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Teens are becoming increasingly financially savvy, but investing knowledge continues to elude them. It’s a pivotal knowledge gap—and one we hope to bridge by teaching you a little bit more about how to invest, and understanding what the best investments for teenagers are.

Today, we’re going to talk about the best investments for teenagers. We’ll also look at the varying types of accounts teens can use to get started, and answer a couple of other frequently asked investing questions to help clear up any of the confusion you might have.

Investing for Teenagers—Our Top Account Pick


The Best Investments for Teenagers (Under 18)


We’re going to dive into seven popular, typically easy-to-access assets that teenagers can buy in their own investment accounts, or that parents can hold for their teens.

And importantly, when we’re talking about teens, we’re talking about teens younger than 18. At age 18, all of the guardrails come off; you can invest in virtually anything once you become an adult.

1. Stocks


stock market stocks trading wall street

Stocks are one of the best investments for teenagers for a number of reasons. Among them:

  • They have higher rates of returns than just about any other asset class.
  • They can be held in numerous types of investment accounts.
  • They’re often understandable and relatable.

In short, a stock is simply a piece of ownership in a company. It allows you to profit from a company’s success—most commonly, from price appreciation in shares of the stock, but in several cases, also from cash distributions (dividends) the company makes to shareholders.

When you’re learning to invest as a teenager, stocks that can both grow and pay dividends are the ultimate holding given just how much in additional returns they can generate over the long term.

Here’s a look at the return someone could expect if they received just the price returns from the S&P 500 over the past 25 years:

S&P 500 return 25 years 082422

Now look at how much better the return is when you factor in dividends (had you had reinvested those dividends back into the S&P 500):

S&P 500 total return 25 years 082422

The price return is about 4.5x. The total return (price plus dividends) is more than 7x!

We tend to believe that the best investments for teens include stocks from companies they interact with. This will make a teenager more likely to care about and follow the company’s progress over time.

All of the teenage investment plans mentioned throughout this article will allow you to hold stocks in some form or fashion, whether that’s through individual stocks, or mutual or exchange-traded funds. That includes this teen-owned brokerage account:

Fidelity Youth™ Account ($50 bonus for teens, $100 bonus for parents)


Fidelity Youth Account app signup

  • Available: Sign up here
  • Price: No account fees, no account minimum, no trading commissions*
  • Platforms: Web, mobile app (Apple iOS, Android)
  • Promotion: Teens get $501 on Fidelity® when they download the Fidelity Youth™ app and activate their Youth Account; parents get $100 when they fund a new account

Is your teen interested in jumpstarting their financial future? Do you want them to build smart money habits along the way?

Of course you do! Learning early about saving, spending and investing can pay off big when you start on the right foot. And one tool that can help your teen get that jump is the Fidelity Youth™ Account—an account owned by teens 13 to 17 that’s designed to help them start their money journey. They can start investing by buying most U.S. stocks, exchange-traded funds (ETFs), and Fidelity mutual funds for as little as $1!⁴

Your teen will also get a free debit card with no subscription fees, no account fees³, no minimum balances, and no domestic ATM fees⁵. And they can use this free debit card for teens to manage their cash and spend it whenever they need.

And as for building smart money habits? You and your teen can access your account through the Fidelity Youth™ app, which has a dedicated Learn tab packed with materials developed specifically to help teens develop good financial habits. Not only will Fidelity’s interactive lessons, videos, articles, tools, and calculators accelerate their learning—but for every level they complete, reward dollars will be deposited into their account to use however they want.

Controls parents want and need

A parent or guardian must have or open a brokerage account with Fidelity® to open a Fidelity Youth™ Account. For new Fidelity® customers, opening an account is easy, and there are no minimums and no account fees.

Parents and guardians have plenty of tools they can use to monitor their teen’s activity: They have online account access, can follow monthly statements and trade confirmations, and can view debit card transactions made in the account.

To make it even easier, you can set up alerts to notify you of trades, transactions, and cash management activity, keeping you firmly in the loop on actions your teen takes across the Fidelity Youth™ Account’s suite of products.

If your teen has an interest in learning about investing and taking their first steps toward building their financial journey, you should consider downloading the Fidelity Youth™ app and opening a Fidelity Youth™ Account. The account comes custom-built for their needs, which will help them become financially independent and start investing for their future.

Read more in our Fidelity Youth™ Account review.

 

2. Mutual Funds


mutual fund index diversification

Stocks are great, but you can put yourself at great risk if you spread your investment money across just a handful of them. Think about it: Companies do fail, and when they do, their stocks can go to zero. Well, if you have $10,000 invested evenly across just four stocks, and one of them goes to zero, your whole investment account has just lost 25% of its value!

So while teens have longer to make up for mistakes than anyone, not every teen wants to accept a ton of risk. That’s why we also suggest mutual funds.

Mutual funds are a pool of money, gathered from a large group of investors, that is invested in a large group of assets—typically stocks, bonds, or a combination of the two. A mutual fund might have a portfolio of dozens or even hundreds of stocks, so by investing in the mutual fund, you’re investing in that wide portfolio of stocks.

This provides an important quality called “diversification.” Diversification is reducing your risk by spreading out your money across many different investments. And you can diversify in a number of ways, such as holding:

  • Different stocks in one area of the market (say a sector, such as technology)
  • Different stocks across different sectors
  • Different stocks across different countries
  • Even different assets (say, stocks, bonds, and commodities like gold or oil)

Here’s how it works.

Let’s say you buy a mutual fund at $50 per share. That price is the net asset value (NAV) of the fund—the value of all the securities (stocks, bonds, etc.) held by the fund—divided by the number of shares that exist. When the value of those securities changes (i.e., when stock or bond prices go up or down), the NAV is adjusted accordingly. This price changes at the end of each market trading day.

Also, some funds are operated differently than others. The two primary types of fund, by management, are either actively managed and passively managed.

Most mutual funds are actively managed, which means that they’re run by one or more people. These fund managers buy and sell investments based on their stock research and the fund’s investment strategy. These portfolio managers are typically tasked with beating some sort of comparable benchmark, like, say, the S&P 500 Index, or the Bloomberg US Aggregate Bond Index.

However, some mutual funds are passively managed, and these are often referred to as index funds. As the name suggests, rather than trying to beat a benchmark like the S&P 500, index funds typically follow all the rules a particular index does, providing you with similar investment returns. Because they’re usually run by computer algorithms, rather than human managers, investing in index funds provides similar diversification with typically lower expenses.

You can hold a mutual fund in a number of investment accounts, including individual retirement accounts (IRAs), 529 plans, and education savings accounts (ESAs). Don’t know what these accounts are? Don’t worry—we’ll be covering them in a minute!

3. Exchange-Traded Funds


pie chart mutual fund etf

If you want to invest as a teenager, chances are you’re going to want to get cozy with mutual funds’ cousin: exchange-traded funds (ETFs).

ETFs are similar to mutual funds in that they hold a typically diversified portfolio of stocks, bonds, and/or other investments. But ETFs have become much more popular over the past couple decades because of how they differ from traditional funds.

For one, ETFs don’t settle just once a day—instead, they trade on the stock market exchanges during regular trading hours. This makes them popular among people who want to trade them quickly in a brokerage account.

Also, unlike their mutual-fund brethren, which are primarily actively managed, most ETFs are index funds. ETFs tend to be much cheaper on average as a result. (However, even actively managed ETFs can be cheaper than comparable mutual funds.)

You can also see what an ETF holds on any given day (versus just a quarterly snapshot for mutual fund holdings), and ETFs also boast certain tax advantages that also help their returns versus similar mutual funds.

4. Bonds


fixed income bonds bond funds

Bonds are a typically lower-return (but also lower-risk) investment than stocks. A bond is basically a loan you’re making to some sort of entity—typically a company or some part of the government. When you buy the bond, that entity promises to pay you back, with interest, within a certain period of time. The entity typically pays that interest to you on a regular basis, often every six months.

Most bonds are difficult to research and purchase individually, so teenagers (and most investors, for that matter) are better off buying them through mutual funds and ETFs. This lets you diversify by purchasing exposure to hundreds or even thousands of bonds at a time.

One type of bond that’s easier for most people to buy individually is a savings bond, which you can now purchase by visiting TreasuryDirect.gov. Unlike most other bonds, the principal (your original investment) and interest are all paid at once, when you redeem the bond.

The two available savings bonds are Series EE and Series I. The U.S. Treasury guarantees that your investment in Series EE bonds will at least double if you hold it for a full 20 years. Series I savings bonds are meant to protect your savings from inflation (rising prices): They deliver both a fixed interest rate, as well as an inflation-adjusted interest rate that’s calculated twice each year.

However, the only way teens can get their hands on a savings bond is for an adult to gift them one. You must be at least 24 years old to purchase savings bonds.

5. High-Yield Savings Accounts


percent interest rate high yield

High-yield savings accounts, as you might guess given their name, offer much higher interest rates (often by 20x to 25x) than traditional savings accounts.

And that’s it! There are no other differences! You typically get an ATM card with the account, and you can deposit and withdraw money as you please.

High-yield savings accounts are one of the safest ways to invest your money, with most banks offering Federal Deposit Insurance Corporation (FDIC) insurance of up to $250,000 per account. In short: If your bank fails, you will still be repaid whatever was in your account, up to that $250,000 limit.

The downside? Savings account yields aren’t guaranteed. Interest rates fluctuate over time, and as they go up and down, so too go savings rates. Also, while high-yield savings accounts offer much higher rates than your average savings product, their potential upside is usually far lower than stocks, bonds, and many other investments.

So what’s the use case? High-yield savings accounts are the best investments for teens who are looking to make a little extra money on cash that they might need to withdraw at any time.

6. Certificates of Deposit (CDs)


Certificate of Deposit CD

Certificates of Deposit (CDs) are another savings product offered by most banks and credit unions.

Like savings accounts, CDs are virtually risk-free and insured for up to $250,000. But unlike savings accounts, they’re a longer-term commitment. With a CD, you lend money to a bank for a set amount of time (the “term length”)—usually between three months and five years. And typically, the longer the term length, the higher the interest rate you can get.

You’ll typically get a higher rate with CDs than with a high-yield savings account, but if you take your money out early, you’ll face a penalty. So, a CD makes the most sense for a teenager who won’t need their cash immediately, but will need it at some defined point in the short-term future, and wants to make a little extra money off that cash until then.

7. Themselves


Child tax income filing responsibility

Roll your eyes all you want. “Investing in yourself” might sound a little cheesy, but it can be one of the best ways for a teen to grow their money—while teaching them valuable lessons about entrepreneurship and preparing you for adulthood.

We’ve previously written about ways to make money as a teenager. Some of them are just plain ol’ work—nothing wrong with that!—but one method in particular has the potential to be so much more.

Running your own business, whether online or offline, will cost you money at some point—you might need to provide your own funds to start with, or you might need to reinvest your business’s profits back into the business to make it grow. None of this is specific to teens—it applies to everyone—so experiencing this dynamic when you’re young can give you priceless real-world experience you can use for the rest of your life.

You also don’t have to invest money in yourself—you can just invest time. Putting the effort into your homework, or going the extra mile to learn more outside of school, can have any number of benefits, from getting you into a better college to making you a more attractive job candidate to simply making you happier because you enjoyed learning something new.

Investment Accounts for Teens: Which Assets Should You Put in Each?


If you want to invest in virtually any asset, you have to have an account that allows you to do so. If you go to your bank and open up a savings account, then say, “I’d like to put a few stocks in here,” you’re going to get a few funny looks.

So now, we’re going to go through the most popular types of accounts for teen investors—this includes accounts where teens have control, as well as accounts where teens can give input but ultimately are controlled by a parent or custodian.

1. Joint Brokerage Account

When you open a brokerage account for yourself, you open an individual brokerage account. Only your name will appear on the account title as the owner. Conversely, if you decide to open a brokerage account jointly with two or more people who share in account ownership, you’re opening a joint brokerage account.

Brokerage accounts typically exist between spouses, and can even be opened by two or more individuals who share financial goals (say, unmarried partners or business partners). But joint brokerage accounts also can be opened between multiple family members (say, a parent and teen).

When a parent and teen have a jointly owned brokerage account, they can share in the decision-making of what to buy and sell. And opening one is easy: Many investing apps for teens allow you to open a joint brokerage account.

Financial assets you can hold within a joint brokerage account:

  • Stocks
  • Bonds
  • ETFs
  • Mutual funds
  • Cash

2. Custodial Account

Parents interested in investing on behalf of their teens often use a custodial account. Custodial accounts allow an adult to maintain financial assets for another person, usually a child. The assets held in the account are owned by the beneficiary but managed by the custodian—however, they can get a teen involved by talking to them about (or even having them help make) investment decisions in the account.

When the child reaches the age of majority (generally 18 or 21, but sometimes as old as 25) the assets held in the custodial account revert to the owner’s control. The account owner can withdraw money from their custodial brokerage account for any needs they may have.

Custodial accounts come in two types: Uniform Gifts to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts. You can check out the full breakdown of UGMA vs. UTMA, but most important is that UGMA accounts can be used to hold financial assets. UTMA accounts can hold financial assets, too, but also any property—say, real estate or cars.

Financial assets you can hold within a custodial account:

  • Stocks
  • Bonds
  • ETFs
  • Mutual funds
  • Cash
  • Annuities
  • Life insurance policies

3. Custodial Individual Retirement Account (IRAs)

Individual retirement accounts allow you to set aside earned income toward your retirement savings in a tax-smart way. These accounts come in two primary forms:

  • Traditional IRA: If you contribute to a Traditional IRA, you set aside pretax dollars that invest over time, allowing you to take a tax deduction now. However, you will have to pay taxes when you withdraw money later.
  • Roth IRA: A Roth IRA allows you to invest after-tax dollars. By contributing to this tax-advantaged savings account, your Roth IRA contributions can grow tax-free. You can also withdraw from your Roth IRA without paying taxes.

Both accounts come with annual contribution limits equal to the lesser of your earned income or $6,000 per year in 2022. If you’re 50 or older, you can contribute an extra $1,000.

Naturally, if you’re talking about teen investing, the IRA will have to be custodial in nature, which means an adult is in charge. By contributing more money now toward retirement, a teen stands to realize more upside potential through compounding returns. A teen doesn’t even need to contribute the money themselves. Instead, they can keep their earnings and have family and friends make contributions to their IRA up to their earned income in the year of contribution.

When investing money in an IRA, you’ve got several types of investment strategies you can utilize for securing your financial future. IRAs offer access to assets extending beyond just traditional classes, such as alternatives.

Financial assets you can hold within an IRA:

  • Stocks
  • Bonds
  • Exchange-traded funds
  • Mutual funds
  • Cash
  • Alternatives

Frequently Asked Questions


How much money does a teen need to start investing?

This varies widely, even within the same account type—for instance, some 529s might have larger minimum initial investments, and some might not at all. Typically, within a brokerage account, the minimum cost is the price of one share of a stock or ETF, or the minimum investment required by a mutual fund. However, if your brokerage account allows you to buy fractional shares, you might be able to invest with as little as $5 or even $1.

What investment accounts let a teen invest by themselves?

The Fidelity Youth™ Account is a rarity in that it’s teen-owned, which means the teen can make all of the decisions on their own. The next-closest thing would be a joint brokerage account, where an adult and a minor have equal ownership of the account—of course, in that scenario, if one person makes decisions the other person doesn’t approve of, an uncomfortable conversation might be in your future.

What is the best investment account for a minor?

The answer to this question largely hinges on the investing goal, and how old the minor is. For instance, users have the most control with the Fidelity Youth™ Account, but it’s only available to minors age 13 to 17.

If you’re setting up an account to save for a minor’s educational expenses, 529s and Coverdells are designed specifically for that purpose. Custodial accounts are ideal if you want to save money on behalf of a child for more general goals—possibly education, but also a car, a home, day-to-day expenses, etc. Custodial IRAs are best for investing a teen’s earnings from a job. And a joint brokerage account is the best way to involve a minor in the investing process while still keeping one hand on the wheel.


Terms and Conditions for Fidelity Youth™ Account

The Fidelity Youth™ Account can only be opened by a parent/guardian. Account eligibility limited to teens aged 13-17.

* $0.00 commission applies to online U.S. equity trades and exchange-traded funds (ETFs) in a Fidelity retail account only for Fidelity Brokerage Services LLC retail clients. Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). Other exclusions and conditions may apply. See Fidelity.com/commissions for details. Employee equity compensation transactions and accounts managed by advisors or intermediaries through Fidelity Institutional® are subject to different commission schedules.

¹ Limited Time Offer. Terms Apply. Before opening a Fidelity Youth™ Account, you should carefully read the account agreement and ensure that you fully understand your responsibilities to monitor and supervise your teen’s activity in the account.

² The Fidelity Youth™ app is free to download. Fees associated with your account positions or transacting in your account apply.

³ Zero account minimums and zero account fees apply to retail brokerage accounts only. Expenses charged by investments (e.g., funds, managed accounts, and certain HSAs) and commissions, interest charges, or other expenses for transactions may still apply. See Fidelity.com/commissions for further details.

⁴ Fractional share quantities can be entered out to 3 decimal places (.001) as long as the value of the order is at least $0.01. Dollar-based trades can be entered out to 2 decimal places (e.g. $250.00).

⁵ Your Youth Account will automatically be reimbursed for all ATM fees charged by other institutions while using the Fidelity® Debit Card at any ATM displaying the Visa®, Plus®, or Star® logos. The reimbursement will be credited to the account the same day the ATM fee is debited. Please note, for foreign transactions, there may be a 1% fee included in the amount charged to your account. The Fidelity® Debit Card is issued by PNC Bank, N.A., and the debit card program is administered by BNY Mellon Investment Servicing Trust Company. These entities are not affiliated with each other, and Fidelity is not affiliated with PNC Bank or BNY Mellon. Visa is a registered trademark of Visa International Service Association, and is used by PNC Bank pursuant to a license from Visa U.S.A. Inc.

⁶ Venmo is a service of PayPal, Inc. Fidelity Investments and PayPal are independent entities and are not legally affiliated. Use a Venmo or PayPal account may be subject to their terms and conditions, including age requirements. 

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

About the Author

Riley Adams is the Founder and CEO of WealthUp (previously Young and the Invested). He is a licensed CPA who worked at Google as a Senior Financial Analyst overseeing advertising incentive programs for the company’s largest advertising partners and agencies. Previously, he worked as a utility regulatory strategy analyst at Entergy Corporation for six years in New Orleans.

His work has appeared in major publications like Kiplinger, MarketWatch, MSN, TurboTax, Nasdaq, Yahoo! Finance, The Globe and Mail, and CNBC’s Acorns. Riley currently holds areas of expertise in investing, taxes, real estate, cryptocurrencies and personal finance where he has been cited as an authoritative source in outlets like CNBC, Time, NBC News, APM’s Marketplace, HuffPost, Business Insider, Slate, NerdWallet, Investopedia, The Balance and Fast Company.

Riley holds a Masters of Science in Applied Economics and Demography from Pennsylvania State University and a Bachelor of Arts in Economics and Bachelor of Science in Business Administration and Finance from Centenary College of Louisiana.