Starting Young: Everything Teens Need to Know About Getting Into Stocks

Why Age Matters for Your Investment Journey

Ever heard someone say “the earlier you start, the better”? It’s not just motivational talk—the math actually backs it up. When you begin investing in your teenage years, you’re handing yourself an enormous advantage: time. And time is the secret ingredient that makes wealth-building possible.

Here’s the thing: The longer your money sits in the market, the more compounding works magic. Compounding is when your earnings generate their own earnings, creating an exponential growth cycle. Picture this—you invest $1,000 at 4.0% APY. After year one, you’ve earned $40. But in year two, that 4% isn’t just applied to your original $1,000; it’s applied to the full $1,040. Now you’re earning $41.60. That extra $1.60 might seem small, but multiply it across decades, and the difference becomes life-changing.

Beyond the numbers, starting early teaches you lessons that adult-you will desperately need. You’ll learn how markets work, what risk tolerance feels like, and how to make decisions with your money. These aren’t abstract concepts you can cram before starting your first 401(k)—they’re lessons best learned when the stakes are lower and your runway is longer.

The Legal Reality: How Old Do You Need to Be?

Let’s cut straight to it: You must be 18 to open your own investment account independently. No exceptions. If you’re under 18 and want to open an individual brokerage account, retirement account, or any investment account solo, you’re out of luck. The good news? That’s not the only path available.

With a parent, guardian, or trusted adult co-signing, you can access several investment accounts that let you start building wealth right now. The key difference between these accounts comes down to ownership vs. control. In some accounts, you own the investments and have equal say. In others, you own the assets but the adult makes the final calls (though they can absolutely include you in the decision-making process).

Your Account Options: Which One Fits?

Joint Brokerage Accounts: Maximum Control & Flexibility

With a joint account, both the minor and adult are listed as owners. More importantly, both parties have decision-making power. This is the most flexible option—you get genuine input on what you’re investing in.

Here’s how it works in practice: An adult (parents, guardians, or even trusted family friends) can open this account with you. Whatever’s in the account, you both own jointly. You can make investment decisions together or independently. As you get older, the adult can gradually hand you more control, transforming it from a guided learning experience into a fully independent account.

The catch? There’s no special tax treatment. You’ll owe capital gains taxes based on your tax bracket and how long you held the investment. But the tradeoff is flexibility—joint accounts typically support the widest range of investment options across most brokers.

Custodial Accounts: Supervised Investing

In a custodial account (UGMA or UTMA), the structure shifts. You own the investments, but a custodian (usually a parent or guardian) controls investment decisions. The custodian can certainly ask for your input, but legally, they’re the decision-maker.

The advantage here? Tax benefits. Custodial accounts offer something called the “kiddie tax” structure. A certain amount of your unearned income each year is shielded from taxation entirely. The next tier is taxed at your rate (probably lower than your parents’). Anything above that threshold gets taxed at your parents’ rate.

Two main types exist:

UGMA (Uniform Gifts to Minors Act): Holds financial assets only—stocks, bonds, ETFs, mutual funds, insurance products. Available in all 50 states.

UTMA (Uniform Transfers to Minors Act): Can hold anything an UGMA holds, plus physical property like real estate or vehicles. Adopted by 48 states (South Carolina and Vermont are the exceptions).

At the age of majority—typically 18 or 21, depending on your state—you gain full control of the account and everything in it.

Custodial Roth IRAs: Tax-Free Growth for Life

Here’s a powerful option many teens overlook: If you earn money (summer job, babysitting, tutoring, freelance work), you can open a custodial Roth IRA.

In 2023, you can contribute the lesser of your earned income or $6,500 per year. Here’s what makes a Roth IRA special for teens: You contribute money you’ve already paid taxes on. That money then grows tax-free for decades, and you withdraw it tax-free in retirement. Because you probably pay little to no taxes as a teen, locking in that low rate now while contributing to a Roth is brilliant financial strategy.

The adult manages the account while you’re a minor, but the money is yours. And with decades of compounding ahead of you, that early contribution turns into serious wealth by the time you hit retirement age.

What Should You Actually Invest In?

With your account type sorted, the next question is simple: What do you buy? At your age, with decades before you need the money, growth-focused investments are the play. You don’t need the safety of bonds or conservative positions yet.

Individual Stocks

Buy a tiny piece of ownership in a company. If the company thrives, your stock grows in value. The risk? If the company stumbles, so does your investment. But there’s something exciting about stock picking—you can research companies, follow their news, and discuss picks with friends. It’s not passive money management; it’s active wealth-building.

Mutual Funds

A mutual fund pools money to buy dozens, hundreds, or even thousands of investments simultaneously. You’re not betting on one stock; you’re diversified across many. If one holding tanks, the impact on your overall investment is cushioned by all the others. The trade-off is annual fees taken directly from the fund’s returns, so compare funds carefully to ensure you’re getting value.

Exchange-Traded Funds (ETFs)

ETFs are similar to mutual funds—diversified holdings in one purchase—but with key differences. They trade throughout the day like stocks (mutual funds settle once daily). More importantly, most ETFs are passively managed index funds, meaning they track a pre-set collection of investments rather than relying on human managers to pick winners and losers.

Why does that matter? Passive index funds typically outperform actively managed funds while charging lower fees. For a teen looking to invest across a broad selection of stocks and bonds, index ETFs make serious sense.

Why Starting Now Matters More Than You Think

Compounding Is Your Superpower

Whether you’re using a joint account, custodial setup, or Roth IRA, compounding is the underlying engine. That $1,000 you invest at 16 doesn’t just sit there—it multiplies across 50+ years of potential growth. Someone who starts at 30 can never catch up, no matter how aggressively they invest.

You’re Building Lifetime Habits

Investing isn’t a one-time event; it’s a discipline. Starting now means that by the time you’re an adult handling a full salary, investing is already wired into how you manage money—just like paying rent or buying groceries. You won’t feel shocked by market volatility because you’ve already experienced it. You won’t panic during downturns because you know they’re normal.

Market Cycles Become Your Friend, Not Your Enemy

The stock market doesn’t climb in a straight line. It rises in cycles, falls in cycles, and repeats. Your financial situation will fluctuate too—some years you’ll earn and save aggressively; others you’ll spend more. If you start young, you have years and years to ride out these cycles. You can wait out downturns. You can adjust your strategy as life evolves. You’ve got the luxury of time.

Other Account Types Worth Knowing

529 Plans (Education Savings)

Designed specifically for college expenses (though now expanded to K-12, trade schools, and more). An adult opens it, controls it, and contributes already-taxed money. The funds grow tax-free as long as they’re used for qualified educational expenses. Any non-qualified withdrawal gets taxed plus a 10% penalty (though exceptions exist).

Education Savings Accounts (ESA/Coverdell)

Similar structure to 529s but with different limits. You can contribute up to $2,000 per year (for a Special Needs ESA, contributions continue after age 18). Income limits apply, but there are no account minimums. Funds must be used for qualified education expenses before age 30 or they lose their tax-free status.

Parent’s Standard Brokerage Account

Parents can always just invest for you using their own brokerage account. Zero restrictions, zero contribution limits, money can be used for anything. The downside? Zero tax advantages—unlike 529s or ESAs, earnings aren’t sheltered from taxation.

The Bottom Line: You Have More Options Than You Think

The minimum age to invest completely on your own is 18 years old. But that doesn’t mean you’re locked out until then. With an adult partner, you can access joint accounts, custodial accounts, or custodial Roth IRAs right now. You won’t just own stocks and other investments through these accounts—you’ll own a genuine head start on wealth-building.

The earlier you begin, the more time compounding has to work. The more time compounding works, the less you actually need to contribute to reach your goals. Start now, and your future self will thank you.