Stocks for Kids (and Teens)
Updated: January 2, 2024
Written by Emmanuel Modu, MBA, The Wharton School of Business
There are probably more than 6,000 stocks traded on the two major stock exchanges in the United States — the New York Stock Exchange and the NASDAQ. There is no way a kid investor can investigate each of these stocks to see which ones are likely to increase in value.
Before we go any further, we want to point out that no one can guarantee that a given stock will increase in value. In fact, there are times when stocks go completely bust — even the stocks of big companies. The problem we are trying to address with this article is the problem most teen investors face when they begin their investing journey — deciding which stock to pick for their portfolios without spending months trying to learn all the details about stock investing.
If the goal is to get started by investing just a little bit of money in order to understand what makes stocks go up or down, then beginning with relatively safe companies or companies which kids and teens recognize may be the way to go at the outset.
Kids Still Need Investment Basics
Nevertheless, teen investors should do some basic analysis on any stocks they choose to buy. This basic analysis includes reading portions of a company’s annual report, looking at the company’s profitability, and other quick reviews of the company’s financial condition. They can do deeper fundamental analysis of stock later when they have substantially more money to put at risk in the stock market. (To learn all about analyzing stocks, please see the TeenVestor Stock Certification Course can teach teens about investing in the stock market.)
Can Kids Invest in the Stock Market?
Minors cannot outright own stocks, mutual funds, and other financial assets. In some states, minors are defined as kids younger than 18 years old, and in others, they are defined as kids younger than 21. If you are a minor, you can make investments only under the supervision of your parent through a custodial brokerage account. Your parent will have to sign you up for a custodial account offered by an online broker. You would own the assets in the custodial account, but your parent would control the investments in it (hopefully, with your help) until you are no longer a minor.
Criteria for Choosing Custodial Brokerage Accounts
Important considerations to help your parents choose an appropriate custodial brokerage account so you can buy and sell stocks include the following:
Looking for no stock trading fees – you should find online brokers that charge $0 to buy and sell stocks.
Looking for low-balance stock trading accounts – ensure the online broker does not require you to maintain a sizeable minimum balance in a trading account; many offer a $0 minimum balance.
Looking for brokers that allow for fractional shares – if you want to invest as little as $1 in reputable companies with high stock prices, you can only do so if the online broker allows you to buy fractions of a share of stock.
Top Custodial Brokerage Accounts for Kids
Here are some online brokers that offer custodial brokerage accounts and apps specifically for teen investors that your parents may want to consider opening. Some of these companies combine banking and investment services. For example, they may offer debit cards to young investors and easy-to-use investing platforms that allow parents to monitor and approve their children’s stock investments. But beware that while these companies don’t charge stock trading fees, some have hefty monthly fees.
Bloom (no monthly fees)
Fidelity Youth Account (technically, not a custodial account; a parent must have a Fidelity account before they can sign up their kids)
Stockpile (monthly fee of 4.99 per month which covers up to 5 kids in a family)
Greenlight Invest (monthly fee of $7.95 per month which covers 5 kids in a family)
Your parents can choose to go with some of the more traditional custodial brokerage accounts offered by companies such as Charles Schwab, E-trade, and many others. The advantage of using these companies for stock trading is that they have been around for a long time and are probably easier to deal with when it comes time to resolve trading issues. The disadvantage is that these traditional online brokers have not built their trading platforms to appeal to young investors and their parents like the newer brokers have done.
Note that Robinhood and Webull are not on this list because they currently don’t offer custodial brokerage accounts.
Stock Index Funds for Kids
The best way for young investors to begin their investing journey is to buy exchange-traded funds or ETFs. These funds represent a collection of stocks but trade like individual stocks. The ETFs most appropriate for teen investors are those that track well-known stock market indexes like the Dow Jones Industrial Average (the Dow), the S&P 500, and the NASDAQ. For example, the Dow ETF tracks the stocks of the 30 companies in the index, which include large companies such as Verizon, Microsoft, Coca-Cola, and 27 other companies. Investing in a broad-based index ETF is somewhat safer because the fluctuation of the value of such an investment is generally not as high as investing in an individual stock, thus helping the investor achieve his or her diversification goal. Here are the ETFs for the three major stock indexes (The Dow, the S&P 500, and the NASDAQ):
The Dow and S&P 500 index ETFs both cover the broad stock market. However, the S&P 500 ETF covers more industries and sectors than the Dow and is considered to be a better representation of the overall stock market. The NASDAQ ETF tends to reflect the value of technology stocks much more than the Dow and the S&P 500 ETFs.
To find out how the stocks of an index-based ETF have been doing, plug the ETF’s symbol into a financial portal like Yahoo!Finance. See the following links to see how the value of the DIA, VOO, and QQQ ETFs have moved over the past 5 years.
Large Dow Companies for Kids
In general, the stocks of large companies like those in the Dow, will not fluctuate as much as stocks of smaller companies. As a teen investor, you should try to stick to the companies in the Dow Jones Industrial Average (the Dow), which includes some of the more stable companies in the United States. Here is a Youtube video on the Dow that you may find informative: The Dow Video.
The Dow index gives you a general idea of the health of the overall stock market. As described earlier, it consists of 30 companies, some of which you may already know, such as:
Verizon Communications, Inc. (stock symbol: VZ)
Nike, Inc. (stock symbol: NKE)
McDonald's Corp. (stock symbol: MCD)
Microsoft Corporation (stock symbol: MSFT)
The Coca-Cola Company (stock symbol: KO)
The entire list of the companies in the Dow and their stock symbols are shown at this link: Dow Companies.
Getting Stock Performance Information
To find out how these stocks have performed over the past 5 years (or for any period for that matter), use the financial portal, Yahoo!Finance. See the following links to see how the value of the VZ, NKE, MCD, MSFT, and KO stocks have moved over the past 5 years.
At the end of this article, we provide a quick guide to some signs to look for to broadly identify valuable companies that should be candidates for your very own stock portfolio.
Past Performance Can Be Misleading
You should know that how a stock has performed in the past is not necessarily an indication of how it will perform in the future. You will need to look at other indicators such as how profitable the company is, how much debt it has, its competitors, how the general economy affects its sales, etc.
If you are dipping your toes into stocks, you can probably invest just a tiny amount of money into stocks of giant companies without thoroughly investigating your stock of choice. But once you get more serious, you must do deeper fundamental research.
Companies Related to Brands Kids Know
If you don’t find any companies in the Dow list that you’d like to invest in, you may want to look into stocks of companies that make consumer brands and services teens buy or use. You can find such companies from a survey of over 7,000 teens done by Piper Sandler called Taking Stock With Teens to discover what brands teens like. Favorite brand categories of teens include: shoe companies, restaurants, snacks, clothing, and many other consumer items. Just to be clear, basing stock purchases on brand usage is probably not be the best way to decide what stocks to buy, but the companies in the survey may give you some initial investment ideas. When you get more experienced in investing, you can do fundamental research, which we will discuss later, to see which stocks are worth your money.
Here is a list of some of the top brands that may be of interest to teen investors. You can find plenty more brands through the Piper Sandler link:
Top 3 Footwear Brands: Nike (Nike, Inc.), Converse (Nike, Inc.), Vans (VF Corporation)
Top 3 Handbag Brands: Coach (Tapestry, Inc.), Michael Kors (Capri Holdings), Kate Spade (Tapestry, Inc.)
Top 3 Restaurants: Chipotle (Chipotle Mexican Grill, Inc.), Starbucks (Starbucks Corporation), McDonald’s (McDonald's Corporation)
Top 3 Snacks: Goldfish (Campbell Soup Company), Lays (PepsiCo, Inc.), Cheez-it (Kellogg Company)
Top 3 Clothing Brands: Nike (Nike, Inc.), American Eagle (American Eagle Outfitters, Inc.), Lululemon (Lululemon Athletica Inc.)
Top 3 Payment Apps: Apple Pay (Apple, Inc.), Cash App (Block, Inc.), PayPal (PayPal Holdings, Inc.)
Once again, to find out how these stocks have performed over the past 5 years (or for any period for that matter), use the financial portal, Yahoo!Finance. First find their stock symbols, and plug them into portal’s dialog box.
It bears repeating that just picking the stock of a company or a brand you are familiar with is not the best way to choose stocks, but it is a start, especially if you are investing very little money. To help you investigate stocks further, we provide a quick guide to broad considerations in selecting stocks for your portfolio at the end of this article.
Industries and Sectors
Another way to determine which companies are worth investing in is to identify industry and sector categories that interest you. An industry category defines the line of business a company is in. For example, Apple is in the electronic equipment industry. A sector identifies major categories that industries can be slotted into. In other words, industries are subsets of sectors. Here is a Youtube video on sectors and industries: Sectors and Industries video.
While Apple is in the electronic equipment industry, its sector is consumer goods. Classifying stock is useful if, through your research and reading of business publications, you determine that a particular industry or sector will be a good investment, but you don’t know exactly which companies in that industry or sector will make for the best investments.
Knowing the industry or sector of the company in which you want to invest also makes it easier for you to compare how the company is doing relative to its competitors. We use the stock sectors and industries as classified by Yahoo!Finance in our analyses of stocks. Many other organizations, such as Standard & Poor’s, Moody’s, and Morningstar have their own industry categories, although the major sectors from one organization to another are quite similar.
TeenVestor Index Portfolio
The table below shows a list of 30 stocks we include in our stock index portfolio, TeenVestor Index Portfolio. We created a fake portfolio of companies we can track, just like the Dow Jones Industrial Average, which also contains 30 stocks. The stocks in this index were chosen because they were stocks of huge companies and because young investors will be familiar with their products and brands. Note that we chose a mix of industries in order to achieve portfolio diversification — a goal you should aim for when you start investing in stocks on your own.
Teen investors who are not ready to start investing in the real market can create dummy stock portfolios to do mock trading. Feel free to include these companies in your mock portfolio after doing some basic research about the profitability of each of them and their prospect for growth.
Kids Should Avoid Penny Stocks and Cryptocurrency (for now)
“Penny stocks” and cryptocurrency are too risky for beginning investors.
Penny Stocks are Terrible for Kid Investors
Teen and kid investors should avoid “penny stocks”. These are stocks of very small companies that trade below $5. Through penny stocks, stock investment scam artists typically hook unsuspecting naive investors. There is nothing necessarily wrong with the companies that issue these stocks. The problem is that because there are usually very few publicly available documents to give investors reliable information about the health of these small companies, unscrupulous brokers and advisors can easily lure naive investors into purchasing these stocks. In addition, the price of penny stocks is easy to manipulate in so-called “pump and dump” schemes. With these schemes, investors will talk up the value of penny stocks they hold and then dump them when the prices temporarily skyrocket, leaving new investors with inevitably lower-valued stocks.
Cryptocurrency Values are Currently Too Unstable for Kid Investors
Cryptocurrency is another investment (whether in stock form or virtual currency) that teens and kids should avoid. The reason is simple — the value of cryptocurrencies and crypto-related investments is too volatile. Bitcoin is probably the most well-known cryptocurrency, but that currency has seen a steep decline in value. As of July 3, 2023, the value of one bitcoin was about $30,941, which represented a decline of about 55% from its peak of about $68,000 in November 2021.
What’s worse, some notable bankruptcy filings by some prominent crypto lending platforms in 2022/2023 — namely FTX, Celscius, Voyager Digital, and Three Arrows Capital — left millions of customers stranded with very few prospects of recovering their cryptocurrency deposits. In addition, crypto-related companies such as Binance and Coinbase appear to have run into trouble with the US Securities and Exchange Commission.
So far in 2024, Bitcoin has rebounded somewhat to about $45,000.
While cryptocurrency may be fun and exciting to invest in, realize that at this time, it is more like gambling unless you know what you are doing. You may want to wait a little while before diving into the deep end of cryptocurrency investing.
Financial Analysis for Teen Investors
Choosing stocks by simply looking at big companies (such as the Dow companies) or looking for popular brands amongst teens is not the ideal way to decide what stocks to buy for your portfolio. The best way is for teen investors to do their own fundamental analysis on stocks.
Elements of Fundamental Stock Analysis
Fundamental stock analysts focus on a company’s ability to grow and make more money in the future. They do so by looking at: how much money the company has made in the past, how much money it has borrowed, how much profit it has paid to back to investors (in the form of dividends), how good its managers are, and other things that may affect the company’s long-term profitability. In considering how good a company’s managers are, a fundamental analyst might look at the qualifications of a new chief executive officer (CEO). If the new CEO is coming from another company that he whipped into shape and made more profitable, this is great news for the fundamental analyst, who would be optimistic that this CEO will do wonders for his new company.
We can’t go through the details of fundamental analysis in this article but you can begin by getting a hold of a company’s annual report. An annual report is sometimes called a Form 10-K (or just a 10-K), which is the name of the form in which all public companies have to submit information to the US Securities and Exchange Commission. Here are some links to the annual reports of a few companies you may know: McDonald’s , Apple, and Coca-Cola. Annual reports provide teen investors with basic information about the health of publicly traded companies. Please see the video for more details on annual reports. Here is a Youtube video on annual reports: Annual report video.
Two of the most important tables in annual reports are balance sheets and income statements as described in the following sections.
Balance Sheets for Teen Investors
One of the important items found in annual reports is a balance sheet. A balance sheet is a snapshot of what a company owns (or assets), what it owes (or liabilities), and the difference of the two amounts (also known as shareholder's equity, owner's equity, or just plain equity) at a specific point in time. Proper fundamental analysis of a company requires that an investor at least reviews its balance sheet to understand:
If the company can pay its debt;
If the company has borrowed too much money; and
What the company is worth if it goes out of business
Debt to Equity Ratio
Please go here to the section of this website for a full explanation of balance sheets. In addition, Investopedia also has a great page that explains one of the most important calculations when it comes to balance sheet analysis: Debt to Equity Ratio. This is the ratio of how much the company has borrowed compared to the total amount it has raised from its investors — in other words, its equity.
Different sectors and industries have different levels of Debt to Equity Ratios. For example, a traditional car manufacturer like Ford would have a higher debt-to-equity ratio than a technology company like Microsoft. So when looking at whether a company's debt to equity ratio is high, you can only tell by comparing it to other companies in its sector and industry. If the debt to equity ratio is too high, it could mean that the company has borrowed too much money compared to how much it has put into the business.
You can do your own calculation of debt-to-equity ratio by extracting the numbers you need from balance sheets of the company you are thinking of investing in. But an easier way is to use financial websites that do the calculations for you.
An excellent website to use for financial data is StockAnalysis.com. When you get to the site's landing page, enter the stock symbol for the company. You will land on a page with an overview of the company, including a description of what the company does (if you scroll down the page). To get to the financial data, choose "Financials" from the menu item on this page. After getting to the new landing page, select "Ratios" — this page is shown below for Apple, Inc. Apple's Debt to Equity Ratio for 2014 to 2021 in a green rectangle. In 2021, the company's debt-to-equity ratio was 1.78.
An upward trend in the ratio could mean that the company is borrowing too much. But it probably depends on what the additional debt is used for. In addition, you may also want to look at the ratio for companies in the same sector and industry. Once again, the details of how to interpret debt-to-equity rations can be found in this section of TeenVestor.com.
Financial Ratios for Apple, Inc.
Income Statements for Teen Investors
Another important item found in annual reports is an income statement. An income statement shows the amount of money a company takes in by selling its products, the expenses of the company, and the profit (or loss) the company makes over a specific period of time. Proper fundamental analysis requires a review of a company’s income statement to see if the company is making money to support its operations and to return money to its investors (i.e. its stockholders). Please go here for a full explanation of income statements.
Net Profit Margin and Other Measures
One way to measure how profitable a company was in any given year is through its profit margin (also known as net profit margin). Profit margin depends on two items: net income and revenue. Net income is the amount of money the company keeps after paying all expenses and taxes. Revenue is the amount of money the company takes in for selling its products (before subtracting any expenses whatsoever). Profit margin is calculated as follows:
Proft Margin = (Net Income/Revenue)*100
Once again, we can use StockAnalysis.com to get to the income statement to calculate the profit margin. When you get to the site's landing page, enter the stock symbol for the company. You will land on a page with an overview of the company, including a description of what the company does (if you scroll down the page). To get to the financial data, choose "Financials" from the menu item on this page. After getting to the new landing page, select "Income" — this page is shown below for Apple, Inc. Apple's profit margin for 2014 to 2021 in a black rectangle. In 2021, the company's profit margin was 25.88%. Apple's profit margin is extremely high compared to companies in other industries. You should compare Apple's profit margin to companies in the same sector and industry to know if it is truly an excellent company.
Other measures in income statements include net income growth (shown in red) and revenue growth (shown in orange). Generally, a positive upward trend is great when looking at these measures. For a complete explanation of the income statement, go here: Income Statement.
Income Statement for Apple, Inc.
Past Performance Can Be Misleading
You should know that how a stock has performed in the past is not necessarily an indication of how it will perform in the future. You will need to look at other indicators such a company’s competitors, how the general economy affects its sales, etc.
If you are dipping your toes into stocks, you can probably invest just a tiny amount of money into stocks of giant companies without thoroughly investigating your stock of choice. But once you get more serious, you must do deeper fundamental research.
We have just scratched the surface of the analysis you can do. However, if you want to save yourself the trouble of doing more research, you may be better off investing in index-based exchange-traded-funds over a long period of time.