The best investments for teenagers are the investments that help them reach their goals. No one is too young to invest; the more money they invest at a young age, the more time their money has to grow.
But what are the best ways for teens to invest? I’ve listed all the best investments for teens below.
What Are the Best Investments for Teenagers?
Like adults, teens will have different ideas of the best investments for teenagers. Some teens have a higher risk tolerance than others, and some have more expensive financial goals.
For example, a teen intending to attend an expensive college may need to invest more aggressively than a teen saving for a car or house after graduation to cover the high cost of college and/or avoid student loans.
8 Best Investments for Teenagers
Here are the best investment apps for teens to start their investing journey today:
- Fidelity Youth Account
- M1 Finance Account
- Acorns Early Account
- Axos Bank
- Stockpile Account
- Ally Invest Account
1. Fidelity Youth Account
A Fidelity Youth account is for teens ages 13 to 17. It’s best for teens ready to invest themselves, as it’s a teen-owned brokerage account, not a custodial account.
However, to qualify, parents must have a Fidelity brokerage account.
Teens can spend, save, and invest with the Fidelity Youth account, which includes an ATM card for easy access to their funds.
There’s no monthly fee and no minimum balance to open an account. Teens can invest with as little as $1 by buying fractional shares, and parents have complete oversight of their teen’s transactions and how they handle their investments.
2. M1 Finance Account
M1 is another brokerage with which teens can have an investment account if their parents have one. Parents must have an M1 Plus account for their children to be eligible for an M1 custodial account, which is a cash account for investing.
With an M1 custodial account, parents control the account and can gift money to it, as it will be either a UGMA or UTMA account. Parents invest on behalf of the teens until they reach maturity age, which is between 18 and 25, depending on the state they live in.
When your teen reaches maturity, they can use the funds however they want, and they take control of the account at that point.
3. Acorns Early Account
Acorns Early is also a UGMA/UTMA account that parents can open if they subscribe to the Acorns Family account.
It takes only $5 to open an account, and you can set up recurring deposits or manually transfer funds to your child’s account. Parents can have an Acorns Early account for every child, and when they reach maturity, parents can transfer the funds to their grown child’s Acorns Invest account.
Parents can also set up direct deposit from their Acorns checking account to each child’s Acorns Early account, and family or friends can contribute to the account if you share the link. All money transferred to a UGMA/UTMA account is irreversible, so consider your gift before giving them.
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A Vanguard custodial account is a UGMA/UGTA account for parents and other relatives to gift money and assets to teens. A Vanguard custodial account offers various investments, including stocks, bonds, ETFs, and Vanguard and non-Vanguard mutual funds.
Parents run the account until the teen reaches maturity age, at which point they can do what they want with the account.
Vanguard doesn’t charge advisory fees if you open a self-directed account; however, a fee will apply if you use Vanguard’s robo-advisor service to manage the account.
5. Axos Bank
Axos Bank offers a great teen checking account to give your kids their first taste of financial responsibility. While it’s not technically an investment, the Axos Bank First Checking Account pays interest of 0.25%, which is unusual for checking accounts and a great way for teens to learn to manage money while earning interest.
The account is for teens ages 13 to 17, and there aren’t any monthly maintenance or overdraft fees to worry about.
The account also offers a few safeguards, including a $100 cash limit and a $500 debit card limit per day. In addition, if teens use an ATM outside the Axos Bank network, they can also get reimbursed up to $12 per month for the charges.
6. Stockpile Account
Stockpile is an investment app that kids and parents use together. So kids are in control, but parents have the final say. This allows teens to learn hands-on how to invest in stocks and ETFs.
Kids have a separate log-in from their parents and can create their own portfolios. Before the trades happen, though, parents must log in and approve the trades.
Teens can enjoy investing in stocks, ETFs, and crypto and have the option to invest in fractional shares.
A Stockpile membership costs $4.99 monthly and includes one adult membership and up to 5 kids accounts. Kids have over 4,000 investments to choose from, and friends or family can buy gift cards to Stockpile for kids to invest their gifts too.
7. Ally Invest Account
Ally Invest offers custodial accounts that parents can open for their kids. Similar to investing apps for teens, parents can buy stocks for their children until they reach maturity. Then, once your child is 18 to 21, depending on your state, they take over the account and can handle the funds how they see fit.
Parents can choose a self-directed or robo-advisor option depending in they want a hands-on or hands-off approach. As your child ages, you can change the risk tolerance, timeline, and financial goals, especially if your child’s plans change.
E*TRADE offers a custodial account for parents to control until teens come of age. Parents or other adults can own and manage the account until that time. There aren’t any contribution limitations and no commission fees for trades.
All contributions parents make are tax-free up to $16,000, and the first $1,150 is tax-free, with the remaining funds subject to the kiddie tax. In addition, parents can invest in stocks, options, and ETFs and help plan for their teen’s financial future.
Types of Investments for Teenagers
Teens have various investment options ranging from conservative to aggressive. Here’s what to consider.
1. Savings Accounts
Savings accounts are a conservative way to invest for teens. Parents or teens can own the accounts either as a custodial account that transfers to the teen upon maturity or as a joint account where both parties are equal owners.
High Yield Savings Accounts
Many online banks offer high-yield savings accounts with interest rates as much as 15x the national average. They typically don’t charge monthly maintenance fees, but some may have minimum required balances for you to earn the highest APYs.
Most HYSAs are online only, so you or your teen must be comfortable banking electronically, but the absence of fees and the higher APYs paid make up for it.
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529 College Savings Accounts
College savings accounts or 529 accounts are tax-advantaged and meant only for college savings. Parents, relatives, and friends can contribute funds before taxes, and the funds grow tax-free in the account.
The withdrawals are tax-free as long as your child uses the funds for allowed educational expenses (they can also be used for K – 12 expenses). Most 529 portfolios invest aggressively when the children are young.
Still, as they enter the teen years, the investments get more conservative to ensure your teen has the necessary funds for college.
2. Certificates of Deposit (CDs)
CDs aren’t necessarily an investment, but they earn interest that helps teens’ money grow. CDs run in terms of three months to five years. The longer the CD term, the more interest they’ll earn. Teens should only choose CDs when they know they can keep the money tied up for the investment duration.
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3. Custodial Accounts
Custodial accounts are accounts owned by parents or guardians and then transferred to the teen at age 18 (or 21 in some states). Parents make most decisions on the account, but it is for the child’s benefit.
Roth IRAs are a common custodial account option that lets parents help their teen save for retirement. Of course, your teen must earn some income to qualify, but even babysitting income counts.
Parents make after-tax contributions, and the contributions and earnings grow tax-free. If teens leave the funds in the account until age 59 ½ or later, they can withdraw them tax-free.
However, teens can withdraw contributions before age 59 ½ and not pay taxes, but any earnings withdrawn before retirement will incur a tax liability.
Uniform Transfers to Minors Account or Uniform Gifts to Minor Account (UTMA / UGMA)
UGMA and UTMA accounts are another form of custodial accounts. Parents or guardians own the account but transfer it to the child upon maturity.
The difference between UGMA and UTMA is that teens can have real estate assets in a UTMA, but a UGMA is strictly for cash, stocks, bonds, mutual funds, and ETFs.
Funds are a great way for teens to start investing without taking the high-risk stocks create. In addition, funds are diversified with various investments, giving teens a taste of what it’s like to invest with a much lower commission rate than stocks.
An index fund is a mutual fund or ETF that tracks a specific index, such as the S&P 500. The fund will contain all assets within the index to replicate its returns. Because they aren’t actively managed, index funds have lower fees and work best as a long-term investment.
Mutual funds are an investment company that invests in various investments by pooling funds from many investors. When you buy a share of a mutual fund, you buy a share of the investment portfolio. As a result, teens earn a percentage of the funds’ returns based on their investment.
Exchange Trade Funds
Exchange-traded funds are like mutual funds; they pool funds from multiple investors to purchase various assets. However, ETFs often track a specific index; unlike mutual funds, investors can trade them throughout the trading day. In addition, most ETFs are passively managed, which means they mimic an index and aren’t actively traded. This helps keep the fees low too.
Teens with a higher risk tolerance may consider investing in stocks. Diversifying a portfolio of stocks is best to offset the risk of a loss. Teen investors can invest in many types of stocks, including the following.
Individual stocks are basic stocks or ownership of a company. Teens can invest in companies they believe in or want to be a part of based on their interests or passions. Teens can hold onto the stocks as long as they want, and when they sell them, they earn either capital gains (profit) or a loss.
Growth stocks are investments in companies anticipated to grow significantly. These companies typically grow faster than the average growth of a stock and provide greater returns when they perform well.
Value stocks are stocks valued lower than their fundamentals indicate. It’s a tougher concept for teens, but if they can grasp the concept of buying a value stock in the hopes that it will return to reaching its potential, they can earn a decent return.
Dividend stocks are from long-standing companies with a profitable history. Dividend stocks typically pay shareholders quarterly or semi-annual dividends. This is in addition to the capital gains (or losses) the stock price earns investors.
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Bonds, especially government bonds, are a conservative investment for teens. They pay a fixed interest rate and are good for up to 30 years. So the longer teens leave their money invested in bonds, the more interest they earn.
Most teens, however, cash in the bonds for something more aggressive as they get older and have bigger financial goals.
7. Micro-Savings Apps
Micro-saving apps, like Acorns, are a great way to save even a teen’s spare change.
Unfortunately, not all teens have enough money to invest, or they want to do something themselves that makes them feel empowered rather than mom and dad investing for them. Apps like Acorns round up purchases made with a linked debit or credit card to the nearest dollar.
Then, the app sweeps the spare change into a separate account and invests it when the balance is at least $5.
8. Invest in Businesses
Teens aren’t too young to invest in businesses, especially when it’s their business. For example, teens can start a lawn mowing, babysitting, website building, or collectible selling business.
Teens should invest money in a business they know they can successfully run and that will provide a return on their investment. It’s not a good idea for teens to invest in other people’s businesses, and they should use caution if starting a business with someone else.
Teenagers Can Build Long-Term and Short-Term Goals
When teens invest, they should consider short and long-term goals. Short-term goals are anything they want to accomplish in the next year or two. For example, if they want to buy a car, they can invest for the down payment or buy a car in cash.
Long-term goals are anything they want to accomplish three or more years in the future. They could save for things like college, buying a house, or even retirement. It’s never too early to save for long-term investments, even if they won’t occur for the next 30 to 50 years.
Diversifying Your Accounts as a Teenager
The one thing that’s most important when considering the best investments for teens is to diversify their portfolios. Aggressive portfolios, especially, should be diversified with some conservative investments.
In addition, even moderately aggressive portfolios should include conservative investments or at least investments in different industries or markets to offset a total loss.
For example, if teens invest in technology stocks, they should also put some money in stocks in other industries, as well as bonds, real estate, or even an online high-yield savings account.
Frequently Asked Questions
The best investments for teens work with their risk tolerance and financial goals. Here are a few other key questions I hear about investing as a teen.
How Much Should Someone Invest as a Teenager?
There isn’t a specific amount a teen should invest. Like adults, teens should only invest what they can afford to risk based on their financial goals. Of course, the more they can invest, the easier it is to reach their goals, but there isn’t a minimum or maximum amount.
How Do You Invest if You Are Under 18?
Most accounts require parental permission to handle the investment accounts. So teens can’t own the accounts themselves, but their parents can own the accounts for them, with the account passed down to teens when they are 18 (21 in some states).
How Do You Invest in Real Estate as a Teenager?
Teens can invest in real estate by buying real estate stocks, ETFs, or investing in real estate investment trusts. REITs are shares of a real estate company that buys, manages, and sells real estate. Teens can own shares in the company and receive some profits.
Can Teens Invest in Retirement Funds?
Teens can open a custodial Roth IRA or traditional IRA. Both accounts require teens to earn an income, and they (or the parents) can contribute up to the amount the teen earns, or $6,000 in 2022 and $6,500 in 2023, whichever is less.