Here's How to Confidently Invest Your Money as a Teen — A Guide For Beginners
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You mastered saving your Christmas money, are a pro at finding deals online, and maybe even snagged your first credit card to earn cashback on your leggings and lattes — but you’re ready to level up financially. The next step to becoming a money master is figuring out how to make your bucks work for you by learning how to invest your hard-earned paychecks.
Contrary to what you might’ve heard from crypto TikTokers or clickbait YouTube videos, there’s no “secret” to getting rich through investments. But there are a series of easy, time-tested steps to take that’ll empower you to start building a nest egg (that's a finance term for a chunk of money tucked away for your future) that'll ultimately help you afford the bougie, financially-free life you want.
We tapped some financial experts to guide you along your investing journey with beginner-friendly "how to" advice for your most pressing money questions.
Why is investing important, though? Can't I just focus on my savings account?
Unfortunately not, because of one word: inflation. That’s when prices increase and how far your money stretches decreases. “With inflation, things get more expensive over time,” explains Rachel Gottlieb, Financial Advisor, and Managing Director, at UBS. Money that sits in a savings account is losing value every single year — for example, something that cost $100 in 2013 would cost $130 today. “If everything you’re paying for costs 5% more this year but you’re only earning 0.2% interest from your bank, that gap becomes significant,” notes Margaret Giles, Morningstar data journalist. “You don’t want your savings to get eaten up by inflation.”
But there's a solution — rather than letting your hard-earned coin lose value while sitting in the bank, investing that money into the stock market allows it to grow in value with little effort involved. Having a stake in the stock market also sets you up with a financial safety net for any future life changes, empowers you to feel in control of your money, and even helps you to build generational wealth to pass down. "The sooner you start investing, the more money you'll ultimately have," says Gottlieb.
How does investing make your money grow?
Fun fact: if you smartly invest $1000 from your summer job into the stock market and don't touch it for 10 years, your money could double — and that’s because of compound interest, sometimes referred to as the 8th Wonder of the World.
Compound interest is the snowball effect of earning interest on interest. “For example, if you start with $100 in the stock market and you earn 10% in one year on that investment, you’ll have $110. If you earn 10% again the next year, instead of earning $10, you now earn $11. Two years later, your $100 grew to $121, and your money will keep compounding over time as it earns interest on its interest,” explains Gottlieb.
Letting those investments stay in the stock market for multiple years so that compound interest can work its magic is key. The more time you give it, the more your investments can exponentially increase on their own.
Okay, I 'm in! How do I start investing in the stock market?
Several brokerages allow you to buy and sell stocks, and the one you choose comes down to a matter of personal preference. You can choose based on your own bank, your parents' bank, a bank with a local branch, etc. Some popular brokers are Fidelity Investments, Charles Schwab, Robinhood, TD Ameritrade, and Vanguard.
Once you pick, go to their website and create a log in. Pick an account type from the list below based on your goals (many experts suggest starting with a Roth IRA account) and create an account with the brokerage you chose. Then, transfer money from your savings account, and use that money to buy your first stock.
Note that you do need to be 18 years old to open your own investment account, so if you're under 18, look into having your parents open a custodial account for you.
If you want to invest in building a hefty retirement fund while lowering your taxes, invest in the stock market through retirement accounts like Roth IRAs, IRAs, or 401ks. The government gives you various tax breaks on the money you invest through these accounts, and then you can withdraw it starting at age 59.5 with some exceptions.
Regular IRA: Giles explains, "You don't pay any income tax on the money you put in, but when you take the money out, you pay income tax on how much the money has grown." This account is good for someone who is paying a lot of taxes now and anticipates being in a lower tax bracket later on.
Purpose: Retirement
Accessibility: Anyone with taxable income can open one
Withdrawal: Age 59.5
Early withdrawal: 10% penalty
Roth IRA: This account is the opposite of a regular IRA. "You pay taxes on your contribution now, and when you retire, any growth you take out is totally tax-free," Giles notes. Roth IRAs are highly-recommended accounts for avoiding hefty income taxes on all that interest you will have accumulated by retirement age.
Purpose: Retirement
Accessibility: Anyone with taxable income can open one
Withdrawal: Age 59.5
Early withdrawal: 0% penalty on contributions, 10% penalty on earned interest
401k: These accounts are typically offered as a benefit for full-time jobs. Your employer allows you to set aside a chunk of your paycheck into this investment account before your taxes are taken out, and some companies even match a percentage of the money you put in.
Purpose: Retirement
Accessibility: Must be offered by your employer
Withdrawal: Age 59.5
Early withdrawal: 10% penalty
If you want to invest but don't want to be limited by the retirement withdrawal age, open a regular brokerage account. You won't get any tax breaks and will have to pay income tax on any stocks you sell, but you can cash out on your investments at any time.
Brokerage account: These stock market accounts have the least amount of limitations. You'll pay taxes on the money you put into this account, and you'll pay more taxes when you take the money out, but you won't have to wait until retirement age to remove money — you can sell your stocks and cash out at any time.
Purpose: Retirement or non-retirement investing
Accessibility: Anyone can open one
Withdrawal age: No limit
Carmen Perez, the creator of the MUCH budgeting app who recently joined Secret's Board of Financial Experts, emphasizes that getting started in the stock market is not as complicated as it may seem. "It's literally step one, opening an account at a reputable broker and putting $5, $10 in it, step two, pick a company you know and trust, and start investing in it," explains Perez. However, she warns against the critical mistake of putting money into your investment account and then forgetting to actually buy the stock. "Take that money and buy a piece of a stock in a company that you care about," says Perez.
How do I know which stocks to buy? Should I be worried about losing money?
You can select companies that you shop from, businesses you trust, or index funds that track the entire stock market. But what if we told you it was less about picking the right stocks and more about keeping your money in the stock market for as long as possible?
"If your friend says a stock is great, don't immediately buy or sell based on their word alone," warns Melanie Mortimer, President of the SIFMA Foundation. This goes for TikTok advice about buying specific stocks, too. Instead, focus on long-term longevity. “The market always has ups and downs, but you want to build that investment value over time and benefit from compounding interest. People who leave their money in for a long period of time generally do very, very well.”
And if stock prices go down, don't panic and sell. When a stock you truly believe will continue to increase in value is temporarily worth a lesser dollar amount, think of it as being available for purchase at that lower price. "It's like when you go to a store and things are 20% off. You want to buy something on sale, right? You don't want to buy full price," says Gottlieb. "You're getting those stocks at a discount or on sale."
How much do I have to invest?
Most investment accounts have no minimum. You could start with as little as a dollar. But if you're aiming to have a certain amount saved, you can use a simple retirement calculator to see how long it'll take you to get there.
Take some time to play around with the calculator and see what your investments could turn into, thanks to the "magic" of compound interest. For example, let's say you're 17 years old and you're going to retire at age 65. If you contribute $150/month to your retirement account every month until then, assuming 8% interest, you'll have a sweet $1,011,000 in the bank by the time you retire.
"It's understandably exciting to imagine, say, $150 turning into a million dollars," says Mortimer. "Even though that takes time, if you recognize the impact of compound interest, it'll feed into appreciation for the long-term retirement conversation."
When should I *not* invest?
It may seem like your money is getting pulled in a hundred different directions. Between student loans, living expenses, fun spending, and retirement, how do you know when to put something on the back burner?
Giles suggests asking yourself what you need to address first. "You might not go straight to investments because of debt," she notes. "If your loan interest rates are higher than the interest rates you might earn on investments, it’ll do you better to pay down debt before investing."
Perez, on the other hand, shares that she wished she was more balanced while paying off her debt. "My thing is when I was paying off my debt, I wasn't investing. So I lost two years in the market," Perez admits. "I wish I would have invested because when I paid off my debt, guess what? I had no debt, but I was still broke. So find some balance and try to focus on a couple of goals to make meaningful progress."
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