Are you wondering when you can start investing in the stock market? Maybe you’re a teen eager to grow your money or perhaps you’re a parent wanting to teach your kids about investing. Either way, understanding the age requirements for buying stocks is crucial for young investors taking their first steps into the financial world.
The Minimum Age to Buy Stocks: What You Need to Know
Let’s cut to the chase – in most places, you need to be at least 18 years old to open your own brokerage account and invest in the stock market independently. This is the standard legal age when you’re considered an adult who can enter into binding contracts.
But don’t worry! If you’re younger than 18, you still have options to start investing – you’ll just need some help from the adults in your life.
How Teens Under 18 Can Invest in Stocks
Just because you can’t open your own account doesn’t mean you can’t invest. Here are your main options if you’re under 18:
1. Custodial Accounts
A parent or guardian can open what’s called a “custodial account” on your behalf. Here’s how they work:
- An adult (the custodian) manages the account until you reach the age of majority (usually 18-21, depending on your state)
- The money legally belongs to you, but the custodian makes all investment decisions
- When you reach the age of majority, the account automatically becomes yours
- Popular types include UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts
2. Fidelity Youth Account
If you’re 13 or older, Fidelity offers a special account called the Fidelity Youth Account. What makes this different from a regular custodial account is that YOU get to make the investment decisions!
As Kelly Lannan, Vice President at Fidelity explains “The parent or guardian has access, they have transparency But they do not need to do things like approve trades. This experience allows a teen to learn by doing”
Some cool perks of this account include
- No account fees
- No minimum balance requirements
- A debit card with no ATM fees in the U.S.
- The ability to make your own investment decisions
3. Roth IRA for Kids
A Roth IRA for Kids is another type of custodial account specifically designed for retirement savings. The big requirement here is that you need to have earned income from somewhere – whether that’s a part-time job, babysitting, or even acting in a commercial!
“Let’s say your 9-month-old child stars in a commercial and they earn money. They’re going to get a 1099 as a contractor, so the IRS can clearly track that. But babysitting money or mowing the lawn also counts,” explains Lannan.
The beauty of Roth IRAs is that the money grows tax-free and withdrawals after age 59½ are tax-free too.
Benefits of Starting Young: The Magic of Compound Interest
One of the biggest reasons to start investing early is something called “compound interest” – basically, your money makes money, and then that new money makes even more money!
Time is literally the secret ingredient to potential investing success. The longer your money is invested, the more potential it has to grow. And the math proves it!
Consider this example from Fidelity: If someone starts saving $500 per year from ages 13-19, then $1,000 per year from ages 20-24, and finally $3,000 per year from age 25 until retirement at 67, they’ll end up with significantly more money than someone who starts at age 25 with $3,000 per year.
Why? Because those early investments have more time to grow and compound!
What Makes the Stock Market Move?
Before jumping in, it’s good to understand how the stock market works. The stock market is basically like an online supermarket where you can buy and sell small portions (shares) of companies. But unlike a regular store, prices change constantly throughout the day.
When you hear that “the stock market is up” or “the stock market is down,” they’re usually talking about indexes like:
- S&P 500: The 500 biggest companies in the U.S.
- Dow Jones Industrial Average: 30 big U.S. companies
- Nasdaq: Where tech companies like Apple and Amazon trade
Individual stock prices move up or down based on a company’s expected future profits, while the whole market moves based on bigger events that affect lots of companies – like new regulations, pandemics, or economic news.
Getting Started: How to Actually Buy Stocks
Once you’re 18 (or have a custodial account set up), how do you actually buy stocks? It’s easier than ever!
- Choose a broker (a person or company that buys and sells shares for you)
- Set up an account online
- Transfer money into your account
- Use the broker’s app or website to purchase shares
Today’s online platforms make investing super accessible – you can literally buy stocks with a few clicks on your phone!
Key Terms Every Young Investor Should Know
The stock market has its own language that can be confusing at first. Here are some essential terms to know:
- Shares: Small portions of ownership in companies
- Dividend: A portion of company earnings distributed to investors
- Bid price: The highest price a buyer will pay for shares
- Ask price: The lowest price a seller will accept for shares
- Bullish: Expectations that prices will rise
- Bearish: Expectations that prices will fall
- Capital gain: When you sell an investment for more than you paid
- Ticker symbol: A shorthand way to identify a company’s shares
Tools for Learning About the Stock Market
Wondering how to learn more about investing? Here are some great resources for teens:
Stock Market Games
These let you practice investing without risking real money:
- Investopedia Stock Market Simulator
- The Stock Market Game
- HowTheMarketWorks
- Fantasy Stock Exchange
Books for Teen Investors
- “I’m a $hareholder Kit: The Basics About Stocks—For Kids and Teens”
- “How to Turn $100 into $1,000,000: Earn! Invest! Save!”
- “Growing Money: A Complete Investing Guide for Kids”
- “Blue Chip Kids: What Every Child (and Parent) Should Know About Money, Investing, and the Stock Market”
Online Classes
There are tons of free investment classes online through platforms like:
- Investopedia’s educational content
- Morningstar’s Investing Classroom
- Khan Academy’s online learning platform
Common Questions About Youth Investing
Can teens under 18 trade stocks on their own?
Generally, no – with the exception of specialized accounts like the Fidelity Youth Account (for ages 13+), most teens need an adult to help through a custodial account.
Do minors pay taxes on investment earnings?
Yes, but there are special rules. For children under 19 (or full-time students under 24), investment income above a certain threshold might be taxed at the parent’s higher rate (known as the “kiddie tax”).
What’s the best first investment for a teenager?
Many experts recommend starting with a broad index fund that tracks the S&P 500 or the total stock market. These provide instant diversification across many companies.
How much money do I need to start investing?
Thanks to fractional shares (where you can buy just a piece of one share), you can start investing with as little as $1 on many platforms!
Final Thoughts: It’s Never Too Early to Learn
According to Fidelity’s 2023 Teens and Money Study, 91% of teens say they definitely plan to invest in the future, with 3 out of 4 planning to start before graduating college. This enthusiasm is fantastic!
The stock market really isn’t as complicated as it might seem at first. Once you get past the jargon, it’s an incredibly interesting topic. Most teens are naturally interested in learning how to make money without too much effort, and understanding how their favorite companies operate.
As the Investopedia article puts it: “The stock market isn’t as boring and complicated as you might think.” With the right approach and guidance, teens can start building wealth and financial knowledge that will benefit them for decades to come.
So if you’re a teen reading this – congrats on your interest in investing! And if you’re a parent or guardian, consider helping the young people in your life get started with investing. It truly is one of the best financial gifts you can give them.
Remember, the best time to plant a tree was 20 years ago. The second best time is now. The same goes for investing!
Ready to Start Your Investing Journey?
If you’re under 18, talk to your parents or guardian about setting up a custodial account. If you’re over 18, research different brokerages and find one that fits your needs.
And no matter your age, start learning more about investing through books, games, and online resources. Your future self will thank you!