Investing as a teenager provides your kid with a significant financial advantage as they get older. They have more time than most investors to set aside funds for retirement and start investing, they can benefit more from compound interest, and teens can even enjoy youth tax breaks.
Not to mention, learning how to invest as a teenager will give them valuable experience for later in life, when they can put larger sums to work. It’ll put them well ahead of the curve.
According to Fidelity’s 2023 Teens and Money Study, which polled teens ages 13 to 17 about their attitudes and behaviors around finances and investing, 90% of teens “see investing as a way to save for their future,” and 75% of them say they plan to start investing before graduating college, or earlier. Yet fewer than a quarter (23%) have actually started investing.
If your teen wants to invest, that’s great! And as a parent, you’re exactly the person they need most. That’s because teens need a trusted adult to help them set up and manage an account.
Let’s take a look at how to invest as a teenager. This full primer will go over everything your teen will need, from how to get started to the types of investments teenagers should consider to the best investments for teenagers.
Investing for Teens—Best Accounts to Consider
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Free Custodial Account
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Premium Custodial Account
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No-commission equity trading.
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$12/mo.
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How Old Do You Have to Be to Invest in Stocks?
So, how old does your kid have to be to invest in stocks?
If you want to invest in the stock market by yourself, you have to be an adult, or at least 18 years old, to buy stocks. Minors can’t invest in the market by themselves, and teenagers under 18 are included in that group.
That said, your child or teen can invest—as long as they use one of a select set of investment accounts.
“Of the teens that are saying they’re not investing, 31% are saying they think they’re too young, and 20% they’re saying they don’t have enough money to invest,” says Kelly Lannan, Senior Vice President, Emerging Customers, at Fidelity Investments. “[These myths] are actually almost creating a little bit of a barrier between those who are getting started and who’s not.”
Related: Best Money Apps for Teens Under 18
How to Invest Under 18, Step 1: Select the Best Investment Account for Your Teen
Parents might be tempted to have their teens sock money away in savings accounts. That’s fine. A savings account is appropriate for money the teen will need in the short term.
But it’s important that teens use some of their money to begin investing. And for that, a parent will need to help their teen open an investment account, which will allow them to buy stocks, funds, and other assets.
Your choice basically boils down to three different types of accounts. With one account type, the teen co-owns the account with a parent or guardian. The other two are held in the teen’s name and allow them to enjoy tax advantages while they invest.
Related: Best Brokerage Accounts for Teenagers
#2: Custodial Account
A custodial account is a type of financial account that an adult maintains for another person, usually a child. Many parents open a custodial brokerage account to invest for their teens. Custodial accounts can hold a variety of assets—stocks and bonds, sure, but also CDs, insurance contracts, even antiques and collectibles.
All of the assets in a custodial account belong to the child, but they’re controlled by a custodian (typically a parent) until the child or teen reaches their state’s age of majority, which is commonly 18 but can be 21 or even 25. At that point, the newly minted adult assumes control of the account.
Until then, the custodian can use money in the account for any purpose that benefits the child.
Related: Best Brokerage Accounts for Minors
E*Trade (Top Teen Investing App/Custodial Account)
- Platforms: Web, mobile app (Apple iOS, Android)
- Price: No monthly fees or trading commissions on stocks and ETFs through E*Trade’s Custodial Account
Most people know E*Trade as one of the leading providers of individual brokerage accounts, but you can also put the powerful platform to work saving for your child’s future, through a custodial account (and even a custodial IRA).
E*Trade’s custodial account for teens (and generally any minor) allows you to open up a custodial account that offers the chance to build a personalized portfolio through thousands of stocks, bonds, ETFs, and mutual funds, or you can have E*Trade select your holdings for you through its Core Portfolio robo-advisory service (minimum account size of $500 is needed to use this product). Further, you can choose to open a traditional custodial IRA or a custodial Roth IRA for children under age 18 who have earned income.
Just like with its individual brokerage accounts for adults, E*Trade custodial accounts offer zero-commission stock, ETF, and options trading. It also has a leg up on some platforms by offering $0-commission mutual fund trading.
And if you want to learn more about investing—or want your young one to learn alongside you—E*Trade also boasts educational resources, including articles, videos, classes, monthly webinars, and even live events.
For a limited time, E*Trade offers a new account funding bonus when you use reward code “OFFER24” in the following amounts:
- $1,000-$4,999 earns $50.
- $5,000-$19,999 earns $150.
- $20,000-$49,999 earns $200.
- $50,000-$99,999 earns $300.
- $100,000-$199,999 earns $600.
- $200,000-$499,999 earns $800.
- $500,000-$999,999 earns $1,000.
- $1,000,000-$1,499,999 earns $3,000.
- $1,500,000-$1,999,999 earns $5,000.
- $2,000,000 or more earns $6,000.
To open a free E*Trade custodial account, click “Open Account” below.
Start With Index Funds in an Acorns Early Account
- Available: Sign up here
- Price: Acorns Premium: $12/mo. (Required for custodial account)
Acorns Early, considered one of the best investing apps for teens and young adults, is a great way for a teen to start investing.
The all-in-one personal finance app helps teens to develop sound financial habits and grow their wealth over time.
The Acorns Premium subscription tier’s full product suite combines Acorns Early (a custodial investment account for minors) with an Acorns Spend bank account and a linked debit card for teens that provides the signature “Round-Ups®” feature. And if you sign up today, you can get $20 worth of free stock. Learn more in our Acorns review.
- Acorns allows you to sign up for investment, retirement, and checking accounts for you and your family, learn how to earn more money, and grow your investing knowledge.
- Famous for investing spare change automatically through Round-Ups, this all-in-one financial app helps younger generations start investing earlier.
- Invest in expert-built portfolios made up of diversified ETFs.
- New Premium tier includes perks such as live Q&As with financial experts, a 50% match on Acorns Earn rewards (up to $200/mo.), $10,000 in life insurance, and the ability to pick individual stocks for their portfolios.
- Earn even more with Later Match: Acorns will match up to 1% (Personal Plus) or 3% (Premium) of all new IRA contributions.
- Special offer: Get $20 to start*.
- Robo-advisor with affordable fees (on larger portfolios)
- Fixed fee model
- Round-ups
- FDIC/SIPC insurance
- IRA match (Personal Plus and Premium)
- High fixed fees for small balances
- Limited investment selections
- Must subscribe to Premium for any self-directed investing options
Related: Top Stock Trading Apps for Beginners to Consider
#2: Jointly Owned Brokerage Account
The standard type of brokerage account is an individual brokerage, in which one person’s name is listed as the account owner.
A jointly owned brokerage account, however, allows two or more people to sit on the account’s title and act as owners of all assets within the account.
These accounts most commonly exist between spouses, but they can also be opened between multiple family members (say, a parent and child) or two or more individuals who share financial goals (say, unmarried partners or business partners).
When a parent and child have a jointly owned brokerage account, they can share in the decision-making of what to buy and sell. Many investing apps for kids allow you and your teen to open a joint brokerage account.
Related: Best Prepaid Debit Cards for Teens & Kids [Reloadable]
#3: Custodial Roth IRA
If your teen works a summer job, does babysitting, or makes money in some other way, they have “earned income.” That means they can contribute the lesser of their earned income or $7,000 per year toward their retirement and invest in a tax-advantaged manner in 2024 ($7,000 in 2025 as well).
And if that’s the case, they can contribute to an individual retirement account (IRA). An IRA is a tax-advantaged retirement account that allows you to save money for retirement. You set up an IRA at a financial institution and make contributions that you can invest in a variety of investment choices.
There are two primary types of IRA:
- Traditional IRA: These retirement accounts allow you to contribute “pre-tax” dollars today. You only pay taxes on the money once you withdraw it, which you are allowed to do without penalty once you retire.
- Roth IRA: These work in the opposite manner. You can only contribute to a Roth IRA with earnings that you have already paid taxes on. However, once you contribute that money, that’s it—it’s tax-free while it’s in your account, nor do you pay taxes once you withdraw it.
In either case, a minor can’t open an IRA on their own, so they’ll need a parent or guardian to open up a custodial IRA on their behalf. If given the choice, I would almost always choose a Roth IRA for a minor. That’s because minors typically don’t earn much and thus pay very little in taxes (if any at all). Rather than paying taxes at much higher rates in retirement like they would with a traditional IRA, a minor can fund a Roth IRA with after-tax money at their currently low rates.
(Child stars and other minors who make a lot of money are the only exception—if they make hundreds of thousands or even millions of dollars now, they’re likely being taxed at much higher rates than they will in retirement. Thus, they should fund a custodial traditional IRA.)
And the best part about contributing to a custodial Roth IRA as a teenager: years—no, decades—of compounding returns. Just have a look:
| Initial Amount Saved @ 18 | Annual Contributions (Made @ Start of the Year) | Ending Balance @ Age 68 |
|---|---|---|
| $5,000 | $0 | $449,836 |
| $5,000 | $1,000 | $1,483,633 |
| $5,000 | $6,000 | $6,652,621 |
| $10,000 | $0 | $899,672 |
| $10,000 | $1,000 | $1,933,470 |
| $10,000 | $6,000 | $7,102,457 |
| $25,000 | $0 | $2,249,181 |
| $25,000 | $1,000 | $3,282,979 |
| $25,000 | $6,000 | $8,451,966 |
| *Assumes average annual return of 9% compounded daily, no dividends or tax implications | ||
Just like with custodial brokerage accounts, a parent or guardian manages funds in a custodial Roth IRAs until the minor becomes an adult and can only take money out for the benefit of the minor.
Related: Best Bar Mitzvah Gift Ideas [Financial Gift Ideas That Last]
How to Invest Under 18, Step 2: You and Your Teen Must Select the Best Investments
The best investments for a teenager will include a combination of the most basic building blocks of any portfolio: individual stocks, mutual funds and exchange-traded funds (ETFs).
→ Invest in Individual Stocks
Investing in individual stocks (also called “equities”) is considered one of the best ways to generate growth from your savings—but this investment vehicle also comes with a high degree of risk.
When you buy a single company’s stock, you effectively get to share in that company’s successes—and its failures. If the company grows its profits over time, it’s likely that other people will buy the stock, driving up the worth of your shares. If the company struggles to generate profits, existing shareholders might decide to sell, reducing the value of your stock.
To reduce some of this risk, you’ll want to “diversify,” which means owning more than one investment.
“The best way to control risk is to own more than one stock,” says Steve Chappell, Global Head of Trading Systems Development at VectorVest. “You want to be more toward about 10 [stocks] as you can possibly get. The idea here is if you spread it out, you have more of a chance to get [a] high performer” while reducing your exposure to any single stock.
While there are numerous ways to classify stocks, the most basic breakdown is growth stocks vs. value stocks.
Related: Best Taxable Brokerage Accounts for Parents and Teens
Growth Stocks
Growth stocks are exactly what they sound like: They’re stocks belonging to companies expected to generate most of their returns from the growth of the company. Investors in growth stocks are most concerned with how the underlying companies plan to improve their revenues and profits over time.
Growth stocks can be risky because the companies aren’t always well-established. But they’re great for young investors, who have literally decades to make up for any mistakes, and thus tend to have a higher risk tolerance than older investors.
Related: Best Under-18 Investment Accounts [Invest as a Minor]
Value Stocks
Value stocks, on the other hand, are expected to generate much of their returns from what is effectively a reversion to the mean. (Think about a pendulum swinging back to the middle.)
The basic premise here is that from time to time, good companies’ stocks trade for less (sometimes far less) than conventional wisdom would say they’re worth. Value investors believe that even if the company doesn’t grow much at all, other investors will still see that the stock is undervalued, buy it and drive up the worth of their shares.
As famous investor Howard Marks succinctly concludes, “It’s not what you buy. It’s what you pay.”
Related: Best Trading Accounts for Minors
Dividends
That said, if you invest money in the stock market, price gains aren’t the only way you can grow your money. Some companies will pay you cash—called dividends—in regular intervals simply as a reward for continuing to hold their stock.
Dividends are an integral part of many investors’ portfolios. Consider this: Nearly 40% of the long-term performance of the S&P 500—a collection of the stocks of 500 companies that represent the American economy—comes from dividends. (The rest, of course, come from price gains.)
Thus, while teen investors might focus only on stocks that can grow in price, they might benefit from owning a few dividend-yielding stocks, too. (Want to know more? Check out our primer on the best dividend stocks.)
Related: Best Investment Accounts for Kids [Child Investment Plans]
→ Invest in Mutual Funds + Exchange-Traded Funds (ETFs)
One of the disadvantages of investing in individual stocks is that it’s extremely risky to put all of your money behind one or two companies. Individual stocks tend to be very volatile—meaning they can go up rapidly, but they can go down just as quickly.
That’s why almost every investment professional providing financial advice will tell you to “diversify,” or spread your risk around many stocks and other types of investments. And one of the easiest ways to do that is investing in a mutual fund or an exchange-traded fund (ETF).
Funds pool money from several investors and use that cash to buy a basket of investments. So, a fund might hold, say, 30, 300, or 3,000 stocks. Or it might hold bonds. Or it might hold a blend of these and other assets.
Let’s say you owned stock in a single company, and that company went bankrupt suddenly, and that stock went to zero. You would lose all of your investment. But if you only owned that stock (and hundreds of others) through a fund, you’d only lose a small fraction of the investment—in fact, the other stocks might perform so well that the impact of the bankruptcy would be entirely erased!
Mutual funds and ETFs do have a number of important differences, though. If you want to learn more about them, check out our primer on mutual funds for beginners, and our primer on ETFs for beginners.
Related: Best Investments for Teenagers
How to Start Investing as a Minor
If your kid starts investing as a teenager or even a child, they’ll have a significant advantage when they’re older thanks to compounding returns. In some cases, their money will have had 10, 20, or more years to grow than many of their friends and similar-aged relatives.
Jan Blakeley Holman, the Director of Advisor Education at Thornburg Investment Management, provides a simple example that helps explain the power of compounding:
“Assume you had a choice of working 35 days with a pay of $1,000 per day or working for a penny the first day and doubling that amount each day for 35 days. Which choice would you make?” she asks. “If you chose to receive $1,000 per day, you will have $35,000 at the end of 35 days. Not bad! If you chose the second choice, by the end of 35 days you would have received more than $340 million!.
“I know that sounds insane, but it’s not … Remember, the first day you have 1 penny, the second day you’ll receive 2 more, the third day you’ll receive 4 more, the fifth day you’ll receive 8 more, etc.”
I strongly recommend opening a free custodial account with E*Trade so your teen can take advantage of their long investment horizon. Consider talking to your teen about investing early by opening a custodial account today.
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