8 Proven Strategies to Make the Best Investments for Teens
Imagine a 16-year-old investing $100 a month. By age 65, they could have over $1 million. This is the magic of compound interest. It shows why it’s key for teens to start planning their finances early, even with small amounts.
Today, teens have many ways to invest, from apps to custodial accounts. But, it can be hard to know where to start. This guide offers 8 simple strategies to help you grow your wealth early and avoid common mistakes.
Key Takeaways
- Starting early turns small savings into massive long-term gains through compound interest.
- Best investments for teens include low-risk options like index funds and high-yield savings accounts.
- Financial literacy and budgeting form the foundation for smart decision-making.
- Custodial brokerage accounts let teens own stocks or ETFs while learning market basics.
- Even modest monthly investments can create lifelong habits for financial independence.
Why Financial Literacy Matters for Young Investors
Financial literacy is key to making young investor opportunities into real wealth. Learning investment strategies early helps you make smart money moves for life. It’s not just about stocks or savings. It’s about understanding how time and discipline shape your future.
The Compound Interest Advantage for Teenagers
Imagine investing $1,000 at 15 with a 7% annual return. By 65, that grows to over $30,000. Starting early lets compound interest work for you, not against you. Use apps like Acorns or Fidelity Youth Account to track this growth visually.
Building Lifelong Money Management Skills
Investing teaches more than picking stocks. It builds habits like:
- Budgeting with part-time income
- Assessing risks vs. rewards
- Setting long-term goals (e.g., college, travel, or )
These skills are the core of financial responsibility.
Setting the Foundation for Financial Independence
Every dollar saved now reduces reliance on loans later. Teens who master investment strategies can avoid high-interest debt. They can fund education or start businesses earlier. Smart money moves today mean more career freedom and less financial stress tomorrow.
“The earlier you learn to grow money, the sooner you control your future.”
Financial literacy isn’t just about making money. It’s about gaining knowledge to protect and grow it. Start small, stay curious, and let time work in your favor.
Understanding the Best Investments for Teens Before Getting Started
Starting to invest as a teen is more than just putting money in a bank. It’s about knowing what you want. Are you saving for college, a car, or for the future? Risk tolerance and how long you can wait for returns are key. For example, if you have time, you might take on more risk. But for quick goals, safer options are better.
- Define your goals (short-term vs. long-term)
- Learn basic terms: stocks, ETFs, and compound interest
- Assess how much risk you’re comfortable taking
Many teens think you need a lot of money to start. But, apps let you start with just a little. Starting small helps build good habits. Parents or guardians can guide you, but you make the choices. Always think: Does this fit my timeline?
“Investing isn’t a race. It’s a marathon built on knowledge and patience.” – Financial advisor, Jody D’Agostini
The right investment for a teen depends on their own situation. Look into different platforms, compare costs, and don’t rush. A solid plan turns your curiosity into steps toward financial freedom.
How to Get Started with the Best Investments for Teens: A Simple Step-by-Step Guide
- Open a custodial or youth brokerage account.
- Set an investment goal (short-term vs. long-term).
- Start with a diversified portfolio (index funds, ETFs, REITs).
- Use dollar-cost averaging (invest regularly instead of all at once).
- Monitor your investments and keep learning.
Custodial Brokerage Accounts: The Gateway to Investing
Custodial brokerage accounts are a safe way for teens to start investing. Parents manage the funds until their child turns 18–21. Options like the fidelity youth account, acorns early account, and stockpile account make it easy to begin early. Each offers tools tailored to your financial path.
Choosing the right account depends on your needs. Here are some top picks:
Fidelity Youth Account: Features and Benefits
The fidelity youth account lets teens trade stocks and ETFs. Parents can review activity. It offers free trades and educational guides to build good habits. Parents can also set limits to guide spending and growth.
Acorns Early Account: Micro-Investing for Teens
The acorns early account turns spare change into investments. Its “round-up” feature automatically invests spare cents. This makes saving easy, with no minimums required.
Comparing Stockpile, E*Trade, and Ally Invest Options
| Feature | Stockpile Account | E*Trade | Ally Invest Account |
|---|---|---|---|
| Fees | No account fees, but gift card purchases may have costs | Commission-free trades, low fees for active users | No account fees, competitive pricing |
| Educational Resources | Basics of stock gifting | Robo-advisors and tutorials | Guided learning modules |
| Parental Controls | Limited monitoring | Customizable permissions | Real-time alerts and restrictions |
Each option balances costs and learning. Research to find the best fit for your goals.
Index Funds and ETFs: Long-Term Growth Opportunities
Index funds and ETFs are top investments for young adults looking for steady growth. They track market indexes, spreading risk across many companies. For teens, their low fees and automatic diversification are a smart start.
Vanguard Index Funds for Young Investors
Vanguard has options like the Total Stock Market Index Fund (VTSMX), starting at just $1,000. Their Target Date Funds adjust risk as you age, fitting long-term goals like college or career. With expense ratios under 0.10%, these funds help small investments grow without high costs.
- VTSMX: Tracks U.S. stocks, $1,000 minimum
- VTSAX: Lower fees for larger accounts
- Vanguard LifeStrategy Funds: Pre-built mixes for conservative or aggressive goals
Low-Cost ETF Options That Grow With Time
ETFs like iShares Core S&P 500 (IVV) and Schwab U.S. Broad Market (SCHB) offer flexibility. Here’s a comparison:
| Fund | Ticker | Expense Ratio | Focus |
|---|---|---|---|
| iShares S&P 500 | IVV | 0.03% | Large-cap U.S. stocks |
| Schwab U.S. Broad Market | SCHB | 0.03% | Entire U.S. market |
| Fidelity 500 Index | FSTMX | 0.015% | Low-cost S&P 500 tracking |
Opt for ETFs with expense ratios below 0.10% for better growth. These best investments for teens grow quietly, letting you focus on learning. Start small, stay patient, and watch your portfolio grow over decades.
High-Yield Savings Accounts and CDs for Conservative Teen Investors
Smart money moves for teenagers often start with protecting savings. High-yield savings accounts and certificates of deposit (CDs) offer stability for short-term goals like car costs or emergencies. Accounts at Axos Bank, for example, provide competitive rates without minimum balance fees, making them ideal for beginners.
Financial planning for teens requires balancing growth and safety. High-yield accounts at institutions like Axos Bank currently offer APYs above 4%, outpacing inflation averages. CDs lock funds for terms from 6 months to 5 years, earning fixed rates. Laddering CDs—splitting deposits across different terms—helps access funds gradually while maintaining higher returns.
“Liquidity matters most for unexpected expenses,” says financial advisor Sarah Lee. “CDs and savings accounts ensure funds are FDIC insured, unlike riskier investments.”
- Compare APYs: Check Axos Bank vs. other providers for best rates
- Track inflation: Ensure returns stay above yearly inflation rates
- Use apps: Many banks offer mobile tools to track teen savings progress
These tools work best for goals within 3 years. Pair them with riskier investments like ETFs from earlier sections to diversify. Always review terms: Avoid accounts charging monthly fees or early withdrawal penalties.
Smart money moves for teenagers include knowing when to prioritize safety. These accounts build foundational habits while preserving capital—critical for those new to managing finances.
Educational Investments: Using 529 Plans and Education Savings
Education is key for investment strategies for teenagers. Saving for college or vocational training is a smart move. 529 plans and other education-focused accounts help grow funds tax-free, preparing for future costs.
Tax Advantages of Education-Focused Investments
529 plans grow tax-free, and withdrawals for education are tax-free. Some states offer deductions for contributions. For instance, a $200 monthly deposit in a 529 plan could grow to over $10,000 in 10 years, easing college costs later.
“Tax-free growth in 529 plans makes them a top choice for education savings,” says the College Savings Plan Network. “They’re flexible and state-specific options exist.”
- Tax-free growth on investments
- No federal taxes on qualified withdrawals
- Potential state tax deductions
Balancing College Savings with Other Goals
Young investor opportunities go beyond college. Families should think about:
- Using 529 funds for K-12 tuition in states that allow it
- Setting aside separate funds for emergencies or entrepreneurship
- Considering scholarships or grants when planning contributions
Alternatives like Coverdell ESAs offer K-12 flexibility but have lower limits. UGMA/UTMA accounts provide investment flexibility but lack tax benefits for education. Choose based on your priorities:
- 529 Plans: Best for college and tax advantages
- Coverdell ESA: Good for K-12 and higher education
- UGMA/UTMA: Offers investment choices but no tax perks
Start small—$25 monthly contributions to a 529 can add up. Pair education savings with other financial planning for teens to secure your future without sacrificing other opportunities.
Building a Diversified Portfolio Tailored for Teenage Investors
Creating a diversified portfolio is key to growing wealth safely as a teen. Start by matching your age and goals to the right teenage investment options. Let’s break down how to balance risk, growth, and your unique situation.
Asset Allocation by Age Group
Adjust your investments based on your age:
- Early teens (13-15): 70% bonds/CDs, 30% top investments for young adults like ETFs
- Late teens (16-18): 50% stocks, 30% ETFs, 20% cash
- Young adults (18+): 60% stocks, 25% ETFs, 15% real estate funds
Risk vs. Reward: Finding the Right Balance
Risk isn’t bad if it aligns with your timeline. For college savings, focus on stable picks like S&P 500 ETFs. For long-term goals, add tech or renewable energy stocks for growth. Use tools like M1 Finance to rebalance automatically.
Custom Portfolios with M1 Finance
The m1 finance account lets you build “pies” (portfolios) with pre-set allocations. Its auto-rebalance feature keeps your mix on track. Here’s how to start:
- Pick goals: College, entrepreneurship, or career funds
- Choose stocks/ETFs matching your risk level
- Set up automatic contributions from part-time jobs
| Portfolio Type | Risk Level | Sample Allocation |
|---|---|---|
| Conservative | Low | 60% bonds, 30% S&P 500 ETFs, 10% cash |
| Moderate | Medium | 50% stocks, 25% tech ETFs, 25% real estate |
| Aggressive | High | 70% stocks, 20% crypto ETFs, 10% commodities |
“Diversification is the single greatest contributor to long-term investment success.” – M1 Finance Investment Guide
How Parents Can Guide Teens Through Investment Decisions
Parents are key in helping teens find teen-friendly investment choices. Start by sharing your own money story. Talk about how mistakes help us learn. Make sure teens know it’s okay to take their time.
- Use youth investment ideas like micro-investing apps for teens to start small.
- Talk about the ups and downs of investment strategies for teenagers, like stocks versus index funds.
- Set rules, like needing your okay for trades over $500.
| Age Group | Guidance Approach |
|---|---|
| 13-15 | Start with custodial accounts (e.g., Acorns Early) and focus on simple portfolios. |
| 16-18 | Introduce ETFs and allow controlled risk-taking with platforms like Fidelity Youth. |
“Encourage teens to ask ‘why’ about every investment—they’ll retain knowledge better than memorizing rules.” – Jane Smith, Teen Finance Advisor
Watch out for teens who might take too many risks. Teach them by doing things together, like checking market trends weekly. Let them lead, but step in if they’re making choices that seem too bold. It’s important to support them while also giving them space to grow.
Conclusion: Empowering the Next Generation of Investors
Investing early is a big win for teens. The best choices for teens mix growth with learning, like custodial accounts or low-cost index funds. Starting small, like opening an account, learning the basics, and picking the right investments, is key.
Platforms like Fidelity Youth Account or Acorns Early make it easy to start with a little money. Even small amounts can grow a lot over time. It’s smart to mix different investments to balance risks and rewards. Making mistakes is okay—it’s all part of learning.
Start by researching, setting goals, and talking to parents. Every dollar you invest now has decades to grow. Don’t wait for the “perfect” time or more money—starting early is the best choice. The habits you build today will help you financially for life.
Take charge of your future. Look into investing in tech stocks or renewable energy ETFs. Use free resources to stay up-to-date. Investing is about more than money—it’s about opening doors to freedom and choices in life.
FAQ
What are some of the best investment options for teenagers?
Teens have great options like the Fidelity Youth Account and Acorns Early Account. M1 Finance, Stockpile, and Ally Invest are also good choices. They offer tools for learning, small investments, and flexible choices for young investors.
How can teens start investing with little money?
Teens can start with small amounts through Acorns. It lets you invest spare change from purchases. Fidelity Youth Account and M1 Finance also offer low-cost ways to start with fractional shares.
Why is financial literacy important for teenagers?
Financial literacy is key for teens. It helps them make smart investment choices. Knowing about compound interest, budgeting, and risk management can lead to financial freedom and avoid mistakes.
What is a custodial brokerage account?
A custodial brokerage account is for minors, managed by a parent or guardian. It lets teens invest early. Platforms like E*Trade, Ally Invest, or the Fidelity Youth Account are good options.
How do index funds and ETFs benefit young investors?
Index funds and ETFs are great for teens because they offer diversification and low fees. They teach the value of a diversified portfolio. This is good for those with a long time to invest.
What should teens consider when choosing investments?
Teens should think about their risk level, goals, and time frame. They should know the difference between saving and investing. Options like high-yield savings accounts or CDs are good for those who want to play it safe.
How can parents assist teenagers in their investing journey?
Parents can help by talking about money and letting teens make their own choices. They should offer advice and teach through family activities. Showing good financial habits is also important.
Are 529 plans a good investment for education savings?
Yes, 529 plans are great for saving for education. They offer tax benefits and can help reduce student loan debt. They can be used for various educational expenses.
