The Best Investments For Teens And How To Start
Learn how teens can start investing early with smart accounts, simple strategies, and money habits that build lifelong wealth.
Investing as a teenager can shape your entire financial future. Whether you are a teen ready to grow your own money, or a parent helping your child get started, the right investments can fund college, jump-start retirement, and build strong money habits that last a lifetime.
This guide walks through why investing early matters, the best investments for teens, and simple steps to begin—even with a small amount of money.
Why Start Investing For Your Teen
Starting early is one of the biggest advantages an investor can have. Teens have something most adults wish they had more of: time. With time, even small amounts of money can grow significantly through compound returns.
Here are the key reasons to help a teen start investing as soon as possible.
1. To Help Pay For College
The cost of higher education has risen far faster than inflation over the past several decades, and many families rely on loans to fill the gap. According to data from the U.S. Federal Reserve, Americans hold more than $1.7 trillion in student loan debt when including both federal and private loans. Investing early can help reduce the need for borrowing later.
By putting money into dedicated college savings or investment accounts during the teen years, families can:
- Build a fund specifically for tuition, fees, books, and living costs.
- Potentially reduce the amount of student debt needed to complete a degree.
- Give teens skin in the game so they understand the cost and value of their education.
Even modest, consistent contributions over several years can grow meaningfully when invested in diversified, low-cost funds rather than sitting in cash.
2. To Get A Head Start On Retirement
Retirement may feel distant to a teenager, but those early years are incredibly powerful for long-term growth. Research from the U.S. Securities and Exchange Commission (SEC) shows that compounding can dramatically increase wealth when investing begins earlier rather than later. For example, someone who invests in their teens or early 20s may need to save far less each month than someone who waits until their 30s or 40s to reach the same retirement target.
Key benefits of starting retirement investing in the teen years include:
- Decades of compounding: Investment gains themselves earn returns over time, snowballing growth.
- Lower monthly contribution needs: Starting early reduces the pressure to save large amounts later.
- Experience with market ups and downs: Teens learn how long-term investors stay the course through volatility.
A teen who invests regularly—even small amounts—can build a significant retirement nest egg simply by giving their money more time to grow.
3. To Teach Teens About Money
Investing is not just about dollars; it is also about education. Learning to invest as a teen builds critical financial skills. Studies summarized by the OECD show that financial literacy in adolescence is linked to better financial behaviors in adulthood, including saving, budgeting, and planning for the future.
Through real-life investing, teens can learn to:
- Understand the difference between saving and investing.
- Evaluate risk versus reward when choosing investments.
- Set long-term goals and follow through with consistent contributions.
- Manage emotions when markets rise and fall.
These lessons often stick more when teens are directly involved in the decisions rather than just hearing about money in theory.
How To Invest As A Teenager
Because minors usually cannot open standard brokerage accounts alone, teens often invest with the help of a parent or guardian. The good news: there are several flexible, teen-friendly account types and strategies to choose from.
Below are three main ways to start investing as a teenager:
- By investing in the stock market
- By starting a business
- By using a savings account strategically
Investing In The Stock Market
Investing in the stock market is one of the most common ways to grow wealth over time. Long-term historical data from major market indices shows that diversified stock portfolios have earned higher returns than cash or traditional savings over decades, despite short-term volatility.
Teens can participate in the market through specialized accounts that adults can open on their behalf.
Custodial Brokerage Accounts
A custodial brokerage account is an investment account that an adult (the custodian) opens for a minor. The adult manages the account, but the assets legally belong to the child. The account usually transfers fully to the teen at the age of majority, which varies by state.
Key features typically include:
- The custodian controls investment choices until the teen becomes an adult.
- The teen can invest in stocks, bonds, exchange-traded funds (ETFs), and mutual funds.
- Any income or gains may have tax implications, so families should be aware of rules such as the “kiddie tax.”
Custodial accounts give teens exposure to real investments while still providing adult oversight.
College Savings Plans (e.g., 529 Plans)
For education savings, many families consider 529 college savings plans. These are tax-advantaged accounts sponsored by states or educational institutions for qualified education expenses. The U.S. Securities and Exchange Commission notes that earnings in a 529 plan grow tax-deferred and may be tax-free when used for eligible education costs.
Common characteristics of 529 plans include:
- Tax advantages on investment growth when funds are used for qualified education expenses.
- Investment options such as age-based portfolios that become more conservative as college approaches.
- Ownership typically rests with a parent or other adult, with the teen designated as the beneficiary.
Because these accounts are designed for education, they are best suited to families with clear college or training goals.
Individual Retirement Accounts (IRAs) For Teens
An Individual Retirement Account (IRA) is a retirement account that offers tax advantages to individuals with earned income. The Internal Revenue Service (IRS) allows anyone with eligible earned income—regardless of age—to contribute, up to annual limits.
For teens, a Roth IRA is often especially attractive because contributions are made with after-tax dollars, and qualified withdrawals in retirement are tax-free.
Important points for a teen IRA:
- The teen must have earned income (from a job or legitimate self-employment).
- Annual contributions are limited to the lesser of the teen’s earned income or the IRS contribution limit for that year.
- A parent can help open a custodial IRA if the teen is still a minor.
Because of the long time horizon, a teen’s IRA can be invested primarily in diversified stock funds, with the goal of growth over several decades.
Choosing Investments Inside These Accounts
Once an account is open, the next step is deciding what to invest in. For most teens, a simple, diversified strategy works best.
| Investment Type | What It Is | Why It Suits Teens |
|---|---|---|
| Index Funds & ETFs | Funds that track a broad market index (e.g., total stock market) | Built-in diversification, usually low cost, simple to manage |
| Target-Date Funds | Funds that automatically adjust from stocks to bonds over time | Hands-off approach aligned with a target year (such as retirement) |
| Individual Stocks | Shares of specific companies | Educational for learning about business, but higher risk and less diversified |
Starting with broad, low-cost funds helps teens learn without over-concentrating in just a few companies.
By Starting A Business
Entrepreneurship is another powerful way for teens to invest—this time in themselves. A teen-run business can provide income to invest, teach practical skills, and sometimes even qualify as earned income for retirement account contributions, if it meets tax rules.
Why A Teen Business Is A Form Of Investment
Launching a small business requires time, energy, and sometimes money. In return, teens can gain:
- Real-world skills such as marketing, budgeting, customer service, and problem-solving.
- Income that can be saved, invested, or used for goals like college or a first car.
- Confidence from creating something of their own and learning to handle both success and setbacks.
Examples of teen businesses include tutoring, pet sitting, lawn care, content creation, or selling handmade products.
Connecting Business Income To Long-Term Investing
Business income can do more than fund short-term wants. Teens can choose to:
- Set aside a portion of each payment for investing in a custodial brokerage account or IRA.
- Build an emergency fund to stabilize their business and personal finances.
- Reinvest some profits into tools, education, or marketing to grow the business over time.
By treating their business income as a resource to grow wealth—not just to spend—teens learn opportunity cost and the value of long-term planning.
By Using A Savings Account
Investing does not always mean taking market risk. A strong foundation includes safe, liquid savings for short-term goals and emergencies. This is where savings accounts come in.
Why Savings Still Matter
Before investing heavily in the stock market, teens benefit from having basic savings in place. Many financial educators recommend building a small emergency cushion even for younger people, so unexpected costs or short-term goals do not require debt.
Benefits of using a savings account include:
- Safety: Deposits at federally insured banks and credit unions are protected up to legal limits.
- Liquidity: Money is easy to access without needing to sell investments.
- Goal clarity: Separate savings can be earmarked for a specific purpose, like a car or school trip.
High-Yield Savings Accounts
Not all savings accounts are the same. Online banks and some credit unions offer high-yield savings accounts with interest rates many times higher than traditional brick-and-mortar savings accounts. The Federal Deposit Insurance Corporation (FDIC) notes that comparing annual percentage yields (APY) is an effective way to identify higher-earning accounts.
For teens, a high-yield savings account can be a smart place to hold:
- Money needed in the next few years.
- Short-term savings goals (for example, a laptop or travel).
- A starter emergency fund.
This savings can work alongside long-term investment accounts, creating a balanced financial setup.
The Bottom Line On Investments For Teenagers
Teens and parents sometimes assume investing is only for adults with high incomes, but that is far from true. With the right accounts and guidance, teens can begin investing even with small amounts, laying the groundwork for major financial milestones.
Popular investment approaches for teens include:
- Custodial brokerage accounts for general stock market investing.
- 529 college savings plans to help cover education costs.
- Custodial IRAs for teens with earned income to jump-start retirement saving.
- Entrepreneurship as an investment in skills and income potential.
- High-yield savings accounts for near-term goals and financial safety.
Beyond the dollars, starting early teaches discipline, patience, and financial responsibility—skills that will benefit teens for their entire lives.
Frequently Asked Questions (FAQs)
Q: Can a teenager open an investment account alone?
A: In most cases, minors cannot open standard brokerage or retirement accounts entirely on their own. A parent or guardian usually opens a custodial account and manages it until the teen reaches the age of majority, at which point control typically transfers to the young adult.
Q: How much money does a teen need to start investing?
A: Many online brokers and investing apps allow low or no minimum balances, so teens can start with very small amounts. Even consistent contributions of $10–$25 at a time can be meaningful when invested regularly over many years.
Q: What is the safest investment for a teenager?
A: Safety depends on the goal and time horizon. For money needed soon, insured high-yield savings accounts are among the safest options. For long-term goals like retirement, diversified stock funds carry market risk but are generally considered appropriate for young investors with many years before they need the money.
Q: Does a teen need a job to open a Roth IRA?
A: Yes. To contribute to a Roth IRA, the teen must have eligible earned income from work, such as wages, tips, or self-employment income. The maximum contribution for the year cannot exceed the teen’s total earned income for that year or the IRS annual limit, whichever is lower.
Q: How should parents involve teens in investment decisions?
A: Parents can involve teens by showing statements, discussing goals together, and explaining how chosen investments work. Letting teens help pick diversified funds or research companies they know can make the experience engaging and educational, while parents still provide guardrails and oversight.
References
- Consumer Credit – G.19 — Board of Governors of the Federal Reserve System. 2024-05-07. https://www.federalreserve.gov/releases/g19/current/default.htm
- Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing — U.S. Securities and Exchange Commission. 2021-08-24. https://www.investor.gov/introduction-investing/investing-basics/importance-diversification
- PISA 2018 Results (Volume IV): Are Students Smart about Money? — Organisation for Economic Co-operation and Development (OECD). 2020-05-07. https://www.oecd.org/publications/pisa-2018-results-volume-iv-48ebd1ba-en.htm
- Historical Returns of Stocks, Bonds, and Bills — New York University Stern School of Business (Damodaran). 2024-01-05. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
- Investor Bulletin: 529 Plans — U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy. 2023-03-15. https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_529plans
- IRA Contribution Limits — Internal Revenue Service (IRS). 2024-11-01. https://www.irs.gov/retirement-plans/ira-deduction-limits
- Choosing and Using a Bank Account — Federal Deposit Insurance Corporation (FDIC). 2022-06-30. https://www.fdic.gov/resources/consumers/money-smart/banking/index.html
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