Imagine turning the money you get from a part-time job or an allowance into something that grows in value over years and decades. That's what investing as a teen is all about—allowing your money to work for you so you have a head start on your future financial needs.

While investing is an important habit to develop early in life, it involves risks, too. It's important to understand what you're getting into before putting your money into the stock market. In this guide, we'll discuss the basics of investing, including the kinds of things you can buy and which accounts are best for building your money.

You may be used to your parents taking care of your family's biggest expenses—like housing, furniture, cars and vacations. But as you become more independent, you'll likely feel a pull toward self-sufficiency. You might start earning money so that you can pitch in for your college education, save up to move to your own place and pursue other goals that matter to you.

Far, far, far down the road, you'll eventually stop working, and you'll need savings to live on when you retire and no longer have a paycheck coming in.

Investing what you earn can make all your future costs more manageable than simply working for a dollar and then spending that dollar. Certain investments and accounts offer compound growth, allowing your money and its earnings to snowball into greater wealth over time. For young people who can set aside money a long time before they need to spend it, this phenomenon can be especially powerful.

Setting money aside for the distant future can be tough when you're young. We get it.

There's nothing wrong with spending some of each paycheck right away. Just remember, the older you get, the more financial responsibilities you will take on—which can make investing harder. In your teens, you're not paying for a mortgage or health insurance yet, meaning you have a unique chance to save a greater chunk of your change.

A simple budget can get you in the habit of balancing all the different things you want to do with your money—from spending and saving for emergencies to giving and investing. It's a way to set up guardrails so you satisfy some needs and wants today while also setting up financial stability for Future You.

Pro tip: Before you start investing, be sure you can follow a budget for a few months. You'll thank yourself later!

Investing means buying assets with the expectation they will increase value or generate a return over time.

Making investments is a way of saving money, but not all forms of saving involve investing. Putting money into a bank account that pays interest, for example, is a form of low-risk saving. You're not going to lose what you started with, but you're also not likely to get a big return.

When you invest, your money has a chance to grow faster than with a bank, but you're not just storing your money for safekeeping. The assets you buy are a live part of the stock market, and what they're worth can change. You risk losing money, but the tradeoff is the potential for greater gains—especially if you have time for the gains to eventually win out over losses.

The fundamental investment choices include stocks, bonds, mutual funds and exchange-traded funds (ETFs). Here's a rundown of what they are and how they differ.

• Stocks. A stock is a piece of ownership in a company, sold in units called shares. When you buy a stock, you're hoping the company does well—that it sells more products or has a strategy to increase its profits. If the price of the stock goes up, you can sell it at a profit, although that's never guaranteed.
• Bonds. Bonds are a form of credit that you extend to a company or government body—much like a loan—with the promise that it will be paid back to you by the maturity date. Most bonds involve regular interest payments, which can give you a steady source of income. If the issuer is financially healthy, you'll usually get at least your original investment back; but if it's on shaky ground, there's a chance it won't be repaid in full.
• Mutual funds. A mutual fund is a mix of different stocks and/or bonds. The value of the fund depends on the overall performance of all the assets it holds. The advantage here is that if one stock in the fund drops in value but the others go up, the fund as a whole is probably still going to rise in value. The fund overall won't do as well as its top-performing stocks do individually, but it also won't do as poorly as the worst performers either.
• Exchange-traded funds (ETFs). Exchange-traded funds are similar to mutual funds in many ways. ETFs also pool money from many different investors and invest it in a variety of securities. However, they trade like stocks on an exchange, which means they can be bought and sold throughout the day. Additionally, ETFs often have lower fees compared with mutual funds. ETFs may require you to pay sales commission fees with every purchase, but these still may represent lower costs than those of mutual funds.

The stock market is a broad term that refers to the trading of company stocks between investors. Rather than having one unified "market" where they're bought and sold, there are multiple different stock exchanges where most of these electronic trades take place.

In the U.S., the New York Stock Exchange is the largest marketplace, although a number of large companies also list their stock on the technology-focused Nasdaq exchange. These centralized platforms provide a convenient and fairly quick way to conduct stock sales.

When you place a purchase order through an investment brokerage, the exchange instantly matches you with someone who's willing to sell you shares at the listed price—and vice versa.

When you purchase a stock, you're becoming an owner of that company, even if it's on a tiny scale. You're betting that the company will perform well over time, increasing demand for its stock by other investors. That, in turn, pushes up the share price, allowing you the option to sell your holdings at a profit.

There's another way you can make money from a stock, too. Some businesses—usually more established corporations with steady cash flow—distribute part of their earnings to shareholders in the form of dividends every few months. You can either pocket those dividends or reinvest them to buy more shares.

But things don't always go as planned when you purchase a stock. The price could dip, at least temporarily, which may happen when the economy is hurting or the company doesn't sell as much product or services as investors expected. If it's a dividend-paying stock, it may lower or cancel those payments to shareholders. That's why you generally want to invest in more than one company and plan to hold onto the stock long-term (think: several years) to outlast market volatility.

You may know that some savings accounts offer compound interest. That means you earn interest on your principal amount—what you deposited minus any withdrawals—plus whatever interest you already have earned. The result is that your balance grows faster and faster over time as you earn interest on interest.

Stocks don't pay interest, but they do have the potential for compound earnings. You get returns not just on the original amount you invested, but also on any returns you already gained and added to your beginning balance.

The compounding effect can feel small and slow at first, but it keeps getting bigger the longer you hold onto your investments. Let's calculate the compounding math: Say you invest $100 in a stock mix that grows at an average rate of 5% per year. Left completely alone for 20 years, your shares could be worth $265.33. It's a gain of $165.33.

And that's if you never added more to the investment. If you buy $100 more stock every subsequent year, you will have put in $2,100 of your own money—but your shares could be worth $3,571.93. That's a gain of $1,471.93.

Even if you diversify your investments by purchasing an array of stocks or a mutual fund, there's always a chance that your holdings will go down in price, at least for a certain period of time. The market goes through cycles. Historically, the average price of all publicly traded stocks has risen in most years. But there are periods—and it's impossible to know when—that see the market go down as well.

Because of the up-and-down nature of the market, known as volatility, it's only a good idea to invest in stocks if you have at least eight to 10 years before you need to access that money. That way, even if there's a downturn, there's a good chance you'll have time for the market to reach or surpass its former peak.

For example, $10,000 invested in the broad U.S. stock market at the start of 2010 would grow to more than $70,000 by the end of 2024. That's called putting time on your side.

Here are a few more tactics to help reduce your risk when investing for the first time:

• Practice on a stock simulator that lets you track real stocks before putting your money into the market. By following the performance of your shares for a few weeks, you'll better appreciate that what goes down often goes back up in time.
• Avoid speculative investing opportunities that promise outlandish returns. Investors sometimes pour money into trendy meme stocks or cryptocurrencies, creating sky-high valuations. But eventually the bubble may burst, which can send the price back down to earth in a hurry.
• Use well-regarded trading platforms that are backed by SIPC, which protects you from loss due to the brokerage company failing or becoming insolvent (you still assume the risk of the investments themselves). The better financial firms provide robust security and accurate investment pricing.

Making a goal to invest your money is a crucial first step. But even after getting to the starting line, you might feel confused by the number of choices available. Here's what to know about where you can put your money so you can choose what best suits your needs.

Several banking and savings accounts can help teens grow money over months or years. Each has different features that can benefit you depending on your goals. These are the most common options:

• Savings accounts. Even high-yield savings accounts typically offer much smaller returns than the stock market over the long run. But the advantage is their safety—you're not going to lose money in an FDIC-insured account, which protects balances up to $500,000. This makes them ideal for short-term needs.
• Money market accounts. Money market accounts usually provide better interest payouts than traditional savings products. The drawback is that they usually require higher minimum balances and limit the number or amount of withdrawals you can make each month.
• Certificates of deposit. CDs are bank products where you agree to hold your money in the account for a certain period of time (anywhere from three months to five years) in exchange for higher interest rates than other savings accounts. You can take out your money early, but you'll typically have to pay a penalty.

A less common tool but one to consider is building savings with permanent life insurance. Once you become a legal adult (typically age 18), you can get life insurance where the premiums you pay build cash value over time. It's money you can use for college, a first home or any other financial needs. By taking out a policy when you're young, you can lock in a lower monthly payment and benefit from guaranteed coverage for life.

Trying to identify which stock will be the next big thing can be an exciting exercise, but no business is a sure thing. Often, the stocks that have the most growth potential also carry the most risk of dropping back down. One way to reduce your risk is to purchase shares from a broad number of companies, a strategy known as diversification.

Rather than choosing a group of stocks or bonds on your own, you may want to start by investing in funds that have built-in diversification, such as:

• Mutual funds. These funds pool money from multiple investors, and a professional manager buys assets that they think will outperform their peers. With a stock-based fund, each share gives you a tiny stake in dozens, or even hundreds, of companies at once.
• Index funds. Not all funds use a manager to pick individual stocks. An index fund simply buys all the securities within a certain category; for example, an S&P 500 index fund owns a slice of the 500 largest publicly traded companies in the United States. That allows them to offer lower fees than actively managed mutual funds.
• Exchange-traded funds. Like an index fund, an ETF selects stocks passively—but they trade more like stocks. Whereas mutual fund sales only occur at the end of the trading day, ETF transactions take place in real time during market trading hours.

One additional advantage of funds is that you can usually purchase partial, or fractional, shares; that's something you can't always do with individual stocks. Buying fractional shares can be helpful when you can't afford the full share price of the asset, but you still want to benefit from its potential growth.

You typically need to be at least 18 years old to open an investing account in your own name. Even if you can't invest directly yet, you can still learn about how the market works, research stocks or practice investing with a stock simulator.

Some accounts aren't suited for teens to own but are still designed for your benefit. An adult has to open these, but the idea is that the money in them will eventually be yours. They can be a great opportunity for dabbling in investing with little risk but real impact on your future finances.

• 529 plans. These state-run savings accounts allow parents or other adults to invest money for your future education needs—whether that's college or a private K-12 school. Most plans offer mutual funds or target-date funds that automatically transition toward more conservative assets as you get older. One major benefit of 529s is that interest, dividends and capital gains are not taxed as long as the funds are used for qualified education expenses.
• Custodial brokerage accounts. These investment accounts are managed, and often funded, by parents. But the assets are legally yours, and you take full control when you become an adult. There are two types, UGMA and UTMA accounts, which your parents can open at many banks, brokerage firms or mutual fund companies. They can choose from a wide range of stocks, bonds and funds to help you grow your wealth.
• Custodial IRA accounts. A custodial Roth IRA is a retirement account that you own but is supervised by an adult. Unlike UGMA and UTMA accounts, though, these are designed as a way for teens to invest their own earnings from a part-time job. While it may seem early to plan for a retirement that's decades away, you can access part of your balance for a first home or qualified education expenses without incurring a penalty.

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Investing can seem like a daunting endeavor for teens who are just starting to earn money and are new to the stock market. However, there are lots of resources, including parents, who can help you develop healthy money habits.

As a teen, you have more investing options than you might realize—although you may need your parents' involvement to help you unlock those opportunities.

If you're making money from a job, for example, you can contribute up to the amount you earn at work each year—but not more than $7,000—through your own custodial Roth IRA. Your parents have to open the account for you—and will temporarily manage your investment choices—but you can provide input on how you want those dollars used.

Also, ask your parents if they've opened any accounts—a UGMA or UTMA, for example—for which you're the beneficiary. You may want to inquire about the investment strategy they've decided to take, so you're prepared to make smart decisions by the time you take control of those assets.

Thrivent provides a variety of resources to assist teens as they start to build important habits—including their first steps as an investor. Our College Savings Calculator can help you adjust your savings strategy based on your expected costs and current savings. If your goal is to start building assets for retirement, even if it's decades away, our Retirement Income Planning Calculator allows you to see the potential long-term impact of your contributions.

If you're 18+, you can also check out our free financial coaching program, Money Canvas. (Sessions are ideal for individuals with regular income and expenses.)

Investing for teens isn't about getting rich quickly—it's about starting to make modest contributions that have the opportunity to grow over many years. The more consistent you are and the better you understand how the market works, the more prepared you'll be for handling your future financial needs.

As you start to earn income and have more money management decisions, you may feel more confident getting personalized guidance from a professional. A Thrivent financial advisor can provide financial planning services for the entire family, including teens looking to invest, save or donate part of their income in an impactful way.