Finance
Smith, K., & Johnson, L. (2019). Financial education programs for teenage investors: Navigating
risks and making informed decisions. Journal of Financial Education.
Bamford, J. (2010). Street wise: A guide for teen investors (Vol. 29). John Wiley & Sons.
Hanna, S. D., & Chen, P. (1997). Stock market simulation in an economics course. Journal of
Economic Education, 28(4), 353-363.
Ibbotson, R. G. (2021). Stocks, Bonds, Bills, and Inflation® (SBBI®) 2021 Classic Yearbook.
Xiao, J. J., & O'Neill, B. (2015). Do young investors learn by doing? Evidence from trading
records. Journal of Financial Counseling and Planning, 26(2), 136-151.
Kritzman, M., Page, S., & Turkington, D. (2012). The relationship between investor sentiment,
market returns, and volatility. Financial Analysts Journal, 68(2), 29-46.
Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and
evidence. Journal of Economic Literature, 52(1), 5-44.
U.S. Securities and Exchange Commission. (2020). Beginner's Guide to Investing. Retrieved
from: https://www.investor.gov/introduction-investing/basics/investment-products/stocks
Investor.gov. (n.d.). Diversification. Retrieved from:
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Bromberg, M. (2023, March 10). Investing for Teens: What They Should Know. Investopedia.
Tollefson, K. (2023, July 3). Coming of Age: Young Investors and the Rise in Riskier
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