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Understanding Mutual Funds for Teens

Curious about how mutual funds work? Here are the basics on this great investing product.


Whether you are a teenager or a parent of a teenager, you would agree that Investing is a skill that prepares a teenager for future financial success and independence. An easy and diverse approach to investing in the stock market can be achieved by acquiring mutual funds for teens.

You may begin establishing your investing portfolios and laying a firm foundation for future financial well-being by understanding the fundamentals of mutual funds. You can even build healthy financial habits and make educated investing decisions by learning about them.

So, let’s delve into the world of the best mutual funds for teens and empower you with the knowledge to become savvy investors.

What are the Advantages of Mutual Funds for Teens?

If you’re just starting out with investing or in your 20s, mutual funds can be an excellent choice. Here are some of the top reasons why.


Many mutual funds provide diversification, lowering the chance of loss. Even if one company’s stock performs poorly, the other stocks may not, therefore mitigating market risk. Diversifying the portfolio provides a much-needed safety net for young and novice investors.


You generally don’t have complex financial demands if you’re in your 20s. That is why mutual funds are an excellent choice. They are simple to study and purchase for new investors. Brokers can help you select various funds; some even allow you to set up recurring payments from your paycheck each pay period.

Educational Experience

Mutual fund investing may also be a great educational experience for you. It teaches about risk, return, and the power of compounding. You can amass considerable wealth by the time you reach adulthood by investing early and allowing your money to grow over time.


Finally, mutual funds for teens like you are ideal investment options as they do not require you to earn a significant salary. They don’t demand a large initial investment to get started, and there are even low-cost choices that don’t involve the purchase of a financial advisor. You’ll almost certainly need to open an account with a broker, but the procedure is typically simple.

What are the Best Mutual Funds for Teens?

If you’re aiming for a long-term goal, such as retirement, you’re generally looking at a 30-year or more extended period. The more distant your target, the more daring your investments may be. As a teenager, you should consider the following forms of funds.

Index Funds

Mutual funds that track the performance and composition of a particular index are known as index funds. Index funds are the best mutual funds for teens like you as they provide broad exposure to stocks while maintaining low-cost ratios. A single fund can expose you to dozens, if not hundreds, of equities from numerous.

Balanced Funds

Balanced funds go under several names, including “hybrid funds” and “asset allocation funds.” These mutual funds invest in a diverse portfolio of equities, bonds, and cash. The allocation is often consistent and adheres to a given investing style or purpose.

Target Date Mutual Funds

As the name implies, target-date mutual funds invest in a combination of equities, bonds, and cash with the expectation that you invest until a specific year. As the target date approaches, the fund management gradually reduces market risk by transferring assets away from equities and towards bonds and cash.

What Factors Should Be Considered Before Investing in Mutual Funds?

Before investing in mutual funds as a teen, remember the following points.

Take Parental Advice

To begin, include your parents or guardians in your investing selections. They have greater experience and can offer valuable insights. It is also a good idea to consult with a financial advisor.

Identify Your Financial Goal

Consider your financial objectives next. Lower-volatility investments may be better if you save for a short-term cost. Mutual funds, on the other hand, can be a good alternative for long-term wealth accumulation.

Determine Your Risk Appetite

Finally, think about your risk tolerance. Teenagers differ in their comfort level with the ups and downs of the stock market. Make an assessment of your personal risk tolerance and select mutual funds that correspond to it.

Where Can a Teen Like You Buy Mutual Funds?

Mutual funds can be purchased online or through a brokerage company if you are 18 or older. If you work, you may be able to enroll in a 401(k) plan, which commonly invests in mutual funds. Generally, you must be 18 to contribute to a 401(k), although certain employers may have varying age restrictions or allow part-time employees to enroll.

It’s always wise to verify the exact restrictions and policies of your workplace sponsoring the 401(k) plan to see if you’re qualified as a teenager.

Are Mutual Funds Really Best for Teens?

Mutual funds for teens should be carefully explored as an investment alternative before embarking on the journey of financial growth. While mutual funds can be significant for some people, they may not be the best option for everyone. Before selecting, evaluate your financial goals, risk tolerance, and your family’s financial condition.

Each teenager has distinct circumstances and ambitions, so it’s critical to consider them before selecting an investment vehicle. For example, savings accounts or fixed deposits may better fit your unique needs instead of mutual funds. The bottom line is to begin investing early in life to position yourself for future prosperity.

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About the Author

Rick Pendykoski

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning. Over the last 10 years, he has turned his focus to self-directed accounts and alternative investments.

Last updated on: September 11, 2023