- \n
- Jointly-owned brokerage account: Fidelity Youth Account<\/a><\/li>\n\n\n\n
- Custodial account: Acorns Early<\/a><\/li>\n\n\n\n
- Custodial Roth IRA: Fidelity Roth IRA for Kids<\/a><\/li>\n<\/ul>\n\n\n\n
Investing for Teens: The Benefits<\/strong><\/h2>\n\n\n\n
A big reason to learn how to start investing as a teenager? To take advantage of the magic and money-growing power of compound interest.<\/p>\n\n\n\n
Compound interest means that interest is calculated and added to the account at regular intervals, which means that your teen will also be earning interest on the interest. Over time, this leads to an exponential growth curve:<\/p>\n\n\n
\n![\"Investing](\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/investing-for-teens-compound-interest.png\")
<\/figure><\/div>\n\n\nSee the curve? <\/p>\n\n\n\n
This graph shows what would happen if a 15-year-old invested $100 each month in a brokerage account with a 10% return (roughly the historical average of stock market returns<\/a>). <\/p>\n\n\n\n
If your teen invests $100 a month between now and when they turn 65, their returns will be turbo-charged over time, reaching over $1.7 million by the time they\u2019re ready to retire.<\/p>\n\n\n\n
If you look closely, you can see that the interest starts to outstrip the contributions between the 10- and 20-year mark. Given enough time, your money makes more money than you do.<\/p>\n\n\n\n
Time is the key ingredient, though. See what happens if your child waits until they\u2019re 35 to make the same investment:<\/p>\n\n\n
\n![\"Investing](\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/investing-at-35-compound-interest.png\")
<\/figure><\/div>\n\n\nWith only 30 years to grow instead of 50, the final value is far less. At only about $228,000, your young investor has missed out on nearly $1.5 million dollars. <\/p>\n\n\n\n
Learning how to invest as a teenager definitely has its advantages. <\/p>\n\n\n\n
Plus, learning how to invest under 18 also gives your teen a jump-start on important financial life lessons. <\/p>\n\n\n\n
With their own skin in the game \u2014 whether it\u2019s babysitting money, allowance, or birthday gifts from grandma \u2014 they\u2019ll have the incentive to pay attention to their money and develop a deeper understanding of all the financial tools they\u2019ll come across as adults.<\/p>\n\n\n\n
Teens who start investing early will also get a real-world education on the value of saving money for the future, and they\u2019ll be encouraged by seeing positive results. There\u2019s nothing quite like watching your nest egg grow to give you the incentive to keep on saving.<\/p>\n\n\n\n
Best Investments for Teens <\/strong><\/h2>\n\n\n\n
Gone are the days of starting your teen investor on a passbook savings account at the local bank. <\/p>\n\n\n\n
With interest rates hovering around one-tenth of one percent, they would only ever earn a penny of interest at a time \u2014 hardly the type of returns that will get them hooked on the value of saving and investing.<\/p>\n\n\n\n
At that rate, why not just spend it on DoorDash or the new Steam game?<\/p>\n\n\n\n
Smart investing for teens should provide real returns while offering easy online access and low barriers to entry. Here\u2019s how to start investing as a teenager: <\/p>\n\n\n\n
Stocks<\/strong><\/h4>\n\n\n\n
Stocks are ownership stakes in a company. When you buy a stock, you own a small slice of that company, which entitles you to share in their profits.<\/p>\n\n\n\n
When the company does well, it may pay dividends to the stockholder. You can also make money from stocks by selling them for a profit when their value rises.<\/p>\n\n\n\n
Why it\u2019s a good investment for teens: <\/strong>Choosing a few individual stocks to invest in helps teens better understand important economic concepts. <\/p>\n\n\n\n
They\u2019ll learn to follow the economic news as they watch their stock prices rise and fall, and they\u2019ll see first-hand how a company\u2019s failures and successes affect its value.<\/p>\n\n\n\n
Individual stocks are a great way to keep investing for teens simple and focused.<\/p>\n\n\n\n
How Old Do You Have to Be to Invest in Stocks?<\/strong><\/p>\n\n\n\n
You need to be 18 to invest in stocks on your own. However, with a joint account or one of the other options below, teens can work with an adult to make investment decisions. <\/p>\n\n\n
\n![\"Girl](\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/girl-learning-how-to-invest-under-18.png\")
<\/figure><\/div>\n\n\nFunds (Mutual Funds, ETFs)<\/strong><\/h4>\n\n\n\n
Funds are groups of stocks or other investments selected by a fund manager to achieve a specific result. <\/p>\n\n\n\n
- \n
- Mutual funds <\/strong>take investors\u2019 money and pool it together to purchase shares of individual stocks, and are easy to buy into at any dollar amount you wish. <\/li>\n\n\n\n
- Exchange-traded funds (ETFs) <\/strong>also pool investor resources, but are broken into shares and traded like individual stocks. Funds can be either actively managed to try to beat the market or passively managed, which means they aim to match the results of various stock indexes like the S&P 500 or the NASDAQ.<\/li>\n<\/ul>\n\n\n\n
Why it\u2019s a good investment for teens: <\/strong>Investing in a mutual fund or ETF provides greater diversity for your teen\u2019s investment. <\/p>\n\n\n\n
If one stock drops in value, others may rise, which may provide more stability and reduce risk. Investing in mutual funds and ETFs early in life will also prepare your teen to manage their future 401(k), as these are by far the most common assets included in employer-sponsored plans. <\/p>\n\n\n\n
High-Yield Savings Account <\/strong><\/h4>\n\n\n\n
A high-yield savings account is like a savings account on rocket fuel. These accounts generally offer interest rates that are 10 or 20 times higher than the rates offered by brick-and-mortar banks. <\/p>\n\n\n\n
While the interest rates tend to be lower than the possible returns on stocks and investment funds, they provide guaranteed returns, and you won\u2019t lose your principal. Bank accounts are also FDIC-insured, meaning that up to $250,000, your investment is protected in the event of a bank failure. <\/p>\n\n\n\n
Why it\u2019s a good investment for teens: <\/strong>High-yield savings accounts are ideal for saving money for a specific purpose, such as college or a car, since there\u2019s no risk to the initial investment. It\u2019s also highly liquid, meaning it\u2019s easy to access the money when needed. <\/p>\n\n\n\n
High-yield savings accounts are a great way to introduce your teen to the concept of an emergency fund, since they\u2019re a safe investment that\u2019s easy to access in a pinch.<\/p>\n\n\n\n
They can also be used to explore the concept of diversification and risk when used in tandem with stock and mutual fund investments.<\/p>\n\n\n\n
Investing Accounts for Teens<\/strong><\/h2>\n\n\n\n
As noted above, if your teen is under 18, they will need to have adult supervision to invest. And this makes sense \u2014 teaching your child how to invest as a teenager means talking them through their investment options and monitoring their investments to avoid any costly errors. <\/p>\n\n\n\n
Here are some account options that will allow your teen to invest their money while providing you with all the necessary oversight while they\u2019re still a minor.<\/p>\n\n\n\n
Account Type 1: Jointly-Owned Brokerage Account <\/strong><\/h4>\n\n\n\n
A jointly-owned brokerage account is an investment account owned by two or more people. <\/p>\n\n\n\n
All of the assets in the brokerage account are owned equally by the people named on the account. You can open a joint brokerage account and name your teen as a co-owner to allow them access to stock investments, then remove yourself as an owner when they reach legal adulthood.<\/p>\n\n\n\n
Jointly-Owned Brokerage Account Example: Fidelity Youth Account <\/strong><\/p>\n\n\n\n
The Fidelity Youth Account<\/a> is an example of a jointly-owned brokerage account for teens. This account puts teens in the driver\u2019s seat by allowing them to invest in stocks and mutual funds for as little as a dollar to start.<\/p>\n\n\n\n
It features access to a special financial curriculum for teens to provide in-depth education on investing. <\/p>\n\n\n
\n![\"Literacy](\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/literacy-teens.png\")
<\/figure><\/div>\n\n\nAs they add money and make investment decisions, you\u2019ll be able to monitor their progress through your own app. <\/p>\n\n\n\n
The account also comes with a debit card and has no monthly maintenance fees. When your teen turns 18, the account is automatically upgraded to an individual brokerage account that they will manage on their own. <\/p>\n\n\n\n
Account Type 2: Custodial Account<\/strong><\/h4>\n\n\n\n
A custodial account is an account that is controlled by an adult on behalf of a minor. While the minor is underage, the adult makes all the decisions regarding the money in the account. <\/p>\n\n\n\n
The minor is the named beneficiary of the account until they turn 18 or 21, depending on the rules in your state.<\/p>\n\n\n\n
At that point, the account is automatically transferred to the child\u2019s name and they own it completely. A custodial account can be a standard savings account or a brokerage account for investing.<\/p>\n\n\n\n
Custodial Account Example: Acorns Early<\/strong><\/p>\n\n\n\n
- Exchange-traded funds (ETFs) <\/strong>also pool investor resources, but are broken into shares and traded like individual stocks. Funds can be either actively managed to try to beat the market or passively managed, which means they aim to match the results of various stock indexes like the S&P 500 or the NASDAQ.<\/li>\n<\/ul>\n\n\n\n
- Custodial account: Acorns Early<\/a><\/li>\n\n\n\n
![\"Acorns](\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/Acorns_Logo.png\"){kind=logo}
<\/a><\/figure><\/div>\n\n\n![\"Acorns](\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/Acorns-Early-custodial-account.png\")
<\/a><\/figure><\/div>\n\n\n