How to Start Investing at 16 (Yes, It's Legal)

Most 16-year-olds don't think about investing. That's understandable — school doesn't teach it, and it sounds like something adults do with briefcases and spreadsheets. But here's the reality: starting at 16 instead of 26 can put an extra $150,000 or more in your pocket by retirement, without you ever investing an extra dollar. This guide walks you through exactly how to start — legally, safely, and with as little as $25.

Why 16 Is Actually a Great Age to Start

The single biggest advantage a 16-year-old has over a 30-year-old investor isn't knowledge or money. It's time.

When your investments earn returns, those returns start earning their own returns. This is called compound interest, and it snowballs over decades. The earlier you start the snowball rolling, the bigger it gets.

Here's the math. Suppose you invest $1,200 per year (that's $100/month) starting at age 16 and stop at 26. You put in $12,000 total and then never add another dollar. A friend starts at 26 and invests $1,200/year all the way to age 65 — contributing $48,000 total. Assuming an average 8% annual return (the historical average of the U.S. stock market after inflation), you still end up with more money at retirement than your friend, despite investing four times less.

That is not a typo. Time beats money every time.

According to Vanguard's research on long-term investing, investors who start early and hold low-cost index funds consistently outperform those who start later with larger contributions.

What You Actually Need to Get Started

A Parent or Guardian

If you're under 18, you cannot open a brokerage account on your own. You need a parent or legal guardian to open what's called a custodial account in your name. They are the legal owner until you turn 18 (or 21 in some states), but the money is yours.

Two account types to know:

• Custodial brokerage account: Lets you invest in stocks, ETFs, and index funds. No contribution limits, but any gains are eventually taxable.
• Custodial Roth IRA: A retirement account where your money grows completely tax-free. You can only contribute up to your earned income (the amount you make from a job) each year, up to $7,000 in 2025. Withdrawals in retirement are 100% tax-free.

If you have any income from a job — babysitting, lawn mowing, a retail gig — a custodial Roth IRA is almost always the better move for long-term wealth building.

A Brokerage That Supports Custodial Accounts

The most beginner-friendly options:

Fidelity and Charles Schwab are the most beginner-friendly. Vanguard is excellent but slightly more bare-bones in its interface.

Something to Invest In

You don't need to pick stocks. In fact, you shouldn't. For a 16-year-old investor, the single best starting investment is a total market index fund or an S&P 500 index fund.

These funds hold tiny slices of hundreds or thousands of U.S. companies at once, so you're not betting on any single business. They charge very low fees (often 0.03% to 0.20% per year) and have historically returned around 10% per year on average over long periods.

Good starting picks:

• FXAIX (Fidelity S&P 500 Index Fund) — 0.015% expense ratio
• SWTSX (Schwab Total Stock Market Index) — 0.03% expense ratio
• VTI (Vanguard Total Stock Market ETF) — 0.03% expense ratio

How to Open Your First Account: Step by Step

Step 1: Talk to your parent or guardian. Show them this article if it helps. They'll need to be present (either in person or online) to co-sign the custodial account.

Step 2: Go to the brokerage website together. For Fidelity's custodial Roth IRA, go to Fidelity.com and search "custodial Roth IRA." For the Fidelity Youth Account (if you want a simpler start), go directly to that page.

Step 3: Complete the application. You'll need your Social Security number, a bank account to link for transfers, and basic personal information.

Step 4: Fund it. Transfer money from a bank account. You can start with as little as $1 at Fidelity or Schwab.

Step 5: Buy your first investment. Search for VTI, FXAIX, or your chosen index fund and place a purchase. You can buy fractional shares, so even $25 gets you invested.

Step 6: Set up automatic contributions. Even $25 per month on autopilot beats $200 once in a while.

Real-World Examples

Example: Sofia, 16, works part-time at a coffee shop

Situation: Sofia earns about $400/month and wanted to do more with her money than spend it on food and clothes.

What she did: Her dad helped her open a custodial Roth IRA at Fidelity. She contributes $75/month automatically and buys FXAIX every month.

Result: By the time Sofia turns 22 and finishes college, she'll have contributed roughly $5,400 and her account will have grown to an estimated $7,800 — before she's even entered the workforce full-time.

Example: Jaylen, 17, does lawn care in summer

Situation: Jaylen earns around $2,000 each summer but spent it all in previous years. He decided to change that.

What he did: His mom helped open a custodial Roth IRA at Charles Schwab. Jaylen contributes $1,500 each summer and puts it all in VTI.

Result: After two summers, he has $3,200 invested. If he does nothing else and it grows at 8% annually, that $3,200 becomes over $50,000 by age 65 — from two summers of lawn mowing.

Common Mistakes to Avoid

Waiting until you "have enough money." There is no minimum. $25 invested today is worth far more than $500 invested in five years.

Picking individual stocks. Most professional fund managers fail to beat a basic index fund over 10+ years. A 16-year-old picking Apple and Tesla is almost certainly going to underperform a boring index fund.

Selling when the market drops. Markets fall regularly. A 10-20% drop is completely normal. If you panic sell, you lock in your losses. The correct move is to do nothing, or even buy more.

Ignoring the Roth IRA in favor of a regular account. If you have earned income, the Roth IRA's tax-free growth is one of the best deals in personal finance. Don't skip it.

The One Number That Matters Most

You don't need a complicated spreadsheet. Focus on one thing: consistency.

Whether it's $25/month or $100/month, automate it and don't touch it. The habit matters more than the amount right now. You can always increase contributions later as your income grows.

The investors who build real wealth aren't the ones who found the best stock. They're the ones who started early and stayed consistent.

What to Do This Week

1. Show this article to your parent or guardian.
2. Decide on Fidelity or Charles Schwab (both are excellent).
3. Open a custodial Roth IRA if you have any earned income, or a custodial brokerage account if not.
4. Start with whatever you can — even $25.
5. Set up a monthly automatic contribution and forget about it.

That's the whole plan. No day trading, no crypto, no complicated strategies. Just start.

This post is for informational purposes only and does not constitute financial advice. Consult with a financial professional before making investment decisions.