Investing for Teens: How to Get Started

It’s not unusual for high school freshmen to join clubs at their school. It’s not even very unusual to start your own club as a student. It is, however, rare for a 15-year-old to start an investment club, and likely even rarer for that club’s assets to breach six figures.

That’s exactly what Jack Rosenthal, now 19 and a student at Babson College, managed to do. “I was looking to invest money alongside other teenagers in a real investing account with real money,” he says. “So I decided to create my own club in order to facilitate this. Everyone put in $1,000, and we could collectively invest the money together.”

The Young Investors Club began with 20 members in its first year and grew to nearly 100 by the time Rosenthal graduated. By then, the portfolio was worth about $120,000.

When Rosenthal departed the club upon graduation, he sat down to write an investing guide for the teens who followed him, a manuscript that turned into his first book, “Teen Investing.” Below, he shares his advice for young folks looking to get involved in markets.

How much money you need to start investing

You don’t need to wait to save what you consider an investable amount to start funding an account. Rather than trying to hit a number you’d like to start with, a better option may be to sock away what you can into an investment account a little at a time.

It may not feel very exciting, but experts say developing the habit of consistently funneling money toward your investments can boost your chances of success.   

If you’re not particularly interested in markets, Rosenthal says it can help to have enough invested to stay, well, invested. “I wouldn’t recommend trying to start an investing portfolio with $100,” he says. “You might get a little education out of it, but that amount of money for a teenager isn’t very exciting. If you earn 5% on $100, that’s not even enough to buy lunch.”

To keep yourself excited about your potential returns, Rosenthal says to aim for about $5,000 to invest. “That may seem like a lot of money for a teenager, but if you do the math, it’s pretty attainable,” he says. “If you work a summer job for $15 per hour, working half the week, you could easily have the money by the end of one or two summers.”

Buying low-cost, long-term investments is smart

Rosenthal and the club he founded favor an active investing style, one which sees members hunting for stocks that they expect to perform well over the long term. As he describes it: “Think of the stocks that will exist 20 or 30 years from now, and chances are those stocks will do very well over your lifetime.”

To determine which stocks those might be, experts say you’d be wise to examine the firms’ underlying fundamentals, searching for businesses with growing earnings, expanding margins, and plenty of cash on hand. Homing in on companies with major business advantages over peers will likely help you as well, but remember: any business can be disrupted by a technology you fail to foresee.

If the idea of risking the value of your portfolio on a handful of stocks makes you queasy, Rosenthal suggests you invest in well-diversified, low-cost index funds.

You don’t have to “actively invest,” though, he notes: “You can put your money in the S&P 500 and sit and wait.”

By investing in an ETF or mutual fund that tracks that index, you minimize the fees you’ll pay more active mutual fund managers or financial advisors, Rosenthal says. “Even if someone charges a couple percent, it may not seem like much, but no sophisticated investor would agree to those terms.”

Underage investors can take advantage of custodial accounts

That isn’t to say that you won’t need advice or guidance on your investing journey, because you almost certainly will. As you may have guessed, younger teenagers — namely those under the age of 18 — aren’t allowed to open brokerage accounts on their own. Rather, they’ll need an adult to open an account for them.

Rosenthal had early experience with this: His grandfather opened an investing account for him at the age of 8. Under the rules of custodial accounts, the minor owns the account, but the custodian controls it until the child reaches age 18, 19, or 21, depending on the state.

The adult is in charge of the investing decisions, but as Rosenthal notes, after a certain age, the actual decision-making process can be informal. “I’d send him emails – buy this, sell that,” he says.

If you were thinking of starting your own investment club, you’ll need adult supervision for that, too. Rosenthal’s club received the benefit of oversight from financial firm Gerstein Fisher, which deals with the legal and tax ramifications that come with running a pool of underage investor money.

Another popular option for working teens: a Roth IRA. For 2022, custodial versions of these accounts allow teens with earned income or their parents to contribute the lesser of the child’s earned annual income or $6,000 toward retirement.

Regardless of the vehicle, Rosenthal stresses that consistently investing can come with huge long-term benefits for those willing to start early. “I’d recommend getting a summer job or working throughout the year. Then take those proceeds and invest them,” he says. “You don’t need to be a genius investor. It can be the S&P 500. If you do that over a long period of time, you could become wealthier than your parents.”

This content is provided for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. Consult your accountant, tax, or legal advisor regarding such matters.

No level of diversification or asset allocation can ensure profits or guarantee against losses.

The views expressed are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses.