Investing as a teenager provides you with a significant financial advantage as you get older. You have more time than most investors to set aside funds for retirement and start investing, you can benefit more from compound interest, and you can even enjoy youth tax breaks.

Not to mention, learning how to invest as a teenager will give you valuable experience for later in life, when you can put larger sums to work.

Figuring out how to start investing as a minor can be difficult, but you can do it. But you will need help. Specifically, at the onset, you’ll need an adult you trust to help you set up and manage accounts.

Let’s take a look at how to invest as a teenager. This full primer will go over everything you’ll 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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How Old Do You Have to Be to Invest in Stocks?

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Before you consider signing up for one of the best stock apps on the market and funding your account, you’ll need to ask yourself, “How old do you have to be to invest in stocks?”

Well, 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, teenagers under 18 included in that group.

Yes, apps like Robinhood and Webull look like they were practically designed for teenagers trying to invest by themselves, you still can’t legally participate in the stock market on your own yet.

If you want to learn how to invest as a teenager or minor under the age of majority in your state, you should open a joint brokerage or custodial account through a number of the best investing apps for beginners.

Related: How Old Do You Have to Be to Invest in Stocks?

How to Invest Under 18: Investing as a Teenager

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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

A Popular Path to Wealth

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.

While there are numerous ways to classify stocks, the most basic breakdown is growth stocks vs. value stocks.

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.

The resulting growth is expected to compel other investors to buy the stock, driving up shares’ value.

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.”

Dividends

That said, if you invest 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, choosing to invest in dividend-yielding stocks as a teenager can become very lucrative long-term.

How much you will receive in dividends varies from stock to stock. Different stocks have different yields (a percentage that’s calculated by taking the company’s total annual dividends and dividing by the share price).

Companies pay in different intervals—monthly, quarterly, semi-annually or annually. And many companies will increase their dividends over time.

What you do with those dividends is up to you. Some people spend the income, other people take that income and buy different stocks, and still other people reinvest those dividends into the very same stocks.

You can use stock apps to trade individual stocks. But naturally, you’ll want to conduct research before trading, which you can do by reviewing the latest information on stock news apps and stock research sites.

Consider starting with these stocks for kids as well as reviewing the stock trading risks kids and their parents should understand.

→ Invest in Mutual Funds

The Power of Diversification

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.

A competitor might develop a superior product, or popular trends can pull people away from a company’s offering. And unless you happen to know the exact right time to sell your stock at the top (hint: nobody does), massive losses can erode your savings.

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.

Mutual funds pool many investors’ money to purchase a basket of investments. A mutual fund might provide you with exposure to the performance of 30, 300 or 3,000 stocks. Or it might invest you in bonds, real estate or other assets—or even a blend of stocks and these other assets.

Here’s the benefit: Let’s say a company represented by one of the stocks in the mutual fund’s portfolio goes bankrupt, and the stock goes to zero. If you had all of your money invested in that stock, you would lose all of your investment.

But by diversifying your risk across, say, hundreds of stocks in that mutual fund, you’re likely to only lose a small fraction of your investment—and in fact, the other stocks might perform so well that the impact of the bankruptcy is entirely erased!

Most mutual funds are “actively managed,” which means there is a single fund manager or a team of fund managers making investment decisions.

You can also benefit from the wisdom of expert fund managers. If you’re underage, you can have an adult open you an investment account for minors to buy shares in these investments.

When you open a joint brokerage account with a company like Fidelity^® (covered more below), you can invest in funds, as well as other types of investments.

→ Invest in ETFs

A Different Way to Diversify

Exchange-traded funds accomplish a similar goal as mutual funds: providing instant diversification. But they have a few differences.

For one, mutual funds cost the same no matter what time of the trading session you order them. Their prices only change once per weekday: after the close of regular trading hours.

However, exchange-traded funds, as the name suggests, trade on exchanges just like stocks, and so their prices change all throughout the day.

While many mutual funds have a number of share classes with varying annual expenses, sales fees and investment minimums, ETFs don’t—an ETF has the same expenses for everyone, no matter where you invest in it, and the investment minimum is the price of one share. (Or, if you use a micro-investing app that offers fractional share investing, you can buy for as little as one dollar!)

Also, the vast majority of ETFs tend to be index funds, which means that rather than being managed by an individual or a team of humans, the fund instead automatically tracks a rules-based index (like, say, the S&P 500 or Dow Jones Industrial Average) by investing in the stocks that make up that index.

Because there are no managers to pay, index funds tend to be cheaper than their actively managed counterparts—meaning you keep more of your returns. (Note: Indexed mutual funds exist, too, but as a rule, a much higher percentage of ETFs are indexed.)

One low-maintenance yet effective long-term investing strategy relies heavily on ETFs.

These help defray risk by providing instant diversification, charge lower annual fees on average than mutual funds, and they offer a wider array of strategies.

Also like stocks, ETFs can pay dividends, and you can compound both the fund returns and the income over the long haul—another great feature that makes them such a great investment option for teenagers.

(Tax tip: These dividends often count as qualified dividends, which generally are taxed at a lower rate than ordinary income!)

And remember: ETFs are typically every bit as “liquid” as stocks, meaning they’re very easy to sell when you’ve reached your predetermined savings goal.

(Another tax tip: If you sell ETFs—or stocks, mutual funds and other types of investment vehicles, for that matter—within a taxable brokerage account, you could be on the hook for capital gains taxes. Or, if you’ve had a bad year and are selling at a loss, you could actually save on your taxes!)

Types of Investing Accounts

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You’ll need to open an investment account to begin buying stocks and/or funds. Two types of accounts will involve you co-owning it with your parent or guardian, while the third is held in your name and allows you to invest tax-free for retirement.

Account Type #1: Jointly Owned Brokerage Account

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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 to open a joint brokerage account.

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

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• Available: Sign Up Here
• Price: No account fees, no account minimum, no trading commissions
• Promotion: Teens get $50 on Fidelity® when they open an 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—a brokerage account owned by teens 13 to 17 that’s designed to help them start their investing journey. They can use their own brokerage account to start their investing journey by trading most U.S. stocks, exchange-traded funds (ETFs), and Fidelity mutual funds in their accounts.

Your teen will also get a free debit card with no subscription fees, no account fees, no minimum balances, and no domestic ATM fees. And they can use this free debit card for teens⁴ to manage their cash and spend it whenever they need.

And as for building smart money habits? You and your teen can access Fidelity’s Dedicated Youth Learning Center, which is packed with materials developed specifically to help teens develop good financial habits.

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 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.

Related: Best Prepaid Debit Cards for Teens & Kids [Reloadable]

Account Type #2: Custodial Account

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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.

Importantly, custodial accounts can hold a variety of assets—stocks and bonds, sure, but also CDs, insurance contracts, even antiques and collectibles.

The money in these accounts is controlled by a custodian, typically a parent. The teen or child doesn’t have access to the funds until he or she reaches that state’s age of majority. Depending on the state, that age might be 18, 21 or even 25.

Custodial accounts allow custodians to control assets for the benefit of the minor without the need for setting up a special trust fund, which has its own advantages but is a far more complicated process.

Whereas assets in a joint brokerage account are co-owned by the child and the custodian, assets in custodial accounts irrevocably belong to the minor.

However, the listed custodian can complete transactions on the minor’s behalf until they are of legal age to take over the account and its investments as a young adult.

You can use money from the account for any purpose that benefits the child.

Start With Index Funds in an Acorns Early Account

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• Available: Sign up here
• Price: $5/month for Acorns Family (Custodial Account)

If you’re beginning your investing journey and wish to start by following a buy-and-hold strategy, consider investing in index funds.

You can diversify across several types of assets (stocks, bonds and even commodities such as gold and oil) to help smooth out your returns over time.

You can hold index funds in numerous types of investment accounts. Beginning with a micro saving app like Acorns Early, considered one of the best investing apps for minors and young adults, might be a good way to start.

The all-in-one personal finance app helps you to develop sound financial habits and grow your wealth over time.

The full product suite combines Acorns Early (a custodial investment account for minors) with an Acorns Spend bank account and a linked debit card for kids and teens that provides the signature “Round-Ups®” feature.

Upon signing up, the service even offers $10 in free bonus shares worth of value.

Learn more in our Acorns review.

Related: Top Stock Trading Apps for Beginners to Consider

Account Type #3: Custodial Roth IRA

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Have you worked a summer job? Done some babysitting? Tutored some classmates for pay? If so, you’ve got what the IRS considers “earned income.”

That means you can contribute the lesser of your earned income or $6,000 per year toward your retirement and invest in a tax-advantaged manner.

Of course, you probably don’t have access to a workplace retirement account. That means you can really only 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.

Since you’re young (and likely don’t earn all that much), you probably pay very little in taxes, or you might not pay taxes at all. As a result, you’d want to lock in the low tax rates you pay now by making after-tax retirement account contributions to a Roth 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:

Let’s say you save up $5,000 by age 18, keep it in the stock market and never add another cent. That nest egg could still blossom into almost $450,000 by the time you retire.

Now let’s say you’re really aggressive and save $25,000 by the time you’re 18, then contribute the maximum each year until retirement–you would quit your job with $8.4 million in the bank!

Sure, it’s difficult to think about retirement when you’re in your teens. But think about it this way: Wouldn’t you love to spend your older years living comfortably while doing nothing?

Wouldn’t you like to work fewer years than most other people? Saving early, and saving a lot, can help you do that.

One note about a custodial Roth IRA and how it compares to a normal Roth IRA: You have to involve a parent or other adult to oversee the account as a custodian. Otherwise, they work exactly the same as any other Roth IRA.

Why Teenagers Should Also Consider Having a High-Yield Savings Account

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While savings accounts aren’t as exciting (and usually not as lucrative) as other types of investments, there are advantages to opening one.

If you’re new to managing money, savings accounts are a useful way to start experiencing the benefits of compound interest and practicing restraint from spending money.

Plus, once you open a high-yield savings account, all you have to do to start making profits is leave the money alone. No picking the right stock or fund necessary!

With a high-yield savings account, you can have joint ownership as a teenager, as opposed to a custodial account where you can’t access funds until you reach the age of majority.

A high-yield savings account will, as the name suggests, earn you more money than a standard savings account. The average interest rate for savings accounts hovers around 0.09% APY. However, some high-yield savings accounts can more than double that rate. And they can generate even more income over time when benchmark interest rates start heading higher, as they began to in 2022.

When choosing a high-yield savings account, in addition to the interest rate, take into consideration any required fees and the minimum balance amount.

A product acting as a high-yield savings account you might consider with attractive interest rates comes from Greenlight Max.

Related: 19 High-Yield Investments [Safe Options Right Now]

Are Micro Investing Apps Worth It?

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A recent trend among younger generations is the use of “micro-investing” apps. Acorns is one example.

These can be a fun, gentle way to start investing. Many of these financial apps for teens and young adults automatically round up the cost of your purchases to the nearest dollar. The rounded-up amount is then automatically invested.

If you buy a drink for $4.25, for example, then the app would set aside 75 cents and invest it according to your selections.

Sure, each contribution is less than a dollar. However, if you regularly make purchases with your linked card, this pocket change will add up over time. That will help you build a nest egg with virtually no work needed on your end.

Think of these apps as advanced piggy banks, or banking apps for kids and teens. Where they outperform a piggy bank, however, is that the money doesn’t just sit there and lose value over time—it can be invested in assets that appreciate in value.

Some money apps will allow you to set specific rules. For instance, you might set a rule that every time you get fast food from your favorite restaurant, your app contributes an extra dollar to your investments. Most apps will also let you set regular or one-time contributions.

In addition to these apps’ simplicity, they are great for teens because time is on your side. Your funds have time to add up, and you have a long, long time for your funds to rebound from any short-term declines.

Related: 9 Best Fractional Share Brokerages to Buy Partial Stocks & ETFs

How to Start Investing as a Minor

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If you can start investing while you’re a minor or teenager, you’ll have a significant advantage when you’re older thanks to compounding returns. In some cases, your money will have had 10, 20 or more years to grow than many of your friends and similar-aged relatives.

Consider enrolling in a personal finance app like Fidelity—one of the better investing apps for kids—to leverage its bank account, retirement investing and after-tax investing options.

Borrowing on the theme of compounding interest, if you choose to invest just $5 a day from the day you turn 13 on the Fidelity platform, you could have $11,533 by the time you turn 18. (This calculation assumes an average annual return of 9%.)

Even better, if you choose to keep investing in the stock market with those funds until retirement (age 68), even without contributing another dime, you could still end up with more than $1 million.

If you continue contributing $5 per day from age 18 to 68? Assuming the same 9% average annual return, that nest egg would be worth a whopping $2,850,578!

And if you could somehow increase that amount to $10 per day under the same assumptions, that investment balance would hit $4,660,487!

Consider talking to your parents about starting to invest by opening your Fidelity® Youth Account today.

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.

¹ Limited Time Offer. Terms Apply. This offer is valid for new or existing Fidelity Brokerage Services LLC (“Fidelity’) customers who open through the following link https://www.fidelity.com/go/starter-pack and fund a new, eligible Fidelity account with a minimum of $50 on or after 07/20/2022 and have not otherwise previously taken advantage of Fidelity’s $50 for $100 cash offer. Offer is limited to one bonus award per individual.

² 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.

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 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.

⁵ 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