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
Open a Fidelity Youth™ Account for your teen, and Fidelity will drop $50 into their account. Get $100 for yourself when you open a new Fidelity account and fund with $50¹.
How Old Do You 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.
#1: 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.
Fidelity Youth™ Account ($50 bonus for teens, $100 bonus for parents)
- 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.
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.
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: 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
Start With Index Funds in an Acorns Early Account
- Available: Sign up here
- Price: Acorns Premium: $9/mo. (Required for custodial account)
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.
#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 $6,500 per year toward their retirement and invest in a tax-advantaged manner.
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|
|*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.
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.
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.
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
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.)
→ 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 an account with Fidelity so your teen can take advantage of their long investment horizon. Consider talking to your teen about investing early by opening a Fidelity Youth™ Account today.
- Best Debit Cards for Kids
- How to Invest $1,000 as a Teenager
- Best Investments for Kids
- Best Stock Trading Apps for Beginners
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