Investing in stocks is one of the most popular ways to build wealth over time. But if you’re eager to get started, you may be wondering how old you need to be to begin investing in the stock market.
The age requirement depends on where you live, your approach to investing, and whether you want to manage your investments yourself or need a custodian to help you.
In this guide, we’ll go over the rules, different options for getting started, and how age and other factors play a role in stock market investing.
1. Minimum Age to Open a Stock Account
A. Legal Age Requirement
In most countries, you need to be at least 18 years old to open a brokerage account in your name. This is the legal age of adulthood, at which you can legally enter into contracts, including financial agreements like those for stock trading.
- United States: You need to be at least 18 years old to open a traditional brokerage account on your own.
- United Kingdom: The legal age to open a stock trading account is also 18 years old.
- India: In India, the legal age for opening a stock trading account is 18 years old as well.
B. Exceptions for Minors (Under 18)
If you’re under 18, you can still invest in the stock market, but you’ll need a custodial account or a joint account with a parent or guardian. This allows a responsible adult to manage your account until you reach the legal age of adulthood.
- Custodial Accounts: These accounts are opened by a parent or guardian in the name of a minor (under 18). The adult manages the account, but the minor is the owner of the investments.
- U.S. Example: In the U.S., parents can open a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Act) account for children. These accounts allow parents to buy and sell stocks on behalf of their children, with the assets transferring to the child when they reach adulthood.
- Joint Accounts: In some cases, minors can open joint accounts with an adult (like a parent). Both the minor and the adult have control over the account. However, the adult typically has more authority until the minor turns 18.
2. Types of Investment Accounts for Minors
If you’re under 18 and want to invest in stocks, here are some common types of accounts you can use with the help of a parent or guardian:
A. Custodial Accounts (UTMA/UGMA)
- Who Can Open It?: Parents or guardians.
- What It Is: A custodial account allows the adult to manage the funds on behalf of a minor until they reach adulthood (usually 18 or 21, depending on the state or country).
- Benefits: The minor can benefit from the growth of the stock investments, and the account is in their name, meaning they gain control once they turn 18 or 21.
- Investment Options: Stocks, bonds, mutual funds, ETFs, etc.
B. Custodial Roth IRA (Individual Retirement Account)
- Who Can Open It?: A parent or guardian on behalf of a minor.
- What It Is: A Roth IRA is a retirement account where contributions are made after taxes, and withdrawals are tax-free after retirement age. For minors, custodial Roth IRAs allow children to start investing for retirement early.
- Benefits: The earlier you start, the more time your investments have to grow, and compound interest can work in your favor. This is a great way to teach children about long-term investing.
- Investment Options: Stocks, bonds, mutual funds, ETFs.
- Contribution Limits: The minor can contribute a portion of their earned income (such as from a part-time job), up to annual limits set by the IRS (currently $6,500 in 2023).
C. Joint Accounts
- Who Can Open It?: A minor and an adult (usually a parent).
- What It Is: A joint account allows both the minor and the adult to trade stocks, buy and sell securities, and share ownership of the account.
- Benefits: The minor can start trading stocks but is under the supervision of the adult until they reach the legal age of adulthood.
- Investment Options: Stocks, bonds, ETFs, mutual funds.
3. Benefits of Investing as a Minor
Starting early can provide several key benefits, especially for minors who have parents or guardians helping them invest. Here’s why it’s valuable to get involved in the stock market as a young person:
A. Compounding Growth
- One of the biggest advantages of starting early is the compounding effect. The earlier you invest, the more time your money has to grow. A dollar invested at a young age has decades to appreciate, which can make a significant difference when it comes to building wealth.
- Example: If you invest $1,000 at age 16 and earn an average return of 7% per year, that $1,000 will grow to about $7,612 by age 60. The more time you give your money to grow, the more potential it has to multiply.
B. Learning Early
- Investing as a minor helps you learn about financial literacy and wealth-building strategies early on. Understanding how stocks, bonds, and other investments work can benefit you for the rest of your life.
- You can learn the basics of portfolio diversification, risk management, and market fluctuations, which will be useful for making informed financial decisions in adulthood.
C. Building a Long-Term Habit
- Starting young helps build good financial habits that can stick with you throughout your life. Learning how to save, invest, and think about long-term financial goals can set you up for a comfortable future.
D. Tax Advantages
- For minors with earned income, contributing to a Roth IRA or other investment vehicles offers tax advantages, as the contributions are made after taxes and can grow tax-free.
4. How to Get Started Investing in Stocks as a Minor
If you’re under 18 and interested in investing in stocks, here’s how you can get started:
A. Speak with Your Parents or Guardian
- If you are under 18, the first step is to talk to your parents or guardians. They can help you understand the importance of investing and assist you in opening a custodial account or joint account.
B. Choose a Brokerage
- Select a brokerage firm that allows custodial accounts or joint accounts for minors. Many brokerages, such as Fidelity, Charles Schwab, TD Ameritrade, and E*TRADE, offer options for minors to invest with parental oversight.
C. Decide What to Invest In
- Start by learning about different investment options like stocks, ETFs, mutual funds, and bonds. Consider starting with diversified funds or index funds that spread your investment across a wide range of companies, reducing risk.
D. Research and Educate Yourself
- Before making any investments, do your research! There are plenty of online resources, books, and courses that explain stock market investing, financial management, and how to make informed decisions.
5. Conclusion: Age Is Just the Beginning
The minimum age to invest in stocks is typically 18 years old, but there are plenty of ways for minors (under 18) to begin investing under the guidance of a parent or guardian.
Starting early gives you a significant advantage in the long run, allowing your investments to grow through the power of compounding.