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Investing for Teens

Perspectives | Aug 15, 2020 | Avery
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If you want to be a financially stable adult, you should start investing early. Here are the types of accounts you will want to investigate.

If you dream of becoming a financially stable adult, you will want to start investing your money early. Why? Investing is a great way to make your money work for you, letting your money grow without much effort on your part. By investing early, you will create a strong financial foundation that will give you some flexibility later in life. It might seem crazy to start planning for retirement (or your hypothetical children's college tuitions) as a teen or twenty-something. But, when you open your account in 50 years to find that a couple thousand dollars turned into a six-figure number, you will thank your younger self.  

Now that I've convinced you that investing is important, you're probably wondering how to start. One major roadblock to investing as a teen  applies to every type of investing: age. Most brokerage firms or banks require you to be 18 before you can manage your money independently. However, a custodial account or an account run by your parents that automatically turns over to you at either 18 or 21, is an easy way to get around the age restrictions. Although you will be contributing your own money, your parents will have to make any transactions officially. With this in mind, here's a basic rundown of the different types of custodial accounts you will want to investigate.  

1. Custodial Micro-investing Account

Most teenagers don't have thousands of dollars to invest at will. If this sounds like you, you may be interested in opening a micro-investing account. Acorns is generally viewed as the best micro-investing site, as it will allow you to invest spare change into a diversified portfolio that Acorns helps you design. It is super easy to use and will give you an excellent introduction to the world of investment. 

2. Custodial Roth Individual Retirement Account (IRA)

If you're looking to invest long term, you will be interested in a Roth IRA. These investment accounts will allow your money to compound over time and ultimately will enable you to collect your money tax-free. If you were to contribute $5,500 this year, it could end up growing to a five- or six-figure sum by the time you wish to retire, so this is a great way to plan for a stable future.  

3. Custodial High Yield Savings Accounts

A high yields savings account isn't an investment, per se, but it will allow you to make your money work for you. Although the interest you earn in this account will be nothing near what a Roth IRA will give you, it will be far higher than a traditional savings account. This is definitely the safest way to make your money grow, and many banks will have no minimum amount required to open an account. 

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