Investing as a Teenager: Getting Started at 17

Quick answer

• You can start investing at 17, but you’ll need a parent or guardian to open a custodial account.
• Understand your goals and how long you plan to invest before picking investments.
• Build an emergency fund first, even a small one, to avoid selling investments during tough times.
• Focus on low-cost, diversified investments like index funds or ETFs.
• Start small and consistently invest over time to harness the power of compounding.
• Learn as you go; investing is a marathon, not a sprint.

What to check first (before you invest)

Before you put your first dollar into the market, take a moment to assess your personal financial situation and goals. This foundational step can prevent costly mistakes and set you up for long-term success.

Time horizon

Your time horizon is simply how long you plan to keep your money invested before you need to access it. For a 17-year-old, this could be anywhere from a few years (for a car or college expenses) to several decades (for retirement).

• What to check: Are you saving for something in the next 1-5 years, or is this for the distant future?
• What “good” looks like: A clear understanding of when you’ll need the money. This helps determine how much risk you can afford to take.
• Common mistake: Treating all investments as if they’re for retirement. Short-term goals require different strategies than long-term ones. Avoid this by clearly defining your goals and their timelines.

Risk tolerance

Risk tolerance refers to your comfort level with the possibility of losing money on your investments in exchange for potentially higher returns. As a teenager, you likely have a longer time horizon, which often allows for a higher risk tolerance.

• What to check: How would you feel if your investments dropped significantly in value over a short period?
• What “good” looks like: An honest assessment of your emotional and financial capacity to handle market fluctuations.
• Common mistake: Taking on too much risk because you’re young, or too little risk because you’re afraid of losing money. Avoid this by understanding that “risk” in investing often means volatility, not guaranteed loss, and that a longer time horizon can smooth out short-term dips.

Emergency fund

An emergency fund is money set aside for unexpected expenses, such as job loss, medical bills, or a car repair. Even a small emergency fund is crucial before you start investing.

• What to check: Do you have a few hundred dollars saved that you can access quickly for emergencies?
• What “good” looks like: A dedicated savings account with enough to cover a few unexpected bills.
• Common mistake: Investing money that you might need for an emergency. This forces you to sell investments at potentially bad times, locking in losses. Avoid this by prioritizing a small emergency fund before investing any significant amount.

Fees and tax impact

Investment accounts and the investments themselves often come with fees. These fees, even small ones, can eat into your returns over time. Taxes can also reduce your overall gains.

• What to check: What are the management fees for any investment funds? Are there trading commissions? Are there tax implications for the account type you choose?
• What “good” looks like: Choosing investments and account types with low fees and understanding the basic tax rules for investment income.
• Common mistake: Ignoring fees, assuming they are insignificant. Over many years, even a 1% difference in fees can significantly impact your portfolio’s growth. Avoid this by actively seeking out low-cost investment options and understanding the tax advantages of certain account types.

Account type (401(k), IRA, brokerage)

As a 17-year-old, your options for investment accounts are a bit different. You generally cannot open a Roth IRA or Traditional IRA on your own. You’ll likely need a custodial account.

• What to check: What account types are available to you, considering your age?
• What “good” looks like: Understanding that a custodial account (like a UTMA/UGMA) is the most common route for minors, where an adult manages it until you reach the age of majority. You might also explore options with parents if they have a Roth IRA they can contribute to on your behalf, though this is less common for a 17-year-old.
• Common mistake: Trying to open a standard brokerage account or IRA without understanding the legal requirements for minors. Avoid this by discussing options with a parent or guardian who can help you open and manage a custodial account.

Step-by-step (simple workflow)

Getting started with investing at 17 is achievable with a clear, step-by-step approach. Focus on building good habits and understanding the basics.

1. Discuss with a Parent or Guardian:

• What to do: Have an open conversation with a trusted adult about your desire to invest.
• What “good” looks like: Your parent or guardian is supportive and willing to help you navigate the process.
• Common mistake: Trying to open accounts or invest without adult involvement. This can lead to legal issues and account closures. Avoid this by making it a collaborative effort.

2. Define Your Goals and Time Horizon:

• What to do: Clearly identify what you are saving for (e.g., college, car, future down payment) and when you will need the money.
• What “good” looks like: You can articulate specific goals and their estimated timelines.
• Common mistake: Investing without a purpose, or with unclear goals. This can lead to impulsive decisions. Avoid this by writing down your goals and timelines.

3. Build a Small Emergency Fund:

• What to do: Save a modest amount of money in a separate savings account for unexpected expenses.
• What “good” looks like: You have at least $500-$1,000 set aside that you won’t touch unless it’s a true emergency.
• Common mistake: Investing money you might need for immediate needs. This can force you to sell investments at a loss. Avoid this by treating your emergency fund as sacred.

4. Understand Your Risk Tolerance:

• What to do: Honestly assess how you would react to potential investment losses.
• What “good” looks like: You have a realistic understanding of your comfort level with market volatility.
• Common mistake: Assuming you have a high risk tolerance just because you’re young. Emotional reactions during market downturns are common. Avoid this by considering worst-case scenarios.

5. Choose an Investment Account (Custodial Account):

• What to do: Work with your parent or guardian to open a custodial brokerage account (e.g., UTMA/UGMA).
• What “good” looks like: A custodial account is established, with your parent or guardian as the custodian.
• Common mistake: Attempting to open an account that requires you to be 18. This will be rejected. Avoid this by focusing on custodial options.

6. Fund Your Account:

• What to do: Transfer money from your savings or earnings into your new investment account.
• What “good” looks like: You have a starting amount of money ready to be invested, even if it’s small.
• Common mistake: Waiting until you have a large sum to start. Even small, consistent contributions matter. Avoid this by starting with what you can afford.

7. Select Low-Cost, Diversified Investments:

• What to do: Research and choose investments like index funds or Exchange Traded Funds (ETFs) that spread your money across many companies.
• What “good” looks like: You’ve selected a few broad-market ETFs or index funds with low expense ratios (annual fees).
• Common mistake: Picking individual stocks based on hype or limited research. This is highly risky. Avoid this by sticking to diversified funds initially.

8. Set Up Automatic Investments (Optional but Recommended):

• What to do: If your brokerage allows, set up recurring automatic transfers and investments.
• What “good” looks like: Money is invested regularly without you having to think about it.
• Common mistake: Waiting to invest only when you “feel like it” or have extra cash. This leads to inconsistent investing. Avoid this by automating the process.

9. Monitor and Rebalance Periodically:

• What to do: Check your investments a few times a year to ensure they align with your goals. Rebalance if necessary.
• What “good” looks like: Your portfolio remains aligned with your target asset allocation.
• Common mistake: Checking your account obsessively daily, leading to emotional decisions. Or, never checking it, allowing your portfolio to drift significantly. Avoid this by scheduling regular, calm check-ins.

10. Continue Learning:

• What to do: Read books, follow reputable financial news, and learn about different investment strategies.
• What “good” looks like: Your understanding of investing grows over time.
• Common mistake: Believing you know everything after a few months. Investing is a lifelong learning process. Avoid this by staying curious and open to new information.

Risk and diversification (plain language)

Investing always involves some level of risk, meaning there’s a chance you could lose money. Diversification is your primary tool for managing this risk. It’s like not putting all your eggs in one basket.

• Spreading Your Bets: Diversification means owning many different types of investments across various industries and even countries. For example, instead of owning stock in just one tech company, you might own a fund that holds stocks in hundreds of tech companies.
• Why it Matters: If one company or industry performs poorly, your other investments might do well, cushioning the overall impact on your portfolio.
• Asset Classes: Diversification also involves spreading your money across different asset classes, such as stocks (ownership in companies), bonds (loans to governments or corporations), and potentially real estate. Stocks generally offer higher growth potential but also higher risk than bonds.
• Index Funds and ETFs: These are excellent tools for instant diversification. An S&P 500 index fund, for instance, holds stocks of the 500 largest U.S. companies. This single investment gives you exposure to a huge portion of the U.S. stock market.
• Geographic Diversification: Investing in companies outside your home country can also reduce risk. Different economies perform differently at different times.
• Correlation: Investments that don’t move in the same direction are called uncorrelated. Diversification aims to combine assets that have low correlation to each other. For example, when stocks are down, bonds might be stable or even up.
• Risk vs. Reward: Generally, higher potential returns come with higher risk. Diversification helps you achieve a better risk-adjusted return, meaning you aim for the best possible return for the level of risk you’re comfortable with.
• Over-Diversification: While diversification is good, owning too many things can dilute potential gains and become hard to manage. For most beginners, a few broad index funds are sufficient.

What to do during market drops: Market drops can be scary, but they are a normal part of investing. Instead of panicking and selling, view them as opportunities. If you have a long time horizon, these dips mean you can buy more shares at a lower price. Stick to your long-term plan, avoid emotional decisions, and remember that historically, markets have recovered and grown over time.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
<strong>Not starting early</strong>	Missed out on years of compounding growth.	Start investing even small amounts consistently as soon as possible.
<strong>Investing without a goal</strong>	Impulsive decisions, over-trading, and not knowing when to adjust strategy.	Define your financial goals and their timelines before investing.
<strong>Ignoring fees</strong>	Significant reduction in your overall returns over the long term.	Choose low-cost index funds and ETFs; compare account fees.
<strong>Chasing “hot” stocks or trends</strong>	High risk of losing money as trends fade or specific stocks underperform.	Focus on diversified, long-term investments like broad market index funds.
<strong>Panicking and selling during downturns</strong>	Locking in losses and missing out on market recoveries.	Understand market cycles, stick to your plan, and view dips as buying opportunities if your horizon is long.
<strong>Not having an emergency fund</strong>	Forced to sell investments at a loss during unexpected financial emergencies.	Build and maintain a separate emergency fund before or alongside investing.
<strong>Trying to time the market</strong>	Missing out on best days, leading to lower overall returns than simply staying invested.	Invest consistently (dollar-cost averaging) rather than trying to predict market tops and bottoms.
<strong>Confusing investing with saving</strong>	Not allowing money to grow through market participation, leading to slower wealth building.	Understand that saving is for short-term, safe goals, while investing is for long-term growth.
<strong>Not diversifying</strong>	Exposing your entire portfolio to the failure of a single investment or sector.	Invest in broad-market index funds or ETFs that hold many different assets.
<strong>Not understanding your investments</strong>	Making uninformed decisions based on speculation rather than strategy.	Research your investments, understand what you own, and focus on simple, diversified options.

Decision rules (simple if/then)

• If you have an unexpected expense and no emergency fund, then you should temporarily pause investing and prioritize rebuilding your emergency fund because unexpected needs can force you to sell investments at a loss.
• If you are saving for a goal within the next 1-3 years (e.g., a car), then you should keep that money in a high-yield savings account, not the stock market, because short-term goals require safety, not growth potential with risk.
• If you are investing for goals 5+ years away (e.g., college, retirement), then you can consider investing in diversified stock market index funds or ETFs because your longer time horizon allows you to ride out market volatility.
• If you are choosing between investment funds, then prioritize those with lower expense ratios (annual fees) because lower fees mean more of your returns stay in your pocket over time.
• If you are considering buying individual stocks, then understand that this is significantly riskier than buying funds, and you should only do so with money you can afford to lose and after extensive research.
• If your parent or guardian is helping you open an account, then ensure it’s a custodial account (like UTMA/UGMA) because minors cannot legally own brokerage accounts or IRAs independently.
• If you receive a significant amount of money (e.g., from a gift), then resist the urge to invest it all at once; consider investing it over a few months (dollar-cost averaging) to reduce the risk of buying at a market peak.
• If you notice your investment portfolio’s allocation has significantly shifted (e.g., stocks have grown to be a much larger percentage than you intended), then consider rebalancing by selling some of the overperforming assets and buying more of the underperforming ones to return to your target allocation.
• If you feel overwhelmed by investment choices, then start with a single, broad-market index fund or ETF that tracks a major index like the S&P 500 because it provides instant diversification.
• If you are earning money from a job, then allocate a portion of your earnings to investing consistently, even if it’s a small amount, because regular contributions build wealth over time.

FAQ

Can I open an investment account by myself at 17?

No, in most cases, you need to be 18 to open a standard brokerage account or IRA in the U.S. However, you can invest through a custodial account, which is managed by an adult (like a parent or guardian) on your behalf until you reach the age of majority.

What’s the difference between a custodial account and a regular brokerage account?

A custodial account is opened by an adult custodian for the benefit of a minor. The custodian manages the account, but all assets legally belong to the minor. Once the minor reaches the age specified by state law (usually 18 or 21), they gain full control of the account. A regular brokerage account is for adults who manage their own finances.

Is it safe to invest money I’m saving for college?

It depends on when you need the money. If college is only a few years away, it’s generally safer to keep that money in a high-yield savings account or a Certificate of Deposit (CD). If college is many years away, you might consider investing a portion of it in a diversified portfolio, understanding that market fluctuations could impact the amount available.

What is “compounding,” and why is it important for me?

Compounding is when your investment earnings start earning their own earnings. It’s like a snowball rolling downhill, getting bigger and bigger. For a 17-year-old, starting early means your money has a very long time to compound, potentially leading to significant wealth growth over decades.

Should I invest in individual stocks or mutual funds/ETFs?

For most beginners, especially at 17, mutual funds and ETFs are a much safer and more practical choice. They offer instant diversification, spreading your risk across many companies. Individual stocks are riskier because the success of your entire investment depends on one company.

How much money do I need to start investing?

You can start investing with very little money. Many brokerages have no minimum to open an account, and you can buy fractional shares of stocks or ETFs, meaning you can invest with just a few dollars. The key is to start consistently, even with small amounts.

What if the stock market crashes after I invest?

Market crashes are a normal part of investing. If you have a long time horizon, try not to panic. These downturns can be opportunities to buy more investments at lower prices. Remember that historically, markets have recovered and grown over the long term.

How do I learn more about investing?

There are many resources available. You can read books on personal finance and investing, follow reputable financial news websites, listen to educational podcasts, and utilize resources from financial education organizations. Your parent or guardian can also be a valuable source of guidance.

What this page does NOT cover (and where to go next)

This guide provides a foundational understanding of how to begin investing at 17. However, many advanced topics are beyond its scope.

• Detailed Tax Strategies: While we’ve touched on tax impact, specific tax planning, capital gains tax, and tax-loss harvesting are complex areas.
• Advanced Investment Products: This guide focuses on simple, diversified options like index funds. It does not cover options trading, futures, cryptocurrency, or complex derivatives.
• Retirement Planning Specifics: While investing for retirement is a common goal, detailed retirement planning, contribution limits for different retirement accounts, and withdrawal strategies are not covered.
• Estate Planning: This involves planning for the distribution of your assets after your death, which is a topic for much later in life.
• Active Trading Strategies: This guide advocates for a long-term, passive investing approach, not day trading or trying to time the market.