You can’t open a brokerage account alone until you’re an adult, but a parent can set up a custodial account for you now, or a custodial Roth IRA once you earn money from work. Put your first dollars into one broad index fund and leave them alone, since money invested as a teen gets the most years to grow.
Which account a parent opens decides who makes the trades until you’re an adult. Ask for a custodial account if you’re happy to let your parent pick the investments, or a teen account if you’d rather pick them yourself.
In a custodial account, often called a UTMA or UGMA account after the state laws behind it, the money is legally yours from the first deposit. Your parent manages it as custodian until the age your state sets, usually 18 or 21, when you take over.
Teen accounts like the Fidelity Youth Account and the Schwab Teen Investor account, both for ages 13 to 17, let you place the trades while a parent can see each one. Fidelity’s account belongs to you alone, and your parent, who must already have a Fidelity account, can’t trade in it. Schwab’s is a joint account you share with your parent, who can trade and withdraw too. At 18, you can move either one into a regular account in your own name.
Once you earn money from work, a parent can also open a custodial Roth IRA for you, where the growth can come out tax-free in retirement.
Whichever account you use, start with one broad index fund, a fund that owns the stocks in a market index, such as the 500 large U.S. companies in the S&P 500. One purchase spreads your money across all of them, so you don’t have to guess which ones will do well. If you’re curious about picking stocks, try it with a small part of your money, such as $100 of every $1,000.
Then leave the money alone. At a hypothetical 7% average yearly return before inflation, with nothing added or taken out, $2,000 invested at 16 grows to about $30,000 by 56. That $30,000 is about $10,000 more than the $20,000 the same $2,000 reaches when invested at 22.
Pick the account with a parent this week, and use your first deposit to buy the index fund as soon as it arrives.
Before a parent opens your custodial account, compare the best custodial accounts for kids.
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