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.
The difference between investing $25/month starting at 15 vs $100/month starting at 25 is the difference between having more money at 65 despite putting in less total. That sounds impossible, but it's just math: 10 extra years of compounding at 7% average return creates a gap that larger contributions later can't close.
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: If you have earned income from a job (W-2 job, mowing lawns, babysitting reported on taxes), you can open a custodial Roth IRA. Contribution limit: $7,000/year or your earned income, whichever is less. All growth is tax-free in retirement.
Custodial account basics
A custodial account works like a normal brokerage account but managed by an adult until you're old enough to take control. You can buy index funds, ETFs, and stocks. The major brokers, Fidelity, Schwab, Vanguard, all offer custodial accounts with no minimum balance and no account fees. The parent controls the account legally, but the money belongs to you.
What to invest in
For a teen investor just getting started, a single low-cost index fund is the right choice for almost everyone. These funds hold hundreds or thousands of different companies, so you're instantly diversified.
Good starting options:
- VTI (Vanguard Total Stock Market ETF): owns the entire US stock market, expense ratio 0.03%
- VOO (Vanguard S&P 500 ETF): owns the 500 largest US companies, expense ratio 0.03%
- FXAIX (Fidelity S&P 500 Index Fund): same as VOO but Fidelity's version, 0.015%
The expense ratio is what you pay annually as a fee, expressed as a percentage. 0.03% means you pay $0.30/year per $1,000 invested. That's essentially nothing.
What changes the outcome
$25/month invested at 7% average annual return from age 15 to 65: roughly $148,000. $100/month invested at 7% average annual return from age 25 to 65: roughly $262,000, more money, but $26,000 more invested. Start earlier with less, you often still win. The difference shrinks because of the extra 10 years of compounding at the start.
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.
Fidelity lets you open a custodial account with $0 minimum. You can buy fractional shares of ETFs for as little as $1. The mechanics take one afternoon to set up. After that, a monthly automatic investment of $25–$50 into a single index fund requires essentially no ongoing attention.
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 gets a part-time job and earns $3,500 over the summer. Jordan opens a custodial Roth IRA at Fidelity with a parent's help and contributes $1,500, the maximum affordable after covering expenses and savings. The $1,500 goes into FXAIX (S&P 500 index fund). Jordan then invests $30/month automatically. At 30, Jordan has contributed roughly $5,000 total and the account has grown to approximately $18,000. Jordan's friend waits until 28 and starts contributing $200/month. At 30, the friend has contributed $4,800 and has roughly $5,100. Jordan's $5,000 is already worth $18,000, from a 12-year head start.
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: starting a custodial investment account requires a parent's help, takes one afternoon, and can start with as little as $1. If you have earned income from any source, a custodial Roth IRA gives you tax-free growth for decades. Even $25/month consistently invested is more valuable than waiting until you can invest $200/month.
Which choice best shows understanding of starting to invest as a teen?
A student faces $25 a month from 15 versus $100 from 25. What is the smartest first step?
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?
Why might investing $25 a month starting at 15 result in more wealth at 65 than investing $100 a month starting at 25?
Bring it into your life
Talk to a parent about opening a custodial account. Fidelity, Schwab, and Vanguard all offer these for free. If you have any earned income (from a job, not gifts or allowance), also ask about a custodial Roth IRA. Choose a single low-cost index fund like VTI or FXAIX and set up an automatic monthly investment, even $20 or $30/month. Then don't look at it for years.
Teens can invest through a custodial account (opened with a parent) or a custodial Roth IRA (requires earned income). Starting at 15 with $25/month can generate more wealth at 65 than starting at 25 with $100/month, because of 10 extra years of compounding. The best starting investment is a single low-cost index fund (VTI, VOO, or FXAIX) with automatic monthly contributions.