How to Start Investing as a Teenager | Grow Your Money Early | 2024 Reveal


Astrid Tran 26 November, 2023 7 min read

How to Start Investing as a Teenager?

"I used to waste money on things like fast food, movies, and the latest electronics. I regret not learning about investing in my teen years." Many teens have regretted not knowing about early-age investment earlier.

It is common, that many teens or parents have misunderstood that investing is just for adults. Indeed, starting investing as a teenager is legal, and it has been encouraged by parents in many families in recent years. Buffett’s investing story began when he was a child, fascinated by numbers and business. He bought his first stock at the age of 11 and his first real estate investment at 14. 

Starting investing early sets you up for financial success later in life due to the power of compound interest. The first step is educating yourself on smart investment strategies. This crash course tells you how to start investing as a teenager and breaks down the basics. Parents also can learn from this article to guide your children in their initial start of teen investment.

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What You Wish You'd Known Earlier

What exactly is Investing for Teens and why it is important?

Investing means putting money into assets you expect will grow over time to build wealth. Rather than keeping cash in a low-interest savings account, you open a brokerage account and invest in stocks, dividends, bonds, ETFs, mutual funds, and other securities.

The key concept is compounding growth, where your profits are reinvested to generate even more earnings. That's how starting young gives your money decades to compound for impressive gains. Continue reading to learn how to start investing as a teenager.

For example, If you decide to start investing after graduation, set consistently $100 per month, and earn a healthy 10% return on your investment (compounded annually), you would receive $710,810.83 when you are 65. Yet, if you had begun financing at age 16, you would have $1,396,690.23, or nearly double the amount.

How to start investing as a teenager with compound interest

How to Start Investing as a Teenager Step-by-step?

How to Start Investing as a Teenager? Here is a complete guide on how to start investing as a teenager. What you have to do is follow these steps, which are explained below.

  • Open a brokerage account for teens
  • Set realistic and obtainable goals
  • Geek Out on Investing Knowledge
  • Take Advantages of All Available Resources
  • Avoid Crypto, Focus on Stocks and Funds
  • Track Your Investment

What are Good Brokerage Accounts for Teens?

Choose investing accounts wisely. Savings accounts provide an introductory option to accrue interest on excess cash. Custodial accounts involve parents authorizing a brokerage account in the child's name for managing investment assets.

Most teens open custodial accounts but take increasing responsibility for directing the investments over time with parental oversight. Consider transaction fees, and minimum deposits when choosing an investing account provider. Some good options are Charles Schwab, Interactive Brokers IBKR Lite, E*TRADE, and Fidelity® Youth Account.

Set Some SMART Financial Goals 

Before determining how to start investing as a teenager, establish clear financial goals. Outline specific short-term aims, like saving for college or a car, and longer-term targets around retirement planning. Creating SMART goals keeps you focused and motivated on where you want your investment strategy to take you. 

Geek Out on Investing Knowledge

Learn key investing terms and understand risks versus returns. Study basic concepts like diversification, dollar cost averaging, reinvesting dividends, fixed-income investing, and comparing active trading and passive index fund investing. Identify your personal risk tolerance profile from conservative to aggressive. The more you know before starting investing as a teen, the higher your chance of success. 

Take Advantages of All Available Resources

Where Should I Start Saving Money to Invest? Growing your investments over time depends on dedicating as much excess income as early as possible into your portfolio. Find cash to invest by cutting unnecessary spending, earning money from allowances or part-time jobs, or cash gifts for birthdays and holidays. Use a simple spreadsheet to create and stick to a monthly budget that directs cash into your investments. 

Investment Decisions – What’s Right for You?

How to Start Investing as A Teenager
How to Start Investing as A Teenager

Common investment assets like stocks and bonds carry varying levels of risk and return. Index funds offer a simplified way to invest in a diversified basket of securities, like the entire S&P 500. Robo-advisors provide algorithm-based portfolio guidance.

As a teenager just starting investing, favor safer bets over speculative assets and hold long-term over chasing short-term profits. You can start with fixed-income investing with dividends first, it means a corporation earns a profit or surplus, and it is able to pay a portion of the profit as a dividend to shareholders.

Avoid speculative assets like cryptocurrencies or meme stocks promising meteoric short-term gains...they rarely end well! Prevent overtrading by staying invested long-term. Be realistic in projections, as even an 8-10% average annual return becomes substantial over decades, not overnight. Remember fees, taxes, and inflation eat away at net returns as well.

Tracking Your Investments – The Fun Part!

Log in frequently to your investment accounts to view market value changes. Expect occasional dips, resisting panic selling during temporary downdrafts. Over months and years, monitor if your financial goals remain on track. Revisit your risk tolerance periodically as you age to determine necessary portfolio adjustments. Stay engaged by seeing your net worth climb as you embark on how to start investing as a teenager!

Key Takeaways

How to Start Investing as a Teenager? Arm yourself with investing knowledge, set targeted financial goals, save consistently, select appropriate assets, use the right account options, track your portfolio, and learn from both gains and losses. Compounding really works its magic the earlier you start. Implement these tips for how to start investing as a teenager and let time power the growth! First step – have an investing discussion with your parents tonight!

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Frequently Asked Questions

How can a 13-year-old start investing?

Turning 13 means teenagers can legally open savings accounts. Though limited, interest earned gets teens in the habit of investing money. Ask parents about transferring monetary gifts or earning money from chores, babysitting, and lawn mowing into these starter investment vehicles.

What’s the easiest way for teenagers to start investing in stocks?

The simplest way for novice teen investors to gain stock market exposure is passively investing in index-based mutual funds and exchange-traded funds (ETFs). Open a custodial brokerage account under guardian supervision to access these diversified investments easily online and with low fees.

What steps allow a 16 year old to begin investing?

At age 16, teen investors in the US can be named as custodial account beneficiaries to actively invest with parental/guardian authorization and oversight. This allows teens to directly control stocks, bonds, mutual funds, and other securities while legally relying on adult account management.

Can 16 year old investors buy individual stocks?

Yes, with proper permissions and adult account monitoring in place, it’s fully legal for 16 year olds to invest directly in stocks in addition to funds. Single stocks pose higher volatility risks though, making low-cost index funds better starter options for diversification-minded teen investors hoping to steadily build wealth over time. 

How does the process compare for 19 year old investors getting started?

19 year olds can independently open full brokerage accounts to access all public investment markets from stocks and mutual funds to alternatives like commodities and currencies. However, utilizing index funds and wealth advisory guidance as investing rookies remains prudent before making bets on riskier, complex assets down the road.

Ref: Investopedia