The question teenagers don't know to ask
Most teenagers who've heard about investing think it's something that happens later — after college, after a real job, after you've figured everything else out. That assumption costs them years of compounding that they'll never get back.
The question worth asking isn't "when should I start investing?" The answer to that is always "now, with whatever amount you have." The real question is: how?
Here's exactly how a teenager starts.
Step 1: Make sure the foundation is there first
Investing before you have a savings cushion is putting the roof on before the walls. Before putting money into investments, check that you have:
- A small emergency fund ($300–$500)
- No high-interest debt (credit card balances, high-rate loans)
If both of those boxes are checked — or if you're a teenager without debt and with even modest savings — you're ready to start investing.
Step 2: Choose the right account
The account type determines your tax situation more than anything else. For teenagers, there are two main options:
Custodial Roth IRA (if you have earned income): This is the best option for teenagers who have any income from a job or self-employment. A Roth IRA grows tax-free, meaning you pay no taxes on the investment gains — ever, as long as you follow the rules. A parent opens it as a custodial account and manages it until you're 18.
Eligibility: You must have earned income. The contribution limit is the lesser of your earned income or $7,000 per year (2026 limit).
Custodial brokerage account (no earned income required): A parent can open a custodial brokerage account for any minor, without requiring earned income. This is a standard taxable investment account — no special tax advantages, but fully functional. Investment gains are subject to capital gains tax when you sell, which at typical teenage income levels is often 0%.
Either account can be opened at Fidelity, Vanguard, or Schwab — all of which offer custodial accounts with no fees and no minimum balance.
Step 3: Choose what to invest in
This is where most beginners over-think it. The correct starting investment for a teenager is simple and boring:
A total market index fund or S&P 500 index fund with a low expense ratio. That's it.
Specific examples:
- Fidelity ZERO Total Market Index Fund (FZROX) — 0.00% expense ratio
- Vanguard S&P 500 ETF (VOO) — 0.03% expense ratio
- Schwab Total Stock Market Index Fund (SWTSX) — 0.03% expense ratio
These funds own small pieces of hundreds or thousands of companies simultaneously. You're instantly diversified. When the market goes up, your account grows. When it drops, it'll recover — historically, it always has over long enough periods.
Avoid individual stocks, cryptocurrency, and anything that someone is strongly recommending based on short-term price movements. These are not beginner strategies, and they're not how long-term wealth is built.
Step 4: Set a contribution amount and automate it
Decide how much you'll invest per month or per paycheck. It doesn't need to be large — $25 or $50 per month is genuinely meaningful when started at 15 or 16. Set up an automatic transfer so the contribution happens without a decision.
The habit matters more than the amount. A teenager who automates a $30 monthly investment and never stops will have more at 65 than one who plans to invest "when they have more money" and delays for years.
What to expect
Your investment account will go up and down. This is normal and expected. The stock market dropped 50% in 2008–2009 and 34% during early COVID in 2020. Both times, it recovered and continued to grow.
The only mistake you can make during a drop is selling. Don't. When the market goes down, the correct action is nothing. The long-term investor who does nothing during crashes ends up with significantly more than the one who sells and tries to time the recovery.
Check your account once a quarter, not daily. The more you check, the more likely you are to react emotionally to normal fluctuations. Set it, fund it automatically, and leave it alone.
A realistic picture of growth
If you invest $50 per month starting at age 16 and earn an average 8% annual return:
- At 25: roughly $9,000
- At 35: roughly $29,000
- At 45: roughly $74,000
- At 65: roughly $376,000
From $50 a month. That's the entire magic of starting early and leaving it alone.
Finly covers investing, compound interest, Roth IRAs, and every concept a teenager needs to start building wealth — completely free. Start at learnfinly.com and take the first step now.
