Starting to Invest as a Teen
Learn what investing options teens can use and why early starts are powerful.
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Why starting to invest as a teen matters
Most teenagers have two huge advantages for investing that most adults would pay anything to get back: time and low expenses. When you're 15, your money has 50+ years to grow before retirement. When you're 45, it has 20.
Starting earlier gives money more time to compound, but it does not automatically beat a much larger contribution. Under the explicit example used below, $25 per month from age 15 produces less at age 65 than $100 per month from age 25. The honest lesson is that both time and contribution size matter.
How can teens invest?
Two main options:
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Custodial account (UGMA/UTMA): A parent or guardian opens the account on your behalf. You're the beneficial owner but they manage it until you reach a certain age (18 or 21 depending on state). You can invest in stocks, ETFs, and index funds. No income requirement.
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Custodial Roth IRA: A minor with taxable compensation may have a Roth IRA managed by a custodian. For tax year 2026, total traditional and Roth IRA contributions are limited to $7,500 or taxable compensation for the year, whichever is less; Roth eligibility can also be limited by income. Qualified Roth distributions are tax-free.
Custodial account basics
An adult custodian manages a UGMA or UTMA account for the minor until the transfer age under applicable state law. The assets belong to the minor and can affect taxes and financial aid. Providers differ on fees, minimums, and available investments, so compare current official terms.
What to invest in
A broad, low-cost index fund can spread money across many companies and reduce the risk of relying on one business. It still carries market risk and can lose value. Compare the fund's current holdings, expense ratio, transaction costs, minimums, and tax treatment using its official prospectus. An expense ratio is an annual fund operating cost expressed as a percentage of assets; it is not the only cost or risk.
What changes the outcome
Assumptions: contributions occur at each month's end; the hypothetical return is 7% per year compounded monthly; there are no taxes, fees, or missed deposits; and the return never changes. Under those assumptions, $25 per month for 50 years grows to about $136,202, while $100 per month for 40 years grows to about $262,481. The earlier investor contributes $15,000; the later investor contributes $48,000. Starting early helps, but it does not erase the effect of contributing much more.
Compound interest
Final amount: $2,159
Interest earned: $1,159
How to think it through
The biggest barrier for teen investors isn't the math, it's inertia. It feels like investing is something adults do, that you need thousands of dollars to start, or that it's too complicated. None of that is true.
Broker eligibility, minimums, available investments, fees, and automatic-investing features change. Compare current official account terms with a parent or guardian before opening a custodial account.
The other barrier is the Roth IRA requirement: you need earned income. Babysitting, lawn mowing, retail work, any job that pays you money works. Even $1,000 from a summer job qualifies you to contribute $1,000 to a Roth IRA that year.
Real-world example
At 16, Jordan contributes $1,500 of taxable compensation to a custodial Roth IRA, then contributes $30 at the end of every month through age 30. Jordan contributes $6,540 in total. Assuming a hypothetical 7% annual return compounded monthly with no fees or taxes, the account grows to about $12,506. A friend who contributes $200 at each month's end from age 28 to 30 contributes $4,800 and ends with about $5,136 under the same assumptions. Jordan's head start helps, but neither result is guaranteed.
You earned $1,200 from a summer job and want to start investing
Three options: Spend it all, put it all in a high-yield savings account, or put $600 in savings and open a custodial Roth IRA with $600.
Practice the idea
The understanding to take away: a custodial account requires an adult custodian, and a custodial Roth IRA requires taxable compensation and compliance with current contribution rules. Starting earlier extends the time available for compounding, while larger and more frequent contributions also change the outcome. Investment returns can be negative and are never guaranteed.
In the lesson's 7% hypothetical, which change increases the projected ending balance when all else stays equal?
Using the lesson's stated assumptions, which plan produces the larger age-65 balance?
A custodial account allows a minor to invest with a parent or guardian as the account holder. What is the main advantage of using one as a teenager?
What conclusion does the comparison between starting age and contribution size support?
Bring it into your life
Talk with a parent or guardian about whether a custodial brokerage account or custodial Roth IRA fits your goals. Confirm current provider fees, investment choices, tax consequences, transfer-age rules, and—if considering an IRA—taxable compensation and the current IRS limit. Review statements periodically and keep account information secure.
Teens can invest through an adult-managed custodial account, and a teen with taxable compensation may use a custodial Roth IRA subject to current limits. Starting earlier gives contributions longer to compound, but contribution size matters too. A broad, low-cost fund may diversify company risk, yet market returns are never guaranteed.