Your Complete Guide to Teen Investing: Assets That Actually Work

Teen financial awareness is climbing—but there’s still a knowledge gap when it comes to actually putting money to work. A recent study highlighted something telling: while 91% of teenagers say they plan to invest someday, most haven’t taken the first step. The barrier? Partly structural (minors can’t just open brokerage accounts solo), partly psychological (over half feel investing is “too confusing”).

But here’s what many teens don’t realize: you absolutely can invest in stocks, ETFs, bonds, and more—and we’re here to break down how, what to invest in, and which accounts work best for young investors.

Understanding Your Investment Account Options First

Before picking what to buy, you need a home for it. Think of investment accounts as containers—each with different rules, tax benefits, and ownership structures.

Joint Brokerage Accounts: Shared Decision-Making

A joint brokerage account sits between you and your parents or guardians. Both parties own the account, both can make trades, and both share responsibility. It’s the most collaborative approach and works well if you want hands-on experience while still having adult oversight.

What you can hold: Stocks, bonds, ETFs, mutual funds, cash

Custodial Accounts: You Own It, They Manage It

Here’s how custodial accounts work: Your parents or guardians hold the assets legally, but they belong to you. The custodian can involve you in investment decisions or make them independently. When you hit the age of majority (typically 18-21), full control transfers to you.

Two types exist:

• UGMA accounts: Hold financial securities
• UTMA accounts: Hold financial securities and property (real estate, vehicles, etc.)

What you can hold: Stocks, bonds, ETFs, mutual funds, cash, annuities, life insurance

Custodial IRAs: Tax-Advantaged Retirement Savings

Earn income from a job? You can open a custodial IRA. The beauty: your contributions grow tax-sheltered, and compound returns have decades to work their magic while you’re young.

Traditional vs. Roth:

• Traditional: Contribute pre-tax dollars, pay taxes later when you withdraw
• Roth: Contribute after-tax dollars, withdraw tax-free later

2024 contribution limit: Up to $7,000 per year (or your earned income, whichever is less). By starting early as a teen, you’re giving yourself an enormous head start on wealth building.

What you can hold: Stocks, bonds, ETFs, mutual funds, cash, alternatives

529 Education Savings Plans

Designed specifically for college costs. You (or your parents) invest after-tax dollars that grow tax-free when used for qualified education expenses. The kicker: it barely affects financial aid eligibility.

Two flavors:

• College savings plans: Invest in mutual funds; growth depends on performance
• Prepaid tuition plans: Lock in public in-state college tuition rates now

What you can hold: Mutual funds, cash

Coverdell Education Savings Accounts (ESAs)

Lesser-known but powerful: ESAs work like 529s but with more flexibility. Cover elementary, secondary, and college expenses. Maximum annual contribution: $2,000.

What you can hold: Mutual funds, cash

Seven Asset Classes Every Young Investor Should Know

1. Stocks: Ownership + Growth Potential

A stock is a slice of ownership in a company. Own shares, and you profit two ways:

• Capital appreciation: The stock price rises
• Dividends: The company pays shareholders a slice of profits

The math is compelling. Over the past 25 years, if you’d invested in S&P 500 stocks and just collected price gains (no dividends), your money multiplied by roughly 4.5x. But reinvest those dividends back into more shares? You’re looking at 7x returns.

Why stocks work for teens: You have 40+ years until retirement. Even if markets crash tomorrow, you have time to recover. Plus, holding companies you actually interact with keeps investing interesting—you’ll naturally follow their progress.

Best for: Long-term wealth building; teens with higher risk tolerance; starting with fractional shares ($1-$5 minimum on most platforms)

2. Mutual Funds: Instant Diversification

Worried about putting all your eggs in one or two stocks? That’s smart. Mutual funds pool money from thousands of investors and spread it across dozens or hundreds of securities.

How it works:

• You buy shares at a price called NAV (net asset value)
• That price adjusts daily as the underlying holdings fluctuate
• You own a slice of the entire portfolio

Active vs. Passive:

• Actively managed: Fund managers pick holdings to beat a benchmark (like the S&P 500). Higher fees, but potential for outperformance
• Passively managed (index funds): Computer algorithms mirror an index. Lower fees, consistent returns

Best for: Risk management; teens who want automatic diversification without picking individual stocks; those wanting lower fees

3. Exchange-Traded Funds (ETFs): The Modern Mutual Fund

ETFs are like mutual funds’ cooler, cheaper cousin. They hold diversified portfolios but trade on stock exchanges like individual stocks.

Key differences from mutual funds:

• Trade throughout the day (not just at market close)
• Usually cheaper (mostly index-based)
• You can see exactly what they hold daily
• Tax-efficient due to unique redemption mechanics

Best for: Active traders; teens seeking low-cost exposure to specific sectors, regions, or asset classes; those wanting intraday trading flexibility

4. Bonds: Stable Returns, Lower Risk

A bond is a loan. You lend money to a company or government; they pay you back with interest.

How it works:

• You buy a bond at face value
• Over its term (3 months to 5+ years), you collect interest payments
• At maturity, you get your principal back

Bonds are less volatile than stocks but offer lower returns. Individuals rarely buy bonds individually (the research is tedious). Instead, buy them through mutual funds or ETFs for instant diversification across dozens or thousands of bonds.

Special case—Savings Bonds: Series EE and Series I bonds can be purchased directly. Series EE guarantees your money doubles in 20 years. Series I protects against inflation with an adjusted rate. Catch: Only adults age 24+ can buy directly; teens need an adult to gift them.

Best for: Conservative teens; those saving for a known expense; including alongside stocks for portfolio balance

5. High-Yield Savings Accounts: Safety First

A high-yield savings account is straightforward: it’s a regular savings account that pays 20-25x the interest of traditional accounts.

Why it matters:

• Nearly risk-free (FDIC insurance covers up to $250,000)
• Interest rates fluctuate, so yields aren’t guaranteed
• Returns lag far behind stocks and bonds long-term
• Withdrawal anytime, no penalties

Best for: Emergency funds; cash you might need access to; short-term goals (next 1-2 years)

6. Certificates of Deposit (CDs): Guaranteed Returns with a Commitment

A CD is a savings product where you lock money away for a set period (3 months to 5 years). The longer the term, the higher the interest rate you earn.

The tradeoff:

• Usually pay more than high-yield savings accounts
• But withdraw early? You face a penalty
• FDIC insured up to $250,000

Best for: Money you won’t need immediately but have earmarked for a specific short-term goal; teens wanting guaranteed returns with zero risk

7. Investing in Yourself: The Underrated Asset

Sound cliché? Maybe. But starting a side business, deepening your skills, or investing time in education has measurable ROI.

Why it works:

• Running a business teaches you real money management (spending, reinvesting profits, scaling)
• You’ll make mistakes young when stakes are low
• Skills and experience compound like financial returns
• No market volatility, no downside risk

Best for: Entrepreneurial teens; those wanting practical financial education; building a resume for college or job applications

Getting Started: Practical Next Steps

How much do you need? Depends on the account and investment. Many platforms now offer fractional shares, meaning you can start with $1-$5. Some mutual funds have minimums. Research your chosen platform.

What’s the actual best investments for young adults and teens? It depends on your:

• Timeline: College in 4 years? Retirement in 50? Time horizon drives everything
• Risk tolerance: Can you stomach a 30% drop and hold anyway?
• Goal: Education, a car, long-term wealth?

Starting points by goal:

Education: 529 or Coverdell ESA (tax-free growth specifically for school)

General savings: Custodial account holding stocks, ETFs, and mutual funds for diversification

Retirement: Custodial IRA (Roth for tax-free growth; Traditional to reduce current income)

Active learning: Joint brokerage account where you and parents make decisions together

Safety/short-term: High-yield savings or CD

The Takeaway

Teen investing isn’t complicated once you strip away the jargon. The real advantage young investors have? Time. Decades of compound returns can turn modest early contributions into serious wealth. The account structures exist. The investments are accessible. The barrier now is just taking the first step.

Start small, learn as you go, and remember: every investor started somewhere. Your future self will thank you for starting today.