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This teen actress outperformed the S&P 500

Rachel Fox
Imeh Akpanudosen | Getty Images
Rachel Fox

As any exasperated parent will tell you, most teenagers are obsessed with highly superficial fare: TV, clothing, trips to the mall or the latest smartphone app.

Rachel Fox isn't most teenagers.

The 17-year-old actress made 338 stock trades last year, earning 30.4 percent gains and clobbering the S&P 500. She peppers her conversation with phrases like "covered calls," "shorts" and "double tops."

What really gets her blood running is technical analysis. "When all the indicators line up, it's the best feeling," said Fox, who has starred in TV's "Desperate Housewives" and "Melissa & Joey."

Fox is not alone. After one of the strongest bull runs in the history of the stock market— the Standard & Poor's 500-stock index is up roughly 140 percent since its lows of March 2009—some young folks have become intrigued by the idea of making money with the click of a few buttons, instead of handling the deep fryer at the local fast-food joint.

"I would say that all the new highs of the stock market, and the growing optimism about the economy, are getting them interested in trading," said Timothy Olsen, author of "The Teenage Investor," who bought his first shares (PepsiCo) at the grizzled age of 8. (He is now 24.)

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Don't worry, parents: It takes more than a few clicks to get started. Teens can't open brokerage accounts of their own until they reach 18 or 21, depending on state law. Before that, as with Rachel Fox, it has to be a custodial or joint account with their parents or guardians.

A growing number of young adults seem to have caught the investing bug. Investors between ages 18 and 24 now hold 11 percent of all accounts at the online brokerage Scottrade, up 10 percent since 2012.

Among those under 35, 26 percent of households report being willing to take on above-average or substantial risk in their portfolios, according to the Washington, D.C.-based trade group Investment Company Institute (ICI). That is up from 18 percent in 2012.

All those reports about young people fleeing the stock market forever? Not so much.

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"There are two things going on here," said Sarah Holden, ICI's senior director of retirement and investor research. "The first is that younger investors are usually willing to take on more risk, because of their age and all the time ahead of them."

"The second is that these numbers tend to move with the stock market," she said. "Since the market has improved, young investors seem like they are getting back in the saddle."

Skewed Perceptions

Young investors are the most bullish age demographic, according to an investor sentiment survey by the online brokerage TD Ameritrade. Generations Y and Z (those under 35) are the most optimistic about future portfolio gains (74 percent, versus 59 percent of all investors).

They are also the most likely to have cranked up their risk tolerance in the last six months (14 percent, versus 8 percent of all investors) and to have sunk new money into the market over that time period (23 percent, versus 15 percent of all those surveyed).

Which begs the question: Are the youngest investors, some of whom are so green they may only vaguely recall harrowing events like the financial crisis or the dot-com meltdown, getting carried away with their market perceptions?

If their only frame of reference is the recent bull market, they might think it is entirely normal for the Dow Jones Industrial Average to have rocketed north in just a few years.

"Objectively, they might know about downturns, but all their experience so far has been with an up market," said Amanda Clayman, a financial therapist in New York who helps clients with the connection between money and emotional wellness. "That is going to skew their perception of what reality is."

The brain's prefrontal cortex, which enables a person to accurately perceive risk, isn't even fully developed until one's mid-20s, Clayman said. That is why teens tend to have a mindset of invincibility, a dangerous trait for potential traders.

Young investors might want to start out with virtual portfolios, like those offered by sites like thinkorswim.com, before they actually start putting skin in the game. That's what Rachel Fox did, to prove to her parents that she was capable of steering an actual brokerage account with real money.

Olsen suggests broad-based index funds as the best place for young investors to start, since individual stockpicking ramps up risk considerably. Parents could also cap the amounts being invested by their budding Warren Buffetts, Clayman said, to make sure no critical savings are being placed in jeopardy. "They shouldn't be tapping their college savings to invest, and they shouldn't be risking anything they can't afford to lose," she said.

Even if the Dow does plummet and shock these young bulls, that doesn't mean youthful investors can't make money in a down market. One of Fox's favorite recent trades: shorting the S&P 500 exchange-traded fund, just before the stock market went into its recent swoon.

"I saw a bearish pattern and knew it immediately," said Fox, who has created her own website for young investors at FoxOnStocks.com. "I was really proud of that one."

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