In today’s information age, investors and traders are starting to invest in stocks at younger ages. We now have instant access to anything we want to know with the push of a button, thanks to technological advancements. The good news is that financial literacy can be acquired at any age.
But, the real question is, “how old do you have to be to invest in stocks?” To open a brokerage account in your name, most brokerages demand that you be at least 18 years old.
However, there are ways for younger investors to start investing in stocks, which we’ll discuss later in this article. So, let’s get started!
3 Benefits of Investing in Stocks at a Young Age
It’s easier than you think to start investing in your twenties. And your future self will thank you for starting investing in stocks online today. Here are three compelling reasons to invest while you’re still young.
Get compound interest
When you put money into stocks when you’re young, you can significantly boost the amount of money when you’re older. That may seem self-evident at first, but we’re not talking about savings based on your amount.
We’re talking about compound interest. Compound interest refers to reinvesting the money you’ve made from your investments. Your money will grow faster as a result of this snowball effect. The longer you can keep compounding interest going, the more money you can make.
Understanding risks and building resilience
Any financial specialist will tell you that the best approach to navigating a volatile market is to ride it out. Economic situations tend to even out over time. Many people are unaware that age is a crucial issue to consider when assessing risks in investing. Because they have more time until retirement to ride out economic downturns, younger people can invest in more aggressive portfolios with higher overall rates of return.
More opportunities
Life moves at a breakneck pace, much faster than you might expect. There are several accounts of people approaching middle age and suddenly realizing that they have done absolutely little to preserve their future. It’s not a particularly pleasant sensation.
You have more control over your future if you start investing when you’re young. It provides options for you to consider. You don’t have to quit working just because you have a lot of money, but wouldn’t it be nice to have the option? Many people are forced to work because their retirement funds are insufficient.
How Old Do You Have to Be to Invest in Stocks?
Investing is a fantastic strategy to increase your net worth. It’s crucial to emphasize, though, that not everyone has access to it.
To open a stock account, one must typically be 18 years old or older. Some states will not allow persons to invest until they reach the age of 21. As a result, young individuals who want to improve their financial situation will need to find a new way to invest.
The Reason behind Age Restrictions on Buying Stocks
Most states require that you be 21 years old to invest in the stock market. Once you turn 18, you can begin trading in the stock market in some states. Because buying and selling stocks requires signing a contract, you must be at least 18 to begin investing. It’s easy to forget that you’re committing to the transaction by placing your order when you purchase or sell a stock.
A minor cannot enter into a contract legally, and any contract signed by a minor is void. As a result, brokers won’t open a brokerage account for you until you reach the minimum investing age in your state.
Alternate Options for Investing When You’re Not Old Enough
You don’t have to give up investing just because you haven’t attained the age of 18 (or older in some places). Let’s look at the two ways!
Opening a Custodial Account
You’ll need your parent’s or legal guardian’s assistance to buy stocks for kids. Parents have the right to open a stock account for minors and save money in their child’s name under two statutes. The Uniform Transfer to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA) are the two pieces of legislation you can invest in before 18.
When you reach the legal age in your state to start investing on your own, you will be given custody of the custodial account and all of its assets. Also, you will be able to invest in it as an adult.
Opening a State-Sponsored Investment Account
This strategy will also necessitate assistance from your parents or legal guardians. The 529 Savings Plan allows you to set up a state-sponsored investing account.
Your parents must open the account for you, but they can make you a beneficiary. As a result, you’ll be able to access the account’s funds for all of your educational expenses.
Conclusion
Adults aged 18 to 21 are eligible to open a brokerage account. On the other hand, young people do have options if their parents are prepared to get involved.
Custodial accounts, such as UTMA or UGMA, allow parents to invest in their children or other beneficiaries. You might also set up a 529 or Coverdell plan to save for your children’s education.
However, investing in stocks is not authorized until you reach the age of majority. Once a custodial account is funded, your parent or legal guardian may let you direct the investments, but the account will stay in your guardian’s name.
FAQs
How old do you have to be to start buying stock?
Stocks can be purchased at any age. If you're under 18, you'll need a guardian to set up a custodial account. You can open an account and start buying shares on your own after you reach the age of 18.
Is investing under 18 illegal?
Mutual funds, stocks, and other financial assets cannot be owned outright by those under 18. You can only invest as a juvenile through a custodial account under the supervision of your parent (or an adult).
How can I invest before turning 18?
Why is there an age requirement for investing?
The basic answer is that stock trading is a contract, and minors are not permitted to sign contracts. A minor's contract is null and void. In general, children are assumed to be unaware of their actions. As a result, when a minor enters a contract, s/he has the option of honouring or voiding it.
I'm Not Old Enough, but How Can I Start Investing in stocks?
Even if you aren't old enough to legally create your own brokerage account, there are various options for investing in the stock market today. Most people open a brokerage account for the child and link custodial accounts with kids investing.
