Invest as a teenager

How to Invest as a Teenager

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If you’re looking for ways to invest as a teenager, there are plenty of options out there. Investing is one of the best ways for teens to save and grow money

When you’re young, you might think that investing is only for adults. However, there are several different types of investments that are perfect for teenagers who want to start saving for their future.

From saving money into high yield savings accounts to investing in the stock market, you can invest as a teen for a secure financial future. In fact, investing before you reach the age of majority (that’s 18 years old) might even lead to financial independence and early retirement.

In this article, you’ll learn how to invest and the best custodial accounts for stock investing.

How Old to Invest as a Teenager

The best age to start investing is when you’re younger because you have a longer time horizon. However, it’s never too late to start. If you’re a teen looking to invest in the stock market, you benefit from seeing how your investments over time grow. The early investing experience you gain can help you when you’re well into your career and making more money.

Can you start investing at 16 years old? Yes, you can but you’ll need a custodial brokerage account. This type of account must be established by a parent or guardian under the child’s name and information. Parents and guardians can gift money into the custodial account. Once it’s funded you can start investing the money.

Keep in mind, that as a minor, your parents maintain management over the account and must make trades for you. But, you now have the ability to be part of the investment decisions, access the tools, and create your own asset allocation. 

How to Invest with a Custodial Account

There are several different types of investments, such as stocks, bonds, mutual funds, real estate, and commodities. The first step is to open up a brokerage account, which allows you to trade stocks and other securities.

If invest as a teenager with a brokerage account, you need to be at least 18 years old. However, if you are under 18 years old, you may still have a brokerage account that your parent or guardian opens for you.

What is a custodial brokerage account?

Custodial brokerage accounts like traditional brokerage accounts allow you to invest in individual stocks, mutual funds, exchange-traded funds (ETFs), bonds, and other securities. The money in either can be used for any reason such as buying a car, education, down payments, or for any other purpose.

Ask your parents or guardians about investing and share this article. Then, read our list of the best custodial accounts with low fees, no minimum investment requirements, and teen-focused educational resources.

Why is it Important to Invest as a Teen?

Consider these scenarios:

A 16-year-old invests $150 per month into a brokerage account with a 10% annual return. At age 60, through compound growth, you’ll have about $1.2 million in your brokerage account.

A 35-year-old starts investing $150 per month into a brokerage account with a 10% annual return. At age 60, you’ll have less than $180,000.

How to Invest as a Teenager

Once you have opened an investment account, you need to choose what type of investment you want to do.

1. Buy Stocks 

Investing doesn’t have to be complicated. Start researching the companies you use and enjoy. For example, you binge Netflix. With many brokerage firms, you can invest in fractional shares of stocks. With fractional shares, you can own companies you enjoy without needed to afford the entire share price. You can certainly invest your way into owning an entire share.

Through stocks, you earn money by selling an appreciated stock known as capital gains or earn money through dividends (share of the companies profits)

One of the best brokerages to buy and sell stocks as a teen is Stockpile.

2. Invest in Low-Cost Index Funds

Low-cost index funds are funds that invest in a basket of stocks that track an index such as the S&P 500. The goal of these funds is to provide exposure to the market without incurring high fees. They are also known as passive funds.

M1 Finance is a good option with no minimum balance. Read our M1 review.

3. Use a Robo-advisor

Robo-advisors can help you invest without having to pick stocks or funds. With Robo-advisors, you get access to proprietary algorithms that create an investment mix for your age, risk tolerance, and investment goals.

One of the best Robo-advisor platforms for teens is Stash Invest.

4. Save with Micro-Investing 

Micro-investing apps allow users to invest small amounts of money into different stocks, commodities, bonds, ETFs, and other financial instruments. These apps also provide real-time investment advice, and they can be used from anywhere, at any time. The best part about these apps is that they are free, and they don’t require any minimum deposit.

Acorns Early is a go-to micro-investing app for teens. It helps you save by rounding up purchases and investing the difference. You can also automate investments on a schedule.

5. Invest in Roth IRAs

If you have a part-time job or working a summer job, you can open a Roth IRA through a brokerage account. The benefit of using Roth IRAs as a teen is the length of time you’ll give your contributions to grow. There are also tax-deferred benefits that can support your retirement plan.

Saving vs Investing as a Teenager

It’s important to know the difference between saving and investing. Saving is for storing money and investing is for growing money. Investing is important and the sooner you start the longer the time horizon to allow your investments to grow. 

As a teen, you’re probably thinking about major purchases in the short-term like a car. In that instance, you’ll need accessible cash. So, you’ll want to save money for these goals along with investing money for financial freedom.

For your savings, use high-yield savings accounts (HYSA). You can find higher interest-paying accounts with credit unions or online banks

Additionally, saving money on certificates (CDs) is another way to have your savings earn more without the market risks. Either way, it’s important to save and invest as a teenager.

Learn About Stock Trading

Many brokerages offer paper trading. With paper trading, you can practice buying and selling stocks using fake money. This is a great way to learn how stock trading works without losing your money. It may also help you understand the importance of understanding risk and return.

A great resources for teens to learn more about investing is Investor.gov.

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