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Teen Investors: What They Need to Know

2023-06-08  Maliyah Mah

Teenagers and people who may not yet be of legal adult age should invest for a variety of reasons. The time they have to let their investments grow and expand in value is by far the biggest benefit. Where to start can occasionally seem confusing, but it need not be. Young people can start their investment journey with the aid of a variety of tactics and resources. In this post, we outline the key information that teenagers should be aware of regarding investing.


  • There are several ways for people who have not yet achieved the legal adult age to start saving in concert with a parent or responsible adult.
  • Young investors have a huge edge because their assets have more time to grow and take advantage of compounding.
  • Although many trading platforms and brokerages have age limitations, there are apps designed expressly for young investors.
  • Some people might believe that those who are not yet considered legal adults should not invest. However, there are no age requirements for investing, unlike in a casino or a bar. Although opening a brokerage account typically requires that you be at least 18 years old, investors under the age of 18 still have a variety of options available to them, albeit they may need to work with an adult or get varied levels of supervision.


The Value of Making Early Investments


Younger people have an advantage over older people beyond simply being permitted to invest; simply put, the earlier you start investing, the more time your money has to grow. The force of compounding increases this early-mover advantage for younger investors. Starting to invest while time is on your side is even more advantageous since when you reinvest your capital gains and interest to produce more returns, the value of your account may increase.

A little example will help to highlight the benefits of starting early. Say you start saving for your retirement when you're 22 years old and start your profession. When you reach retirement age, you would have $710,810.83 if you consistently saved $100 each month and earned a respectable 10% return on your investment (compound yearly). However, if you had begun investing at the age of 15, you would have nearly doubled your money, or $1,396,690.23.

Riley Adams, a CPA and prominent authority on teen investing, is the creator and publisher of the popular website Young and the Invested. Adams believes that supporting young people's financial empowerment begins with educating them about the advantages of starting investments early.

"The one thing, the last true edge in investing, is really time in the market," says Adams. People who grasp this advantage and start utilizing it earlier in life have better prospects of becoming financially successful.


Discretionary Accounts

Until they become 18 or 21, based on the state, a minor's investments in a custodial account are managed by an adult on their behalf. Custodial accounts are an excellent way to transfer assets to a kid or teen under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA), but the custodian adult retains the legal obligation and the final say in investment decisions.
Through a custodial Roth individual retirement account (Roth IRA), people under the age of 18 can even get a head start on retirement planning, but they must have earned income from a job or another type of paid work in order to start making contributions.

Although investment decisions are often subject to the permission of the adult co-owner, there exist joint brokerage accounts that let children to share legal ownership with an adult. These accounts may encourage younger individuals to play a more active role in society.


Would You Consider Investing?


The advantages of investing while you're still young are obvious, but some teenagers might still be unsure about their readiness to make the plunge. When deciding whether to make their first investments, kids may want to ask themselves the following questions:


Do you have funds that you won't need right away from a job or another source?

If your investments don't turn out as you had hoped, can you afford to lose this money?
Do you have a parent or other responsible adult who is willing to assist you if you are under the age of 18?
Are you aware of what you're signing up for? Do you comprehend the investment you're thinking about and how it functions, in other words?
Adams claims that companies that teens deal with frequently can pique their interest in investing. Purchasing stock in a well-known corporation is a smart way to enter the stock market while adhering to the maxim "invest in what you know."

"Being engaged with companies you see on a regular basis gets you interested, makes you want to understand how they tick, how they grow, how they make decisions," adds Adams. "And then, once you kind of understand that, digging a little deeper and asking the question of: Do I think this is good, do I think this is going in the right direction, and then, do I have money that I want to invest in it?"


Investing's Risk

Younger people should be aware of the benefits of making frequent and early investments, as well as the risks. It goes without saying that the biggest disadvantage of investing is the possibility of losing some or all of your money.

While it is impossible to escape the reality of potential losses, you can control how much risk you are willing to take on by choosing investments that are riskier than others. Generally speaking, a riskier investment has a larger potential to yield higher profits.

All investors, young and old, must understand this tradeoff in order to choose a strategy. But once more, being young has its benefits. Younger investors can afford to take more risks because they have more time to stay in the markets, which increases their potential rewards. Younger investors have time to wait for the markets to recover when the inevitable market downturn occurs.

This explains why conventional investment wisdom recommends taking more risks when pursuing distant goals while becoming more cautious as you get closer to the time when you'll need to access your funds. No matter your age, it's crucial to develop your own investing style and make sure you're comfortable with the level of risk you're taking.

"People have different risk tolerances, and I think you need to be honest with yourself," Adams counsels. "You should not do that if someone explains the logic of 'You're young, you should take on risk, you should let it grow,' but you simply don't feel comfortable doing it. Look for investments with lower risk that may not have as much potential upside but also may not have as much potential downside.


Teens' Investment Options

Once you have an understanding of your own risk tolerance, you can look into investments that have the qualities you think will best enable you to achieve your objectives. Here are a few of the more popular investment types, or asset classes, that you might choose to buy, depending on what you hope to achieve and when.

Stocks When you purchase a stock, you acquire a small portion of ownership, or equity, in a company that is publicly traded. Two ways exist for stocks to generate income:

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Many businesses give their shareholders payments known as dividends.
The market's assessment of a company's value affects stock prices, and if the price of your stock rises, you may be able to sell it for a profit.

Stocks can be risky due to their value fluctuations, or volatility as it is known in the market. It's possible that you'll end up with shares that aren't worth what you paid for them if the company you invested in starts to struggle. Stocks, however, are a good investment for younger people with longer time horizons because of the higher potential returns that come with this risk.



While stocks represent a share in a single company, shares of funds that invest in a variety of stocks and other assets are also available. Directed by professional money managers, mutual funds invest in an array of assets based on an objective outlined in their prospectus.

Exchange-traded funds (ETFs) are similar to mutual funds in that they own a variety of investments, but unlike mutual funds, they can be traded on the stock market and are intended to track a particular market index, industry, or other assets.
Younger investors have access to many benefits through funds. Funds provide built-in diversification because they combine multiple investments into one. In other words, investors automatically own a variety of assets through a fund, protecting their investment from total loss in the event that one component loses value. While some mutual funds have high fees for managing the portfolio actively, passively managed and index-tracking funds typically have low fees and a track record of generating good returns, especially over the long term.

Bonds Instead of equity, or ownership in a company, bonds are a type of debt instrument. When you buy a bond, you are essentially making a loan to the bond issuer, who agrees to pay back the principal amount borrowed along with interest payments. Bond issuers include governments as well as corporations.

Bonds are considered fixed-income investments because they provide preset payments over a particular time period.

They are particularly useful for investors looking to generate a regular income. However, they are less risky than stocks and by extension offer lower return potential, making them less suitable for young investors seeking long-term growth.


Other Investments

Other types of investment assets could be suitable for certain young investors. For instance, certificates of deposit (CDs) allow you to earn a fixed interest rate on your investment over a specific time frame. CDs work a lot like a savings account, but since you agree to leave the money alone for the duration of the investment, you generally earn a higher interest rate.
12 CDs are more conservative than stocks or bonds, with a more moderate risk profile but lower return potential.

The list of potential investments does not stop there. From high-risk cryptocurrencies to derivatives including futures and options, there are plenty of ways to put your money to work. However, since these instruments are riskier and more complex, they are more suitable for advanced investors than for those who are just getting started.


5 Steps to Start Investing as a Teen

For a young person who has decided to invest some of their money, the question is: What’s next? Here’s a step-by-step guide to help teens get started along their investment journey:

  • Educate yourself about investing: There are plenty of online and printed materials to help you grasp the basics. You can also ask your parents or another person with investment experience to share their knowledge.
  • Set your investment goals: It’s important to be up front about your end game. What do you want to do with the money? Is your goal far in the future? Setting clear goals will help you determine an investment strategy that works for you.
  • Select investments: With so many options available, researching potential investments can seem overwhelming. It is key to ask yourself what type of investment has the best chance of helping you reach your goals.
  • Open a brokerage account: You will need to open an account where you can buy and hold your investment assets. Although you will be unable to open a brokerage account on your own if you are under the age of majority, you can work with a parent, guardian, or trusted adult to open a custodial or joint account that will allow you to begin investing.
  • Buy your selected investment: Now it’s time to put your investment plan into action. The process may vary based on the investment you’ve chosen, but you should be able to buy almost any asset on your brokerage platform’s website or mobile app]

How do you invest if you are under age 18?

if you are younger than 18, you cannot be the outright owner of a regular brokerage account. However, with the help of a parent, guardian, or another trusted adult, you are never too young to start putting your money to work for you. With adult supervision, you can open a custodial account, where the adult manages the investments on your behalf until you reach the age of majority, at which point you can take over official ownership. Alternatively, you can open a joint account where you and an adult legally share ownership of the assets.


Is it illegal to start investing under 18?

Although there are certain restrictions, no laws prohibit people from investing when they are underage. It is generally impossible for minors to open their own brokerage account, but custodial accounts and joint accounts allow young people to begin their investing journey with varying amounts of adult supervision.


How can I build my wealth at 16?

It is never too early to think about your long-term financial future. At age 16, there are some restrictions on how you can invest, but you can get started fairly easily with the collaboration of a parent, guardian, or another dependable adult. The conventional wisdom is that, at a young age, you can afford to take more risks with your investments, which will help you maximize your returns over time. In practice, this means concentrating on stocks and funds that have the potential to appreciate in value over time.


What is the Child Poverty Rate in the U.S?

Child poverty rates in the U.S have fluctuated across the decades but remain persistent and structural. According to the U.S. Census Bureau, child poverty is higher than the national poverty rate. In 2021 child poverty was at 16.9% while the national rate was 12.8%. Some of the highest rates of poverty are found among black, hispanic, American Indian and Alaskan Native children rather than their white counterparts. This means that for many children and young people, finding the resources to invest may not be as realistic as it is for other groups.


The Bottom Line

Although underage individuals will need to collaborate with a parent or another adult to begin investing, teens have a leg up—the supreme advantage of having time on their side. Custodial accounts and joint accounts provide an opportunity for teens to get a head start on building their wealth.

Investing for Teens

2023-06-08  Maliyah Mah