Table of contents:
How To Start Trading Stocks Under 18 – Learn more about what age you can start investing in stocks and what to do if you are under 18.
Stocks represent fractional ownership of companies. For example, if you own Amazon stock, you technically own a small piece of Amazon!
How To Start Trading Stocks Under 18
As the company grows, so does the value of your stock. Over time, this can lead to significant wealth creation.
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And the earlier you can start, the better. But how old do you have to be to invest in stocks?
You must be at least 18 years old to open your own account and invest in stocks. However, there are ways around this rule that allow minors to invest with the help of a parent or guardian.
To invest in stocks, you need a stock brokerage account. This account will give you access to the stock market, where shares of publicly traded companies are traded. These accounts are available from companies such as Fidelity, Schwab, and Vanguard. All standard brokerage accounts have a minimum age requirement of 18.
Fortunately, there is a special type of account called a custodial investment account. This type of account has 2 account holders: the beneficiary and the custodian.
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The custodian must be at least 18 years old, and they are the ones who actually opened the account and manage it. The beneficiary may be under 18, but, although they technically own the account, they do not directly control it.
The custodian remains in control of the account until the beneficiary turns 18, at which point the beneficiary can sell the assets or take over management of the account.
Parents and guardians often act as custodians of the account — although technically, any legal adult can be a custodian. So a grandparent or even a family friend can open a custodial account for a minor.
Key takeaway: An individual must be at least 18 to open their own brokerage account and buy stocks, but an adult can help set up a custodial investment account for a minor.
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If you’re just starting out (and you’re over 18), a standard brokerage account is a good option. Retirement accounts are also useful, but they have many restrictions and rules.
Once you have decided which type of account to use, you need to choose where to open it. You can open any of the accounts listed above with a reputable broker, such as Vanguard, Fidelity, or Schwab.
Other account types are also offered by newer investment apps, such as Robinhood or Webull. These apps are simple to use but usually have less advanced features and a limited selection of accounts/investments.
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After choosing the broker you want to use, you can open an account following their instructions. Brokers require a fair amount of information to open an account, but it doesn’t take long. You must provide your:
Next, it’s time to decide what kind of stocks you want to buy. We will discuss this further in the section below, but the 2 main categories are:
If you’re new and just want to get started, choosing an index fund is a good starting point.
Now is the time to pull the trigger and actually buy something! If you haven’t already, you will need to transfer the funds from your bank account. Once you have deposited them into your investment account, you can start buying.
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To buy stocks, you must place a buy order. To do this, simply type in the name of the stock you want to buy, the number of shares you want (or the dollar amount you want to spend), and the order type.
For beginners, using the “market” order is the simplest. This means that the trade goes through the current market price of the stock. If you place a “market” buy order for 10 shares of XYZ stock, and XYZ is trading at $11 per share, the buy order will be filled at $11 per share ($110 total).
You can also place a “limit” order, which allows you to set the price you want to pay. For example, you might say you want to buy 10 shares of XYZ at $9 per share. In this case, the order will not go through unless XYZ starts trading at $9 or less per share.
Stock trading takes place during scheduled trading hours, from 9:30 a.m. to 4 p.m. ET. If you place an order outside of these hours, your trade will be completed on the next trading day.
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Starting your first stocks is exciting! But building real wealth requires a long-term commitment to constant investment.
It is wise to set up automatic transfers to your investment account every month. That way, you can automate your investments and build wealth passively.
You don’t need a huge monthly investment to end up making a lot of money over time. If you invest just $100 per month for 30 years and earn a 10% return, you’ll earn over $208,000!
There are literally thousands of companies you can invest in, plus thousands of mutual funds, exchange-traded funds (ETFs), hedge funds, and more. Where do you start?
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Buy individual stocks. This is buying shares of a certain company because you think the company might do well. This is a very risky strategy and requires more research and time.
Buy stock funds. This is a way to spread your bets using products like index funds and mutual funds. These funds buy baskets of different stocks. When you buy these funds, you are buying a small slice of all the stocks they own.
Specifically, stock index funds are a good option. These funds buy hundreds of stocks and track the performance of the broader stock market.
Funds that track the S&P 500, such as VOO, IVV, and SPY, are very popular. S&P 500 funds own the 500 largest publicly traded companies in America. So when you buy an S&P 500 index fund, you’re buying a much smaller fraction of 500 companies, including Apple, Amazon, Microsoft, and Nike.
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Retirement accounts are a type of investment account that offer tax benefits when you save money for retirement. But do they have different rules about the minimum investment age?
In short, no-retirement accounts have the same minimum age requirement of 18. But there are custodial retirement accounts that parents can open for their minor children.
However, retirement accounts have another requirement that prevents many minors from using them: You must be earning income to contribute to a retirement account.
“Earned income” is income from a job, business, or hobby. It does not include gifts, allowances, or anything like that.
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So, for example, a 16-year-old with a summer job can ask their parent or guardian to open a custodial Roth IRA for them. They can contribute to the account with some money they earn from their job.
If a minor has income and wants to save for retirement, a custodial Roth IRA is a good option.
A Roth IRA account allows you to contribute and invest funds, allowing the investments to grow tax-free. Once you retire, you can withdraw the funds without paying any income tax. In the long run, this can improve your investment returns and reduce your tax liability.
Minors can use “custodial” investment accounts. The account holder must be above the age of 18 and willing to open the account for the minor.
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Custodial accounts are usually opened by parents or guardians—although technically, any legal adult can serve as a custodian.
The custodian must open the broker’s account using their own information and the minor’s. From there, the custodian manages the account and the investments—but the minor can play a role in making joint investment decisions.
For example, a daughter may ask her mother to open a custodial account for her. From there, they can work together to set up the account, make deposits, and choose investments.
The custodian will retain legal control of the account until the minor becomes an adult. Once the minor turns 18, control of the account is transferred to their name. This may happen automatically or require a manual process—it depends on the type of account and where the account is held. Note: In some states and for some accounts, the account may not be transferred until the minor reaches the age of 25.
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Except for the need to use a custodial account, investing as a minor is the same as investing as an adult.
UGMA/UTMA custodial accounts: These are the “standard” types of custodial investment accounts available today. The acronyms stand for the Uniform Gifts to Minors Act and the Uniform Transfers to Minors Act, respectively. These accounts can be opened by any adult for a minor. There are no restrictions on contributions, and the money can be used for any purpose once withdrawn. Controlling transfers of account assets to minors when they turn 18 to 25 (this varies by state).
Custodial retirement accounts: These are retirement-specific accounts, such as custodial Roth IRAs. These accounts offer many tax benefits but come with many restrictions. For contributions, the minor must have earned income and cannot contribute more
