Find out more about when to start investing in stocks, as well as what to do if you’re under the legal age of 18.
This article is not intended to be financial or investment advice; rather, it is meant only for informational purposes.
Stocks represent fractional ownership of companies. For example, you own a very small portion of Amazon if you own stock in the company!
As the company expands, the value of your stock also increases. Over time, this can lead to significant wealth creation.
And the earlier you can get started, the better. However, what is the minimum age to invest in stocks?
Investing in stocks is a fantastic way to build wealth over time. But what if you’re under 18? Can you still participate in the stock market? The answer is yes, but with certain limitations. Let’s explore the minimum age requirements for investing in stocks and the options available to minors who want to start their investment journey.
The Minimum Age to Invest in Stocks: 18 Years Old
In most countries, including the United States, the legal age to open a brokerage account and invest in stocks independently is 18 years old. This means that individuals under 18 cannot directly purchase or sell stocks in their own names.
Investing for Minors: Custodial Accounts
Fortunately, there’s a way for minors to invest in stocks with the help of a parent or guardian. This is done through a custodial account, a special type of brokerage account that allows an adult to manage investments on behalf of a minor.
Here’s how a custodial account works:
- Adult opens the account: A parent, guardian, or other trusted adult opens the custodial account with a reputable broker.
- Minor owns the account: Although the adult manages the investments, the minor ultimately owns the account and its assets.
- Adult controls investments: The adult custodian has full control over buying, selling, and managing the investments within the account until the minor reaches the legal age of majority (usually 18).
- Minor gains control: Once the minor reaches the age of majority, they gain full control of the account and its assets.
Types of Custodial Accounts
There are two main types of custodial accounts:
- UGMA (Uniform Gifts to Minors Act) account: This account allows for the investment of various assets, including stocks, bonds, and mutual funds.
- UTMA (Uniform Transfers to Minors Act) account: This account allows for the investment of a wider range of assets, including real estate and other tangible property.
Benefits of Custodial Accounts
- Early exposure to investing: Custodial accounts allow minors to learn about investing from a young age, fostering financial literacy and responsible investment habits.
- Head start on building wealth: By starting early, minors can benefit from the power of compound interest, allowing their investments to grow significantly over time.
- Tax advantages: Depending on the type of custodial account and the specific investments held, there may be tax benefits associated with earnings.
How to Open a Custodial Account
Opening a custodial account is a straightforward process, Here’s what you need to do:
- Choose a reputable broker: Select a broker that offers custodial accounts and aligns with your investment goals and risk tolerance.
- Gather necessary documents: You’ll need to provide identification for both the adult custodian and the minor beneficiary, along with the minor’s Social Security number.
- Complete the application: Fill out the application form provided by the broker, providing all required information.
- Fund the account: Deposit funds into the account to start investing.
Investing for Teens: Tips and Resources
If you’re a teenager interested in investing, here are some tips and resources to help you get started:
- Talk to your parents or guardians: Discuss your interest in investing and explore the possibility of opening a custodial account together.
- Do your research: Learn about different investment options, such as stocks, bonds, and mutual funds. Understand the risks and potential returns associated with each.
- Start small: Begin with a small investment amount to gain experience and confidence before committing larger sums.
- Use educational resources: Take advantage of online resources, books, and investment simulators to enhance your knowledge and understanding.
Investing in Stocks: A Long-Term Journey
Remember, investing in stocks is a long-term endeavor. Don’t expect to get rich quick. Instead, focus on building a diversified portfolio of investments that align with your financial goals and risk tolerance
Select your investments
It’s now time to choose the kind of stocks you want to purchase. The two primary categories are as follows, but we’ll go into more detail in the section below.
- Individual stocks, like Amazon or McDonald’s. Individual stock investing is typically riskier and necessitates more investigation.
- Stock index funds, like the S&P 500. These funds distribute your risk by making simultaneous investments in hundreds of stocks.
Selecting an index fund is a great place to start if you’ve never invested before.
It’s now time to actually buy something! You will need to transfer the money from your bank account if you haven’t already. You can begin purchasing after they are deposited into your investment account.
To buy stocks, you must place a buy order. You just need to enter the name of the stock you wish to purchase, the desired number of shares (or desired dollar amount), and the order type to accomplish this.
For beginners, using the “market” order is simplest. This indicates that the deal will close at the stock’s current market price. A “market” buy order for ten shares of XYZ stock will be filled at the going rate of $11 per share ($110 total) if you place the order at that price.
Additionally, a “limit” order lets you specify the amount you’re willing to pay. Say, for instance, that you wish to purchase ten shares of XYZ at a price of $9 each. In this instance, unless XYZ begins trading at $9 or less per share, the order will not be fulfilled.
9:30 am to 4:00 pm is the designated trading time for stocks. ET. Your trade will be executed on the following trading day if you place an order outside of these hours.
What about retirement accounts?
Investment accounts known as retirement accounts provide tax advantages to individuals who save for their future. Do they, however, have any differing regulations about the minimum age of investment?
In other words, the minimum age requirement of 18 for retirement accounts remains the same. However, parents can open custodial retirement accounts for their minor children.
But there’s another requirement for retirement accounts that keeps a lot of minors from using them: in order to contribute to a retirement account, you have to be an earner.
“Earned income” is money received from a job, company, or side project. It does not include gifts, allowance, or anything like that.
Thus, a 16-year-old who works during the summer could ask their parent or legal guardian to open a Roth IRA that is kept in custody for them. They could then use a portion of the money they make from their jobs to make contributions to the account.
But a 16-year-old who receives gifts and allowances only isn’t allowed to contribute to a retirement account.
A custodial Roth IRA is a wise choice for a minor who wants to save money for retirement and does have income.
You can invest and make contributions to a Roth IRA account, and your investments will grow tax-free. You can take money out of your retirement account without having to pay income taxes on it. This can significantly increase your investment returns and lower your tax liability over time.
How To Invest For Teenagers
FAQ
Can you buy stocks at 16?
Can a 16 year old have stock?
Can a 12 year old invest in stocks?
How old do you have to be to buy stocks?
Learn how old you have to be to buy stocks and how to invest for children. In the United States, you have to be at least 18 years old to trade stocks and other investments, such as mutual funds and ETFs. However, someone of legal age can open a custodial account for the benefit of a minor.
Can a 18 year old invest in stocks?
Minors under the age of 18 can’t trade stocks in the U.S., but adults can invest on their behalf. Learn how old you have to be to buy stocks and how to invest for children. In the United States, you have to be at least 18 years old to trade stocks and other investments, such as mutual funds and ETFs.
Can a child own a stock if he is under 18?
For a child or teenager below the age of majority (usually 18) to own stocks, it gets a little more complicated. Those investments are held in a custodial type account. Those accounts are often known as a Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) accounts.
How old do you have to be to buy shares?
Once you have cash in your account, shares in companies all around the world can be purchased with a few clicks of a button. You must be at least 18 years old to invest in the stock market. Anyone younger will need an adult to do it for them. When you go to a regular shop, the price you paid on Monday is usually the same the following Friday.