How to Invest in Stocks as a Teenager

Investing isn't just for adults anymore. But how exactly do you go about investing when you're still in school? Find out in this detailed guide.

Investing as a teen can feel daunting. Truthfully, it can feel daunting at any age if you've never done it before.

Luckily, it's never been easier to invest in the stock market.

If you're a teen looking to invest in stocks, you've come to the right place. In this guide, find out how to invest in the stock market, the best investing accounts for teens, and other investments to consider.

How to Invest in Stocks as a Teenager

Legally, you have to be at least 18 years old to start investing in stocks.

Fortunately, there are ways around this particular obstacle, as long as you've got the support of your parents. The answer is opening a custodial account.

1. Open a Custodial Account

A custodial account is an investment account that's opened in a minor's name but managed by an adult. The minor then owns it once they turn either 18 or 21, depending on the laws in your state. With a custodial account, teens are able to invest like everyone else.

There are a number of laws related to the creation of custodial accounts, including the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UGMA). UGMA and UTMA accounts have slightly different rules and capabilities, but they both allow for custodial accounts to be created for people under 18.

How do Custodial Accounts get funded?
Custodial accounts are funded through "gifts," which are typically limited to around $15,000 per child, per year.

These gifts don't even have to be made by the parent who opened the account; it could be a grandparent or another relative, for example. The parent is acting as the caretaker of the money until the teenager reaches the required age to access the money directly.

How do you invest through a Custodial Account?
Investing as a teen is, by necessity, a little bit indirect. Once you've opened a custodial account with a parent or guardian, they'll be the ones who have to do the investing, at least until you reach the age necessary to do it yourself.

Essentially what this means is that you, or you and your parent working together, can figure out what stocks to invest in, and then they will be the ones to work with your broker to execute the trades.

2. Pick an Investing Platform for Your Teen

Now that you know what a custodial account is, you're probably wondering what your options are. There are a number of custodial accounts out there, but here's a quick look at some of the best.

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Charles Schwab
With Charles Schwab, you can open a UTMA or UGMA custodial account with all the same perks of a regular investing account. You get access to a wide variety of investments, like ETFs and mutual funds, with no monthly fees and no minimum balance.

There is a $4.95 fee charged for regular trades, but that shouldn't prove too much of a burden, assuming you don't trade too often, and take advantage of Charles Schwab's free trading options.

TD Ameritrade
TD Ameritrade also offers UTMA and UGMA custodial accounts for teens, with no minimum balance. TD Ameritrade's thinkorswim trading platform is an excellent option to try if your teen wants to experience a real, professional platform.

There may be a learning curve, but with time and a little practice, you'll soon find yourself comfortable trading anywhere. Trades on TD Ameritrade cost $6.95 each.

Greenlight
Compared to other platforms listed here, Greenlight is a bit unusual. It's an app designed for teaching kids and teens financial literacy, including investing.

Greenlight users don't invest through custodial accounts. Instead, Greenlight accounts are regular brokerage accounts created in the name of the parent, but accessible to their kids.

Parents can approve every trade through their app. Overall, though, Greenlight allows for a bit more independence than other options here. Greenlight has plans with monthly fees ranging from $4.99 to $9.98 per month.

Acorns
It's quick and easy to open a UTMA or UGMA custodial account with Acorns Early, which comes along with a financial wellness system, checking, and retirement accounts as well.

This 'Early' plan combines financial literacy tools with investing and savings. You also get bonuses when you invest with certain Acorns partners. Early is part of the Acorns family plan, which comes in at $5 per month, and supports multiple kids at no added expense.

M1 Finance
Members of M1 Plus can open custodial accounts for teens, such as UTMA or UGMA accounts.

M1 charges $0 trading commissions, and focuses on automated investing using their trademark Pies, selections of securities made up of stocks and ETFs (which you can put together yourself), or choose from ones designed by experts on their team.

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3. Consider Trading Beyond Stocks

Stocks are a great place to start as a beginner investor. It's a good learning experience just to invest a little money in a big company you're familiar with and watch what happens.

It'll give you a feel for how the stock market shifts and you'll start to get a better picture of what causes fluctuations in price, and how you feel about it when it happens.

But trading individual stocks isn't your only option. You should also consider other options like exchange traded funds (ETFs) and mutual funds.

Mutual Funds
Mutual funds are made from money pooled by investors. and can be traded as well, but unlike ETFs, which can be bought and sold throughout the day on the stock market, Mutual funds can only be purchased at the end of a trading day, at a price set at that time.

Mutual funds are maintained by professional money managers, and are typically actively managed with the goal of beating the stock market. They tend to have higher fees than ETFs, and may have high initial deposits.

ETFs
ETFs are a type of mutual fund made of groups of securities that are designed to track the price of a particular stock index, commodity, or business sector. The widely traded SPDR S&P 500 ETF (SPY) tracks the S&P 500 Index, for example.

ETFs can contain stocks, commodities, and bonds, and may be cheaper to trade than individual stocks. Also, by trading a fund rather than an individual stock, you remove some of the volatility involved in dealing with individual companies.

Bottom Line

There are plenty of options out there for teens looking to invest. If you can't wait and want to try out investing right away, consider opening a paper trading account to get a feel for what real trading is like.

If you're playing with fake money on a platform that supports it, you might even consider making a few trades on margin (that's leverage), just to see how frighteningly fast you can go from broke to rich to deep financial trouble if you aren't careful.

Whatever you choose, you'll need the cooperation and consent of your parents or guardians, but it's easy to see how getting started early can provide long-term benefits toward a healthy financial future.