Peter Clark
A student tracks the peaks of dips of price trends on his laptop.
As more and more high school students experiment with investing, low-risk strategies tend to fall to the wayside. Investment practices such as day trading and crypto can lure in new investors with the promise of quick gains, but they also come with the risk of immense losses.
But before looking at the risks of investing, there are multiple benefits of learning to invest at an early age.
By investing early, student investors can gain wealth over time and learn sound financial strategies.
“The power of compounding is ridiculous,” senior Reagan Graeme, founder of Investment Club, said. “If you start investing at 16 for your retirement, by the time you’re 65 and retiring, it’s a crazy multiple.”
Doing the math, assuming a constant 6 percent gain per year, someone investing for two years will experience a 12.3 percent increase in their portfolio. In comparison, an investor who started 10 years earlier would have experienced a 100 percent increase.
Most people know that investing can yield high returns; the difficult part is guaranteeing a constant 6 percent annual gain. That’s another reason why high schoolers are interested in investing: if they start learning solid financial strategies early, they can be more knowledgable and experienced when they start investing as an adult.
“Learning to invest at an early age can provide a strong foundation for future financial stability,” Middle School Investment Club sponsor Kurt Tholking said. “And it allows individuals to make informed decisions.”
However, while learning about investing is beneficial for financial literacy, new investors and inexperienced high school students must navigate the pitfalls and traps associated with being new investors.
In particular, students can be pulled towards short-term investment strategies that can get quick money. Short-term investing strategies such as day trading or stock options have the capability to produce massive gains within a day, providing a quick dopamine hit.
But a huge risk comes with it too.
“Day trading is akin to gambling,” Graeme said. “That’s because you’re not betting on that long-term arc of the market as it moves up. You’re almost betting in this second, will it go up or down? And that’s no different than an over-under for how many touchdowns Dak Prescott’s going to score.”
Another major risk with investing as a teenager is the influence of social media. In particular, day traders who post to social media flaunting their wins can almost act as an inspiration to new investors who want to make the same amount of money.
“What you’re seeing on social media is a very, very top percentile of people who actually know what they’re doing, or most of the time, who just got lucky,” Graeme said.
New investors lack the knowledge and expertise to replicate the successes of day traders on social media.
“Those are not financial strategies that would be taught to students or young investors,” Tholking said. “They tend to involve high risk or extreme knowledge, which usually requires years of experience, studying or research.”
Walker Stevens, a junior who has been investing for five years, has experienced this exact same cycle. He started investing by trying to day trade but eventually he realized that it isn’t sustainable.
“When I first started investing, I primarily day traded since I thought I would be able to make a significant profit in a short amount of time,” Stevens said. “But I quickly learned that long-term investing is much more sustainable and consistent.”
The S&P 500, an index that tracks the top 500 companies, increased the most when the market wasn’t even open, according to an analysis by The New York Times and Bespoke Investment Group.
Looking at only overnight increases, the index increased over 500 percent through its entire lifespan from 1993 to 2018 when the market was closed. In comparison, looking at times during the day, the index decreased by 4.4 percent cumulatively from the start to the end of the day. That means that the S&P trends downwards during the day.
In other words, day traders are at a huge disadvantage compared to investors who play the long game.
At the end of the day, investing as a high school student is more of a teaching tool rather than an instant money generator.
The general consensus from Tholking, Graeme and Stevens is that high school students should research, invest and let the stock grow. And while social media makes short-term day trading seem lucrative and easy, its important to realize that people only post their wins, never their losses.