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How much should I invest in the stock market as a teenager?

As much as you can. Every penny you get and can call “yours” should be invested in the stock market – 100% or more in stocks. Forget any defensive safe investing. You are young, you have time on your side so you can go aggressive as you will be able to fix any mistake. Leverage your investments. If you want to know more of what I am taking about, read a book “Lifecycle Investing

Learn as much about investing as possible, set a goal which will tell you how you want to invest, what stocks, how much money, for how long, when you will be buying, when selling, etc. and then stick to the plan for decades. 20 or 30 years later, you will retire financially free.

Learn to use options to boost your returns. For example, if you buy 100 shares of a stock and it appreciates a lot, you can convert your stock holdings into a long call option which will allow you to keep profits and release cash for more purchases (safe leveraging, read the book above). Sell cash secured puts to buy shares, sell covered calls to monetize your holdings. Be aggressive.

Study the market, ignore suckers who are scared to death whenever the market goes up (claiming it is overvalued) and scared anytime it goes down a bit (claiming end of the world and a crash), they have no clue. If you study the market, you will be able to identify when the market is in corrective or bearish mode (which should be respected) and when it is just a dip (to be ignored and bought more). No crisis takes longer than about 3 years (usually 1 to 3 years) so you can be buying more during recessions when you are young and in accumulation phase and be defensive when you are older and closer to retirement. You will hear people claiming that “if you bought on top of 1930 it would take you 25 years to get even”. That is a nonsense, ignoring that the market wasn’t down all the time for 25 years. It went up and down in waves. So, yes in that period it went nowhere but, if you started investing, buying high quality dividends stocks (for example), reinvesting dividends, you would be buying more and more cheaper shares anytime the market would go lower, and anytime it would be going higher, the recovery would be faster and cumulative. In your 20s, this wouldn’t matter at all and if you were in your 50s, it wouldn’t matter either as you would be living off your dividends, options premiums, and maybe some selling. The market (stocks) prices will eventually go to a price which will be beyond any crash level (unrepeatable price) so you can ignore any gloomers and doomers scared of any decline or recession. What do I mean by “unrepeatable price? It is a price the stock or market will probably never revisit. Example: JNJ stock. I bought it at $38 a share. Today, it trades at $140 a share. If the stock market loses 70%. The price would be $42 a share. It is still above my cost basis, so even if everyone panicked all around and kept selling and screaming, I still would be in green and buying more shares. And even if that happens, how long would it take before the market recovers? 2008 took 2.5 years to get back to pre-crash level. And imagine, that you would be buying more at $42 level. so when the stock goes back up you will be riding great recovery even if the market recovers partially only.

So, do not be afraid and look for long term perspective, long term investing. Many people are long term only until the next correction, don’t be like them. Have 20 or 30 year time frame in mind (even if you trade short term products such as options, you still must be aware of the long term results). Believe, me, you will reach great results.

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